Tuesday, April 20, 2010

Prosper.com - Series D financing analysis

Prosper has just announced its fourth equity capital round, series D. What follows is a brief analysis of this investment round based on public information.

Prior to the series D round, prosper had 14,752,825 shares of common stock outstanding. (This info from page 82 of Prosper's March 31, 2010 SEC form 10k.)

In the series D round, prosper issued 20,340,705 new shares of common stock for $14.7M. That comes to $0.723 per share. (This info from Prosper's April 20, 2010 SEC form 8K.)

The first thing to notice is that prosper was forced to give away 58% of the company to raise this money. That must have hurt.

How does that price per share compare with prior investment rounds? Here they are for comparison...

04/2005, Series A, 4,023,999 shares for $7,464,450, or $1.875 per share.
02/2006, Series B, 3,310,382 shares for $12,412,301 or $3.776 per share.
06/2007, Series C, 2,063,448 shares for $19,919,009 or $9.692 per share.
04/2010, Series D, 20,340,705 shares for $14,700,000 or $0.723 per share.

In the venture capital business, this is called a "down round". That's one hell of a jump down! From $9.692 to $0.723 is down by a factor of 13.

Although Prosper announced the series D event as a $14.7M round, it brought in only $11.4M of cash. That's because some of the shares in this round were paid for not with cash, but by conversion of the principal and interest Prosper owed on the bridge loans Prosper took out in Nov 2009 and Feb 2010.

If Prosper has continued spending at the rate reported for the quarter ended Dec 31, then it should have about $12.3M in the bank today. I now expect Prosper to begin spending at a greater rate than the December quarter, as it tries to rebuild momentum. If spending increases back to the rate of the quarter ended Oct 31, and revenue stays about the same, then this money would last about a year or so.

Of course I don't know what the future holds.

As always, great discussion among P2P and Prosper.com lenders is found on prospers.org. I hope to see you there!

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