IPO Alert: Two Ways to Play It

By Matthew Milner, on Wednesday, December 10, 2014

Just a few hours from now, the biggest U.S. tech IPO of the year will get priced…

And tomorrow, it will start trading.

According to The New York Times, it could "rank among the 10 biggest-ever stock market debuts of an Internet company."

If all goes well, it could raise nearly $1 billion.

Investors are falling all over themselves to get into the deal.

But today, I’ll show you a little-known way you can make money from this company…

Even if you never own a single share.

The “Private Bond Market”

Unlike the “Private Stock Market,” where you invest in a private company and receive a stake of the business, today’s article is about the “Private Bond Market.”

The Private Bond Market, also called “Peer-to-Peer Lending,” is where regular people like us pool our capital and lend it to others.

Borrowers use our loans, typically $15,000 to $25,000 in size, to pay down high-interest credit cards, or to make a big purchase like a new car.

Yes, it sounds crazy…

But by cutting out the traditional bank as a middleman, borrowers pay lower interest rates, and lenders like us can earn significant returns.

LendingClub

The leader in this sector is called LendingClub.

As of the end of September 2014, they’ve made over $6 billion in loans…

And paid out nearly $600 million in interest to investors like you.

Before fees and defaults, yields have ranged from 9% to 14%...

After defaults and fees, lenders have earned average returns of about 6% to 8%.

Is this for real?

I’d say so…

I’ve been investing in LendingClub loans for the last year…

Diversification is critical – 99% of investors had positive returns if they held more than 100 loans – so I have a big, diversified portfolio.

Overall, my annual returns are nearly 10%.

The IPO

LendingClub was founded in 2007, and in August of 2014, they filed to go public.

Based on investor excitement, the company just raised the expected price of their shares from $10-$12, to $12-$14.

At the upper end of that range, the company will be worth nearly $5 billion.

Is it a “buy” at those levels?

Only you can be judge, but here are some pros and cons:

Pros:

  • Top-notch private investors include Kleiner Perkins and BlackRock
  • Their board includes former U.S. Treasury Secretary, Lawrence Summers
  • High-growth: Of the $6 billion in loans they’ve made, $1 billion came last quarter. Future loan categories (cars, student debt, etc.) offer more growth potential.

Cons:

  • Despite strong growth in the first nine months of 2014 (revenues of $143 million, up more than 100% from 2013), LendingClub lost $23.9 million
  • $4 to $5 billion valuation seems steep for a company that’s losing money
  • The usual challenges: competition could intensify, increased regulation, etc.

But here’s the thing:

Even if you decide the IPO isn’t for you, you can still profit from LendingClub…

How?

Become a lender >>

Keep an Eye Out for “LC”

The future is looking bright –

For LendingClub…

For investors on their platform…

And potentially, for investors in their IPO.

So keep an eye out for LendingClub:

Starting tomorrow, it’ll be listed on the NYSE with the symbol “LC.”

(Please note: Crowdability has no financial relationship with LendingClub. We’re an independent provider of education, information and research on start-ups and alternative investments. That being said, Matt is an investor on their platform, and he might invest in LendingClub’s public shares.)

Best Regards,
Matthew Milner

Founder
Crowdability.com

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Tags: Lending Club Kleiner Perkins

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