Friday, January 29, 2010 is near bankruptcy

Its no secret. has been hemorrhaging cash. Its all in the public SEC filings.

I'm no accountant, but the numbers really jump off the page. Prosper is near bankruptcy.

Prosper's most recent quarterly report, which reports on the company's condition on 9/30/2009 reported $2,079,624 of cash left. That was down from $4,617,954 in the 6/30/2009 report. During this interval, cash was used up at the rate of $27,591 per day.

If you review the quarterly report, you will note that I have excluded a category called "restricted cash". A footnote explains "Restricted cash consists primarily of an irrevocable letter of credit held by a financial institution in connection with the Company’s office lease and cash deposits required to support the Company’s ACH activities and secured corporate credit cards." Gotta keep those ACH transfers rollin', etc. That restricted cash has to stay where it is. Therefore, I only count the cash that isn't in this restricted category.

Assuming a constant cash burn rate, on 11/10/2009 prosper would have had $948,412 of cash left. On that day, Nigel Morris invested $1,000,000., bringing my estimate of prosper's cash to $1,948,412. But then...

Assuming the cash burn rate stayed constant at $27,591 per day, Prosper would have had zero cash as of 1/20/2010, a few days ago!

I'm not saying prosper is bankrupt now. This is merely what would have occurred under this simple scenario. The inside story is surely more complex.

One would expect that as cash dried up, a prudent manager would reduce staff, defer executive salaries, defer accounts payable (ie pay the landlord late, pay the lawyers late, etc). We don't know whether these things have occurred. If they have taken these prudent steps, then another month or perhaps more is possible.

Simple analysis of the public documents indicates that prosper is in desperate need of cash.

The public documents also tells us about's liabilities. The most recently quarterly report lists $434,738 accounts payable, $987,128 accrued liabilities, $281,061 long term debt. Those total to $1.7 million. It seems likely that those liabilities are higher now that it was on the 9/30/09 report date. If so, then zero cash in the bank is really net negative $1.7 million.

Oh but then on 11/10/09, Nigel Morris' invested $1,000,000 in the form of a "bridge loan" (per SEC filings), so that increased liabilities to maybe $2.7 million. That money is surely now spent (see above calculation).

Having zero cash and at the same time $2.7 million in liabilities is quite serious.

You may also notice that I haven't counted the loans or notes (two sides of the same coin) that prosper issued after their restart in 2009. That's because these as far as cash flow is concerned, these two items net out. For every loan prosper makes, there is an equal amount of notes issued to lenders.

I haven't tried to calculate what would happen if a bankruptcy were to occur. I've simply calculated what appears to be happening in the operation of the ongoing business.

There are now two possibilities. We could see a new investment of several million in Prosper during the next few weeks, which would breath new life to their balance sheet, or we could see bankruptcy.

Would be a shame to see this great idea go down. With cash in the bank from a new large investment, and new management, I might even become a customer again.

I'm no accountant, but golly gosh, it sure looks like the situation is coming to a head.

The best discussion among prosper lenders is always found at


  1. Wondering the same thing Fred - nice people lost of cash burn

  2. I've been pulling money out of Prosper as fast as I can and have gotten about 2/3 of my principal out. I really hope they don't go BK before I get everything out...

    Do you think Prosper's business model can work at all? I mean, given the amount of $$ it takes to service each loan, how can it make economic sense?