Union Square Ventures is banking on personal loans and peer-to-peer investing as it leads a $25 million into Lending Club, a platform where users can take out personal loans or invest in them. All of Lending Club’s existing investors also participated in the round, including Morgenthaler Ventures, Norwest Venture Partners, and Canaan Partners. The round brings Lending Club’s total raised to $77.7 million.
Founded in 2006, the platform offers the best of both worlds to investors and borrowers alike. Because Lending Club only focuses on prime and super-prime loans, the platform can promise peace of mind and solid returns to investors, as well as low interest rates to borrowers. The average Lending Club APR is just 6.78%, compared to the national average of 12.38%.
And depending on the loan grade, investors can earn annual returns of 6%-12%. For example, if an investor puts $100,000 into 36-month Grade C notes, which yield a return of 9%, that investor will see $3,200 a month in cash payments.
Because Lending Club only approves top-of-the-line borrowers, only 10% of all applications make the cut, and the average borrower has a 714 FICO score, 14.5 years of credit history, and $96,500 in personal income.
And Lending Club’s platform is drawing a lot of Internet users. With over 100% growth every year, it’s the only financial institution to match the growth pace of a social media company. To date, Lending Club has issued over $325 million in loans.
“We have a long history of helping develop large online networks,” said Fred Wilson, managing partner at Union Square Ventures. “We believe Lending Club will surpass the largest US banks in the next decade both in size and performance because it leverages the power of the network to grow faster, get smarter and become increasingly more efficient over time.”
The investment represents the largest initial investment USV has ever made in a company. The firm will join Lending Club as a board observer.
While Lending Club says it didn’t need the capital, it plans to use the new funds to expand its management team, products, and infrastructure. It also appreciates having the “comfort of cash in the bank.”