Let's say its been about a year since your decade-long relationship with the company you co-founded came to a decidedly “it's-definitely-you-not-me” sort of ending, plunging you into a despair so deep that the only path to recovery was – after touring the Alps for a while – launching into a fling with a younger and hipper new business venture. Also assume you completely lack subtlety. What would you call the rebound startup?
On Thursday morning, he is starting a new company, Upgrade, that will compete with Lending Club head-to-head. Upgrade will begin by offering small loans to Americans who want to refinance credit card debt, the bread and butter of Lending Club’s business. The company’s goal is to move into home and auto lending eventually as well.
Laplanche seems to have expended essentially no effort to dispel the suspicion that Upgrade is just LendingClub redux. For one, he brought along LendingClub cofounder Soul Htite. Then he located the new San Francisco office just blocks from the last one. Oh, and Union Square Ventures' John Buttrick, a major booster of the new company, had this to say:
“He has an opportunity to start Lending Club 2.0, and we are excited to be a part of it,” said Mr. Buttrick, who previously worked with Mr. Laplanche as a board observer at Lending Club.
So if this is just LendingClub 2.0, what's the point? Well, there's the fact that Laplanche was fired after the LendingClub board discovered he had personally invested in an outside fund that was actively buying up LendingClub loans, quietly boosting demand during the 2016 online loan slump. And then there was the whole issue of the $22 million in faulty loans that LendingClub tried to sell Jefferies.
But there is a deeper point to Upgrade, and it spells bad news for the peer-to-peer marketplace. Upgrade's major upgrade over LendingClub appears to be that it doesn't actually support honest-to-goodness peer-to-peer lending.
Unlike Lending Club, Upgrade will not sell its loans to small-time investors. Mr. Laplanche is looking only to big institutional money managers, and he said that he already had four large investors on board.
Upgrade is doing away with the quality that made LendingClub such a phenom to begin with, the idea that a turkey farmer in Oregon might peruse a marketplace like LendingClub and end up extending a home renovation loan to a shop teacher in Tampa, bypassing the legacy banking system and ushering in a harmonious new world of algorithmically enabled social lending between equals.
Well that was the idea. It just never really panned out as the industry imagined. Many of the loans offered by LendingClub and its peers ended up in the hands of institutional investors chasing yield, or else securitized by investment banks like Jefferies. Upgrade is just skipping that early formative period and going straight to where the money is.
Clearly Laplanche has changed his tune. In LendingClub's origin story, Laplanche talked about how, when starting up another company, he found it useful to tap his personal friends, i.e. ordinary people, for loans. LendingClub was the institutionalization of that idea.
As it turns out, the story of Upgrade isn't much different – only now Laplanche is friends with a bunch of big-time VCs and rich investors who can serve as the creditors.