Goldman Conference
Goldman Conference December 4, 2012
Disclaimer Some of the statements in this presentation are "forward-looking statements“ or are projections. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forwardlooking statements contain these identifying words. The Company may not actually achieve the plans, intentions or expectations disclosed in forwardlooking statements, and you should not place undue reliance on forwardlooking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Past performance is no guarantee of future results. Investments may lose value over time and no return is guaranteed. Information presented is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Confidential
2
Corporate Overview
Confidential
3
Key Metrics Lending Club originates loans to prime consumers and lets investors fund the loans at the time of origination
130 employees1 $1Bn+ loans funded to date $83M new loan origination per month2 $48M annual run-rate revenue3 Raised $100M+ in equity capital $58M in cash & securities4 No debt Cash flow positive5
1. As of 11/16/2012 2. As of October 2012 3. Based on annualized October 2012 management reporting (non-GAAP) revenue 4. As of 9/30/12 - includes restricted cash 5. Fiscal Quarter ended 9/30/12
Confidential
4
Lending Club Overview
Loans Funded by Investors
Confidential
5
Model Lowers Intermediation Costs Traditional Lender Operating Expense1 5-7%
Operating Expense 1,2 2.0%
Branch Infrastructure
Technology Drives Cost Down Reserve Requirements
Customer Acquisition Customer Acquisition
Underwriting Underwriting
Origination
Origination Servicing
Servicing 1. Operating expenses as a percentage of outstanding loan balance 2. October 2012 annualized operating expenses as a percentage of outstanding loan balances assuming no growth in origination volume
Confidential
6
Experienced, Diverse Team Management Renaud Laplanche CEO Founded MatchPoint and sold to Oracle Fmr. securities lawyer at Cleary Gottlieb
Chaomei Chen Chief Risk Officer Fmr. Chief Risk Officer at JPMorgan Chase Card Services
Carrie Dolan CFO Fmr. Corporate Treasurer, Schwab Corp. and CFO Schwab Bank Fmr. CFO Chevron Credit Bank
John MacIlwaine Chief Technology Officer
Scott Sanborn CMO Fmr. Head of Mktg. Home Shopping Network Fmr. CMO & President of Red Envelope Fmr. CMO eHealth
Jason Altieri General Counsel
Fmr. CTO Green Dot, Morgan Stanley Dean Witter and Head of Global Development at Visa
Fmr. Partner at SNR-Denton Fmr. Partner at Mintz Levin
Renaud Laplanche
John Mack
Mary Meeker
CEO Lending Club
Fmr. Chairman & CEO, Morgan Stanley Fmr. CEO, Credit Suisse First Boston
Investment Partner, Kleiner Perkins Fmr. Equity Research, Morgan Stanley
Rebecca Lynn
Dan Ciporin
Jeff Crowe
Partner, Morgenthaler Ventures Fmr. VP Marketing, NextCard
General Partner, Canaan Partners Fmr. EVP, MasterCard
General Partner, Norwest Venture Partners Fmr.. CEO Edify
Board of Directors
Leading Investors
Confidential
7
Confidential October-12
August-12
June-12
April-12
February-12
December-11
October-11
Cumulative Originations
August-11
June-11
April-11
February-11
December-10
October-10
August-10
June-10
April-10
February-10
December-09
October-09
August-09
June-09
April-09
February-09
December-08
October-08
August-08
June-08
April-08
February-08
December-07
October-07
August-07
June-07
$ Millions
November 5th: $1,000,000,000 February 2012: $500M
1,000
900
800
700
600
500
400
300
200
100
0
8
Monthly Originations 80 70
$ Millions
60 50 40 30 20 10 -
Confidential
9
Relative Size of U.S. Consumer Credit ($ in Billions) 1,2
$15,953
1
$2,737 $1
$852
1
Credit Card 1. 2.
