By Telis Demos, April 9, 2015:
Who are your peers in peer-to-peer lending? John Mack, Vikram Pandit, and Arthur Levitt, to name a few.
PeerIQ, a startup firm that is aims to be the go-to data provider for the growing peer-to-peer lending industry, has raised $6 million in funding from investors—including veteran Wall Street executives, venture capital firm Uprising, and boutique advisor Broadhaven—according to its chief executive.
The backers include Mr. Mack, the former Morgan Stanley CEO; Mr. Pandit, former Citigroup Inc. CEO; Mr. Levitt, the former SEC chairman; Dan Doctoroff, former CEO of Bloomberg LP and deputy mayor of New York City; and Eric Schwartz, the former co-CEO of Goldman Sachs Group Inc.’s asset management unit.
Ram Ahluwalia, co-founder and CEO of New York-based PeerIQ, said the seed funding would help the New York-based startup build up its software to take in and analyze data from the growing universe of loans made through online marketplaces such as LendingClub Corp. and Prosper Marketplace Inc.
Some of these Wall Street “angel investors” have backed other financial-tech startups, too, as excitement grows that banks’ traditional businesses will be hugely altered by new technologies.
Mr. Mack was an early investor in, and is a board member of, Lending Club. He and Mr. Pandit also invested in Dataminr Inc., which analyzes tweets and other data for possible trading signals, and Mr. Pandit is a backer of Orchard, a platform that connects big investors with dozens of online lenders. Mr. Levitt is advising bitcoin companies.
PeerIQ, founded last year, is developing tools that will analyze the performance and underlying risks of peer-to-peer loans, and will sell those tools to large investment firms. It will also create benchmarks for investors to measure their portfolios against.
These loans—which are arranged by the marketplaces, who collect a fee for connecting borrowers and lenders—have been around in some form since just before the financial crisis. Cautious investors have worried that without a full credit cycle’s worth of data, they can’t adequately predict how the loans will perform if the Federal Reserve raises interest rates sharply, or if the economy tumbles and borrowers struggle.
Mr. Ahluwalia said that better data could help spark additional securitizations, or packages of loans that are sliced up and sold to big investors. Because securitizations are rated by agencies such as Moody’s Corp., they are able to be purchased by a wider range of funds. Already, Prosper and Social Finance have had their loans sold via these vehicles.
It will also more broadly give investors more data about borrowers, and how they behave, backers argue. Jerry von Dohlen, partner at Broadhaven Capital Partners, a boutique financial-services investment and advisory firm that is also backing PeerIQ, said that “the availability of this data will create opportunities for companies like PeerIQ to improve the functioning and liquidity of many credit markets, including those beyond [peer-to-peer].”
The irony of Wall Street’s veterans backing the platforms is that it is their old businesses that are being “disrupted.” Together, Prosper, Lending Club and SoFi have arranged over $12 billion worth of loans since 2007. Goldman Sachs Group Inc. analysts recently estimated that of the $843 billion in consumer loans outstanding, over $200 billion could be replaced by online lenders over the next five to ten years.
The fundraising announcement follows on the heels of Prosper closing its own $165 million round, valuing the firm at $1.9 billion. Lending Club is worth $7 billion after its IPO last December, and Social Finance Inc., or SoFi, was worth $1.4 billion after a fundraising earlier this year.