Chris Larsen, CEO of Prosper, recently called me to discuss his company and some of the exciting new developments in the works.
Following the conversation, I thought a bit about my first impression of Chris. I can tell you first hand, the guy is a straight shooter who knows the lending business inside and out. What separates his company from the typical establishment is his love for the individual and community.
“Peer-to-peer borrowing/lending is the purest form of capitalism,” said Larsen.
That’s why after founding E-Loan in 1996, he chose to focus on an entirely new approach to lending. After taking E-Loan public in 1999 and watching it become a great success, he decided it was the right time to sell the business in 2005 and create what is now known as Prosper.
“I was frustrated with what E-Loan couldn’t do,” said Larsen. “On one hand people were getting better rates and service, but on the other hand you still had big banking and the well dressed suit type calling shots at the other end of the table.”
So, with Prosper, Larsen saw an opportunity to challenge conventional wisdom. He knew that if the average Joe could become a lender and essentially make higher fixed income returns, it would be an instant hit. Business is booming, and Prosper has plenty of cash on hand to keep the ball rolling.
His critics aren’t laughing now…
Larsen has about 440 small loans in which he lends money out to various borrowers. He admits the whole lending process can be quite addicting and that initially his lending activity was driven by high return on investment — stemming mainly from lower credit grades.
“In addition to high ROI, I look at the borrower’s delinquency history and if they are connected to a respectable group within the lending community. With the right endorsement, I’ll lend money out to those with poor credit ratings, even HR (the lowest credit rating given to a borrower).
“The great thing about Prosper is that it’s a wonderful tool for building wealth and connecting with other individuals in the community. There is a learning curve, and it takes time to become a seasoned lender. Everyone has their own risk tolerance and investment philosophy. Many people adjust their strategies as market conditions change,” said Larsen
When asked what his biggest blunders were in becoming a lender on Prosper, he responded by saying that he initially only looked at ROI and the story people were telling in their profile.
I expressed my concern about the security of funds and loans made within the Prosper account. He assured me that there was nothing to worry about.
In fact, given the unlikely event that Prosper were to cease operations, the loans made would be transferred over to another managing entity. Also, the money in lender accounts are FDIC insured and are currently backed by the trust account Prosper has with Wells Fargo.
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