Consumer Credit (Non-Housing)
All Consumer Credit
Federal Reserve G.19 report published November 2012 Mortgage Debt Outstanding report as of September 2012
Confidential
10
Borrower
Confidential
11
Prime Borrowers Choose Lending Club
Borrower Profile1 715 FICO 32 years old
$68,831 income $12,159 loan
Balance Transfer
New Purchase
Risk-Based Pricing Provides Lower Rates to Best Credit Quality Borrowers
Need Credit, not Credit Card Low Cost & Convenience Drive Adoption
Low Rates
Convenience
Not a Bank
Isolate Lower Risks Technology Drives Costs Down
Online / Paperless 24x7
Customer Friendly No Hidden Fees
1. Borrower averages as of November 8, 2012
Confidential
12
Ranking Power of Our Pricing Model 1
2
2
1. Retroactive analysis from Q2-Q4 2010 using actual Lending Club data and inferred third party data 2. KS score measures the predictive power to rank risk where a higher score should result in better credit performance
Confidential
13
Investor
Confidential
14
Developing Ecosystem Supports Growth
2009
Current External Ecosystem
Target External Ecosystem
External Ecosystem Self Directed Retail
Confidential
High Net Worth / Family Offices
3rd Party Managers
Credit Structure
Institutional Direct
15
How It Works We risk rank each loan into one of 7 grades (each with 5 subgrades)
A Grade
B Risk / Reward
Grade
C Grade
D Grade
E Grade
F Grade
G Grade
Investors build portfolios by investing in tens or hundreds of fractions of loans selected based on investment objectives and risk parameters
7.51% 11.62% 14.37% 17.03% 19.18% 21.48% 22.31%
Average interest rates as of 11/8/2012
Confidential
16
High Returns & Low Volatility Net Annualized Returns by Grade Since Inception
4
Net Annual Return of individual grades as of November 8, 2012. Top 50% and Bottom 50% are dollar-weighted averages of individual loan performances for each grade calculated from either the best performing half or the worst performing half, respectively, of all loans outstanding in each grade from inception to 8/08/12 (the "Period"), measured from inception through 11/08/12. In practice, if a portfolio of Notes was created from the worst performing half of the loans in a specific grade issued during the Period, the return would be roughly equivalent to the Bottom 50% of that specific grade as depicted in the chart above. Conversely, if a portfolio of Notes was created from the best performing half of the loans in a specific grade issued during the Period, the return would be roughly equivalent to the Top 50% of that specific grade as reported in the chart above. To be included in the Net Annualized Returns calculation, a Note must have been originated at least 3 months prior to the calculation date. 5
Confidential
17
Preservation of Capital
Return calculations based on accounts that have invested in 800 or more unique borrowers. 800 Notes can be purchased with $20,000. All data as of November 8, 2012. The availability of Notes/unique borrowers is dependent on your investment criteria. There is no guarantee that you will be able to invest in 800 or more Notes/unique borrowers promptly, if at all. The foregoing is not directed to the specific investment objectives, financial situation or investment needs of any particular person and should not be considered investment advice. You should consider reviewing the prospectus with a financial advisor prior to investing. Past performance is no guarantee of future results.
Confidential
18
Regulatory & Financial
Confidential
19
Regulatory Overview
FDIC
SEC + State Regulators
UT DFI
Notes
$ Federal + State Regulators
Self Directed Investors
Servicing
SEC
SEC (IA) Managing
Confidential
Funds & SMAs
20
Strong Revenue Growth Annual
Monthly
$MM
$MM
Y/Y Growth
179%
117%
181%
M/M
8.3%
14.9%
17.4%
14.6%
9.8%
8.9%
Note: Fiscal year ends March 31 FY’13 includes actuals from April 2012 – October 2012
Confidential
21
Operating Efficiency Borrower + Investor Acquisition Costs
Total Operating Expenses
As a % of Originations
As a % of Revenue
Origination & Servicing Marketing & Sales G&A Expense
Note: Fiscal year ends March 31 FY’13 includes actuals from April 2012 – October 2012
Confidential
22
Operating Margin & Cash Operating Margin % of Revenue
Ending Cash $MM
Unrestricted Restricted
Note: Fiscal year ends March 31 Non-GAAP operating margin excludes share-based compensation, depreciation and amortization
Confidential
23
Target Operating Model Non GAAP
Revenue % of Originations
Origination & Servicing Cost % of Originations
Marketing & Sales % of Originations
Contribution Margin % of Revenue
Operating Margin % of Revenue
FY 2012
FY 2013 (est.)
