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Posts Tagged ‘prosper’

TechCrunch 50 startup Sprowtt has a radical, yet potentially compelling idea launching today—the startup lets ordinary startups and small businesses conduct a “Sprowtt IPO,” which is basically similar to the traditional IPO process.

Via Sprowtt, anyone can participate in the funding of companies. Potential investors log on to the site, set up a profile with detailed financial and bank account information. Then they are given a list of companies they can invest in based on their financial capabilities. Investors can check out videos of startups, the amount of money the startup has already raised, and their products and see detailed business plans, on which investors can share their comments. Potential investors can also access the offering circulars and shareholder agreements for the startup.

Once an investor decides to put money into a company, he signs the stock subscription agreement, enters the number of shares he wishes to purchase and then the funds are held in escrow until the offering is complete, which happens when the minimum amount for an offering is accumulated. Sprowtt helps to transfer the funds from an investor’s account to the startup.

The Sprowtt platform automates the entire stock offering process, including legal compliance in all states and with the SEC and draws up all of the legal documents (i.e. the shareholder agreement, offering circular) for the startups participating in the marketplace. But it’s not cheap for a startup to do this—Sprowtt says that if a company wants to sell $5 million worth of stock, it will cost them roughly $10,000-$25,000 in compliance fees to IPO.

When there are enough investors for a startup’s IPO, Sprowtt forms a company with these investors, and then invests the chunk of money as an entity instead of as individual investments . Also in the traditional IPO process, a company’s shares go on an exchange, like the Nasdaq, where they can be bought or sold. With Sprowtt’s IPO, there is no exchange, so it’s more of a private investment than an actual IPO.

Expert Panel Q&A (paraphrased)

The experts: Satish Dharmaraj, Lior Zorea, Bradley Horowitz, Tim O’Reilly, Kevin Rose

BH: These companies are all subject to the same restrictions in any other marketplace?

A: We’ve consulted with law firms, they crafted business model, everything is dealt with SEC and Federal government. It’s complex.

BH: Do you vet companies?

A: Yes, we do.

TO: I’m confused. This doesn’t change stock and compliance. Once you are public, you incur those costs.

A: The automation helps with this.

TO: Read Eric Ries’ blog to vet businesses.

SD: When someone buys shares, do they get dividends.

A: It’s all freely tradeable stock. Sort of an alternate to Nasdaq.

KR: How do you plan on attracted companies that aren’t oversubscribed?

A: It’s a big question for us-how to we keep best deals there. But this is a compelling model.

Jason: Which law firm has vetted this?

A: Working with legal counsel. We have had legal counsel in Silicon Valley that has a presence in DC with the SEC. There are things that the law firm will put their stamp on and some that they don’t.

LZ: I think IPOs are on their way back. It’s an interesting idea that other folks have looked at it. Based on my practice, I’m skeptical of this. Securities laws were put in place to protect the folks that didn’t have the means to lose their investments. There are difficult challenges in the securities side.

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Good news for P2P lending and trading platform Prosper as it concludes its 9-month hiatus during which it was not allowed to continue its loan operations in the United States.

The Securities and Exchange Commission is now greenlighting Prosper to facilitate peer-to-peer lending in 14 states with more on the way, borrowing nearly nationwide. Prosper is now the first and thus only Internet auction-based P2P loans platform to have its registration statement declared effective by the SEC, which is evidently good news for other players in the P2P lending industry, such as Lending Club.

SEC’s approval of Prosper’s secondary marketplace, which enables people to loan money directly to other individual and institutional investors, comes a couple of months after the startup had already reignited its lending platform in the State of California.

Chris Larsen, CEO and co-founder of Prosper, is happy the dry period is over:

“With the financial system in crisis, P2P lending – Americans investing in fellow Americans and small businesses – is needed now more than ever. It has been extremely frustrating to be on the sidelines in the teeth of a credit crunch.”

Starting today, Prosper is available to lenders in California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming. Borrowing is permitted in the District of Columbia and all states except Iowa, Kansas, Maine, and North Dakota.

Prosper has raised approx. $40 million in capital to date from Accel Partners, DAG Ventures, Fidelity Ventures and Benchmark Capital, among other investors. The company was the first to introduce the concept of people-to-people lending in the U.S. when it launched in 2006. From the time the startup officially launched up until the time it entered an SEC registration quiet period in October 2008, Prosper claims to have grown to more than 800,000 members, facilitating approximately $180 million in personal loans.

Prosper has now enhanced its auction model to include a so-called hard bid floor for each listing, which helps lenders appropriately price for risk while investing online. The bid floor for each listing is calculated by adding the national average certificate of deposit rate that matches the term of the borrower loan to the minimum estimated loss rate assigned to each listing. In addition, Prosper has lowered its minimum bid requirement to $25 (previously $50), which should make it easier for lenders to diversify, particularly smaller ones.

More details are available on the Prosper blog.

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Prosper, the people-to-people lending service that launched way back in May 2006, has found itself on a rocky road so far. Last October, Prosper suspended new lending in order to register with the Securities and Exchange Commission to create a secondary marketplace for the loans on its site (the SEC wanted to evaluate whether the company should register as a securities broker, as evidenced later when it formally issued its cease-and-desist letter).

But now Prosper is back despite the fact that the SEC hasn’t yet approved its operations, and while they have respected the requested silence up during the six-month hiatus, they haven’t exactly stalled development of the service. The company relaunched its lending services yesterday for the State of California (borrowing can be done throughout the U.S.), and is hoping to take the whole thing nationwide soon.

There are new features, too. Prosper announced its Open Market initiative, which will allow other financial institutions (e.g. auto lenders, small business lenders and community development lenders) to place their already funded loans the Prosper website for auction. The company will vet lenders and require three payments to have already been made on any loan up for sale.

Prosper has raised $40 million in capital to date from Accel Partners and Benchmark Capital, among others. It’s up against well-funded competitors such as Zopa and Lending Club.

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