Prosper Lays Off 28% of its Workforce and Closes Salt Lake City Office

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May 3 will go down as a dark day in the history of this industry. First, we had OnDeck’s stock down 34% today after disappointing earnings announced last night. Now we have the first ever major round of layoffs as Prosper announced today they are letting go 171 people or almost 28% of its workforce.

I spoke with representatives from Prosper this afternoon about this big news. But before I get into that conversation below is the official statement from CEO Aaron Vermut:

It’s very difficult to say goodbye to our colleagues, and we’re grateful for their many contributions. Over the past year we invested for growth, but with the recent tightening of the capital markets we are refocusing on our core consumer loans business and building more resiliency into the company. This includes our key asset Prosper Daily. The Prosper loan portfolio continues to perform and meet investor expectations, and as we move forward, our priority remains on underwriting and servicing a high-quality loan product. We’re making these changes now from a position of strength to ensure we continue on our path to long-term success.

Early last year Prosper made their first acquisition that of healthcare lender, American Healthcare Lending. Soon after they announced a new point-of-sale product that they would be trialling through this new healthcare division. This new product did not work out as planned and the majority of layoffs are coming from this division.

In fact 97 of the 171 people laid off came from their healthcare division in Salt Lake City. They are closing down this office although their healthcare lending business will still exist as they continue to make their loans available for patients. But the point of sale business will be shut down – the result of an ill-timed bet on a future product.

Prosper was quick to point out that no one on the risk and underwriting team is being let go. They are “right sizing” the company for the level of volume they are at today and where they expect to be in the near future. Prosper is now focusing completely on its core business: three-year and five-year unsecured consumer loans.

Much has been made in the press of the headwinds facing the industry as investor interest has waned in the past few months. Prosper issued just under $1 billion in new loans in Q1 – its first down quarter since the current executive team took over in early 2013. It is fair to say it is a difficult environment right now for all platforms as traditional sources of funding have dried up. Now having said that, Prosper also reiterated that loans continue to perform, and new capital is still coming in today from Asia, Europe, the Middle East as well as new investors in this country. But it obviously isn’t enough to replace all the money that is leaving.

Prosper would not give a projection for Q2 but I think it is fair to say that they will likely experience another down quarter. Prosper’s viability as a business is not in any imminent danger, however, as they indicated they have more than $100 million in cash on hand.

My Take on the Bad News

There is really no way to sugarcoat this news. Coming on the back of the OnDeck earnings report it really is difficult times right now for this industry. Lending Club reports earnings on Monday and those results will be scrutinized more closely than ever before.

While I am the eternal optimist and I still very much believe in all the good things this industry is doing I have to say that this Prosper news will make the coming weeks and months much more difficult. I feel bad for the people losing their job many of whom I’m sure shared this same optimism for the industry.

I also feel bad for the many platforms who are desperately trying to raise money right now. There has never been a more difficult time to be raising new equity or debt and no doubt we will see some companies not make it this year.

I think it was Ron Suber, President of Prosper, who said it best in his presentation at LendIt last month: “It’s not just about origination growth, it is about building companies that last.” Sometimes you have to take a step backwards in order to ensure your way forward. That is what I think Prosper is doing here.

  • Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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