Lending Club's Renaud Laplanche Can't Stop Working | Disrupt NY 2014

Transcript

they say that small to medium-sized businesses are the backbone of the economy and uh Lending Club was one of the first that kind of stood up in 2006 to support them um with that service and things have changed in the past eight years there's now a lot more competition in the space so we're going to bring out Lena Ral to talk to Renault llan from L... Read More

Summary

Lena Rao interviews Renaud Laplanche, the CEO of Lending Club, about the company's origins, challenges, and future plans. They discuss the idea behind Lending Club, its early fundraising efforts, the regulatory hurdles they faced, and the growth of institutional lenders on the platform. They also touch on the possibility of becoming a public company, recent funding rounds, and the company's focus on providing affordable credit to responsible borrowers.

Questions & Answers

Q: Why did Renaud Laplanche decide to start Lending Club?

Renaud Laplanche initially intended to go on vacation after selling a previous company, but he got the idea for Lending Club while on holiday. He realized that credit card interest rates were high and there was a big gap between the interest rates charged by banks and the rates earned from savings accounts.

Q: How did Lending Club raise money and what were the challenges?

Renaud Laplanche reinvested some proceeds from the sale of his previous company and convinced investors from that same company to invest in Lending Club. However, there was skepticism and resistance from both the financial industry and the general public, especially after the 2008 financial crisis. It took several years to convince venture capitalists that Lending Club could gain mass adoption.

Q: What were the thoughts during the tumultuous times with the SEC?

Renaud Laplanche explains that running a regulated business like Lending Club required a different creative process. They had to navigate both the challenges of being a technology company and the regulatory hurdles of creating a type of securities that had never been registered with the SEC before. They were proactive in working with regulators and eventually created a legal framework for peer-to-peer lending within the existing securities regulations.

Q: Did Renaud Laplanche ever consider walking away during tough times?

Renaud Laplanche acknowledges that it was hard and there were no guarantees of success. Lending Club had to go on hiatus for several months during the SEC registration process. However, the team believed that it could be done and persevered through the challenges.

Q: What advice would Renaud Laplanche give to startups dealing with regulators?

Renaud Laplanche believes in being open and proactive with regulators, making them a part of the team, and showing them the benefits that marketplace lending can bring to consumers. He suggests engaging with the policy folks at regulatory agencies and demonstrating how marketplaces like Lending Club can provide more affordable credit, more choices, and a transparent marketplace.

Q: How does Renaud Laplanche's legal background help him in his role at Lending Club?

Renaud Laplanche believes that his legal background and experience in dealing with regulators is beneficial in running a startup in a regulated space. While acknowledging that not all lawyers are innovative, he states that every profession has individuals who are passionate about innovation and finding better ways of doing things.

Q: Was there an "aha" moment when Lending Club started gaining momentum?

Renaud Laplanche explains that Lending Club's growth was by design, with a slow build-up to ensure they had the right acquisition channels, underwriting models, and pricing. By the end of 2009, they were confident in their strategies and started to accelerate their growth. Since then, they have been more than doubling their efforts each year.

Q: Who are Lending Club's lenders now?

In addition to individual investors, Lending Club has attracted institutional investors such as pension funds, corporate pension plans, and insurance companies. Renaud Laplanche explains that they aim to have a diverse range of funding sources, including individual investors, to ensure sustainability and the ability to weather different economic environments.

Q: Are there any concerns about institutional lenders pulling out during economic downturns?

Renaud Laplanche emphasizes that while they have some institutional investors, they primarily attract stable, long-term focused ones like pension funds and insurance companies. These types of investors tend to have a more long-term perspective and not overreact to short-term fluctuations. However, Lending Club aims to have a diverse set of funding sources to minimize risk and react differently in different economic environments.

Q: Has Lending Club received acquisition interest from banks?

Renaud Laplanche confirms that there has been a lot of interest from banks to acquire Lending Club. However, he believes that remaining independent allows Lending Club to deliver more value and continue building the marketplace. He sees the company's potential to transform the entire banking system and believes an IPO would be beneficial for brand awareness and signaling long-term commitment.

Q: How has the recent funding round and the addition of new investors impacted Lending Club's plans?

Renaud Laplanche explains that the recent funding round was primarily to finance the acquisition of a company called Springstone. The acquisition helped increase their reach and provided new products, additional data, and distribution channels. The acquisition required a significant investment, so Lending Club had to raise equity and debt to complete the deal.

Q: Is Lending Club planning to enter the subprime market?

Renaud Laplanche asserts that Lending Club has no interest in entering the subprime market. Their focus is on providing affordable credit to responsible borrowers and adding value in that space. While he acknowledges that some companies are making the subprime market more consumer-friendly, Lending Club believes their expertise lies in a different segment of the credit market.

Q: How have the board members, such as John Mack and Larry Summers, helped Lending Club?

Renaud Laplanche describes the board as composed of personalities with complimentary strengths. He mentions Mary Meeker's experience with technology and internet companies, John Mack's leadership capabilities, and Larry Summers' expertise in economics and understanding of Washington. He explains that they have been instrumental in providing guidance and perspective for Lending Club.

Q: How did Lending Club attract investors like Google?

Renaud Laplanche believes that Lending Club's culture and goals align with Google's approach to disintermediating industries and empowering users. He sees similarities between Google's transformation of the advertising market and Lending Club's aim to transform the banking system through technology, data, transparency, and affordability.

Q: What advice does Renaud Laplanche have for entrepreneurs entering industries that are ripe for disruption?

Renaud Laplanche emphasizes the importance of perseverance and patience when starting something new and challenging. He encourages entrepreneurs to understand that disruption may not happen overnight and that building a business in a large market takes time. He advises staying committed to the vision and being prepared to weather the ups and downs along the way.