Target Model
4.87%
4.75%
4.70% - 4.85%
1.55%
0.97%
0.60% - 0.70%
2.52%
1.63%
1.65% - 1.75%
-6%
34%
50%
-71%
-3%
35%
Note: Fiscal year ends March 31 Non-GAAP operating margin excludes share-based compensation, depreciation and amortization
Confidential
24
Summary Fast Growth
More than doubling each year for the last 3 years
Large Market
Trillions of dollars
Positive Cash Flow
Cash flow positive while growing fast and investing heavily in the business
Limited Competition
No meaningful direct competition
High Entry Barriers
Regulatory approvals, technology, track record
Confidential
25
Disclaimer Some of the statements in this presentation are "forward-looking statements“ or are projections. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forwardlooking statements contain these identifying words. The Company may not actually achieve the plans, intentions or expectations disclosed in forwardlooking statements, and you should not place undue reliance on forwardlooking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. The Company does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Past performance is no guarantee of future results. Investments may lose value over time and no return is guaranteed. Information presented is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Confidential
2
Corporate Overview
Confidential
3
Key Metrics Lending Club originates loans to prime consumers and lets investors fund the loans at the time of origination
130 employees1 $1Bn+ loans funded to date $83M new loan origination per month2 $48M annual run-rate revenue3 Raised $100M+ in equity capital $58M in cash & securities4 No debt Cash flow positive5
1. As of 11/16/2012 2. As of October 2012 3. Based on annualized October 2012 management reporting (non-GAAP) revenue 4. As of 9/30/12 - includes restricted cash 5. Fiscal Quarter ended 9/30/12
Confidential
4
Lending Club Overview
Loans Funded by Investors
Confidential
5
Model Lowers Intermediation Costs Traditional Lender Operating Expense1 5-7%
Operating Expense 1,2 2.0%
Branch Infrastructure
Technology Drives Cost Down Reserve Requirements
Customer Acquisition Customer Acquisition
Underwriting Underwriting
Origination
Origination Servicing
Servicing 1. Operating expenses as a percentage of outstanding loan balance 2. October 2012 annualized operating expenses as a percentage of outstanding loan balances assuming no growth in origination volume
Confidential
6
Experienced, Diverse Team Management Renaud Laplanche CEO Founded MatchPoint and sold to Oracle Fmr. securities lawyer at Cleary Gottlieb
Chaomei Chen Chief Risk Officer Fmr. Chief Risk Officer at JPMorgan Chase Card Services
Carrie Dolan CFO Fmr. Corporate Treasurer, Schwab Corp. and CFO Schwab Bank Fmr. CFO Chevron Credit Bank
John MacIlwaine Chief Technology Officer
Scott Sanborn CMO Fmr. Head of Mktg. Home Shopping Network Fmr. CMO & President of Red Envelope Fmr. CMO eHealth
Jason Altieri General Counsel
Fmr. CTO Green Dot, Morgan Stanley Dean Witter and Head of Global Development at Visa
Fmr. Partner at SNR-Denton Fmr. Partner at Mintz Levin
Renaud Laplanche
John Mack
Mary Meeker
CEO Lending Club
Fmr. Chairman & CEO, Morgan Stanley Fmr. CEO, Credit Suisse First Boston
Investment Partner, Kleiner Perkins Fmr. Equity Research, Morgan Stanley
Rebecca Lynn
Dan Ciporin
Jeff Crowe
Partner, Morgenthaler Ventures Fmr. VP Marketing, NextCard
General Partner, Canaan Partners Fmr. EVP, MasterCard
General Partner, Norwest Venture Partners Fmr.. CEO Edify
Board of Directors
Leading Investors
Confidential
7
Confidential October-12
August-12
June-12
April-12
February-12
December-11
October-11
Cumulative Originations
August-11
June-11
April-11
February-11
December-10
October-10
August-10
June-10
April-10
February-10
December-09
October-09
August-09
June-09
April-09
February-09
December-08
October-08
August-08
June-08
April-08
February-08
December-07
October-07
August-07
June-07
$ Millions
November 5th: $1,000,000,000 February 2012: $500M
1,000
900
800
700
600
500
400
300
200
100
0
8
Monthly Originations 80 70
$ Millions
60 50 40 30 20 10 -
Confidential
9
Relative Size of U.S. Consumer Credit ($ in Billions) 1,2
$15,953
1
$2,737 $1
$852
1
Credit Card 1. 2.
Consumer Credit (Non-Housing)
All Consumer Credit
Federal Reserve G.19 report published November 2012 Mortgage Debt Outstanding report as of September 2012
Confidential
10
Borrower
Confidential
11
Prime Borrowers Choose Lending Club
Borrower Profile1 715 FICO 32 years old
$68,831 income $12,159 loan
Balance Transfer
New Purchase
Risk-Based Pricing Provides Lower Rates to Best Credit Quality Borrowers
Need Credit, not Credit Card Low Cost & Convenience Drive Adoption
Low Rates
Convenience
Not a Bank
Isolate Lower Risks Technology Drives Costs Down
Online / Paperless 24x7
Customer Friendly No Hidden Fees
1. Borrower averages as of November 8, 2012
Confidential
12
Ranking Power of Our Pricing Model 1
2
2
1. Retroactive analysis from Q2-Q4 2010 using actual Lending Club data and inferred third party data 2. KS score measures the predictive power to rank risk where a higher score should result in better credit performance
Confidential
13
Investor
Confidential
14
Developing Ecosystem Supports Growth
2009
Current External Ecosystem
Target External Ecosystem
External Ecosystem Self Directed Retail
Confidential
High Net Worth / Family Offices
3rd Party Managers
Credit Structure
Institutional Direct
15
How It Works We risk rank each loan into one of 7 grades (each with 5 subgrades)
A Grade
B Risk / Reward
Grade
C Grade
D Grade
E Grade
F Grade
G Grade
Investors build portfolios by investing in tens or hundreds of fractions of loans selected based on investment objectives and risk parameters
7.51% 11.62% 14.37% 17.03% 19.18% 21.48% 22.31%
Average interest rates as of 11/8/2012
Confidential
16
High Returns & Low Volatility Net Annualized Returns by Grade Since Inception
4
Net Annual Return of individual grades as of November 8, 2012. Top 50% and Bottom 50% are dollar-weighted averages of individual loan performances for each grade calculated from either the best performing half or the worst performing half, respectively, of all loans outstanding in each grade from inception to 8/08/12 (the "Period"), measured from inception through 11/08/12. In practice, if a portfolio of Notes was created from the worst performing half of the loans in a specific grade issued during the Period, the return would be roughly equivalent to the Bottom 50% of that specific grade as depicted in the chart above. Conversely, if a portfolio of Notes was created from the best performing half of the loans in a specific grade issued during the Period, the return would be roughly equivalent to the Top 50% of that specific grade as reported in the chart above. To be included in the Net Annualized Returns calculation, a Note must have been originated at least 3 months prior to the calculation date. 5
Confidential
17
Preservation of Capital
Return calculations based on accounts that have invested in 800 or more unique borrowers. 800 Notes can be purchased with $20,000. All data as of November 8, 2012. The availability of Notes/unique borrowers is dependent on your investment criteria. There is no guarantee that you will be able to invest in 800 or more Notes/unique borrowers promptly, if at all. The foregoing is not directed to the specific investment objectives, financial situation or investment needs of any particular person and should not be considered investment advice. You should consider reviewing the prospectus with a financial advisor prior to investing. Past performance is no guarantee of future results.
Confidential
18
Regulatory & Financial
Confidential
19
Regulatory Overview
FDIC
SEC + State Regulators
UT DFI
Notes
$ Federal + State Regulators
Self Directed Investors
Servicing
SEC
SEC (IA) Managing
Confidential
Funds & SMAs
20
Strong Revenue Growth Annual
Monthly
$MM
$MM
Y/Y Growth
179%
117%
181%
M/M
8.3%
14.9%
17.4%
14.6%
9.8%
8.9%
Note: Fiscal year ends March 31 FY’13 includes actuals from April 2012 – October 2012
Confidential
21
Operating Efficiency Borrower + Investor Acquisition Costs
Total Operating Expenses
As a % of Originations
As a % of Revenue
Origination & Servicing Marketing & Sales G&A Expense
Note: Fiscal year ends March 31 FY’13 includes actuals from April 2012 – October 2012
Confidential
22
Operating Margin & Cash Operating Margin % of Revenue
Ending Cash $MM
Unrestricted Restricted
Note: Fiscal year ends March 31 Non-GAAP operating margin excludes share-based compensation, depreciation and amortization
Confidential
23
Target Operating Model Non GAAP
Revenue % of Originations
Origination & Servicing Cost % of Originations
Marketing & Sales % of Originations
Contribution Margin % of Revenue
Operating Margin % of Revenue
FY 2012
FY 2013 (est.)
Target Model
4.87%
4.75%
4.70% - 4.85%
1.55%
0.97%
0.60% - 0.70%
2.52%
1.63%
1.65% - 1.75%
-6%
34%
50%
-71%
-3%
35%
Note: Fiscal year ends March 31 Non-GAAP operating margin excludes share-based compensation, depreciation and amortization
Confidential
24
Summary Fast Growth
More than doubling each year for the last 3 years
Large Market
Trillions of dollars
Positive Cash Flow
Cash flow positive while growing fast and investing heavily in the business
Limited Competition
No meaningful direct competition
High Entry Barriers
Regulatory approvals, technology, track record
Confidential
25
