Chris Larsen wanted to use technology "to step back to a time when there was personal accountability in the credit markets." He hoped to revive the emotional connection people felt in banking's olden days—think It's a Wonderful Life—while generating market-rate returns.
So in 2006, he cofounded Prosper.com, one of a now handful of peer-to-peer lending sites. Prosper taps into the collective decision-making wisdom of its members, taking into account not only hard numbers but also "a million other things that are part of the human experience," says Larsen, the former CEO of E-Loan.
In practice, it's like a cross between
George Bailey would be pleased.
The making of a Prosper.com deal
Staley, 43, and his wife, Laura, wanted to start a wine shop in Modesto, California. But after a bankruptcy filing, banks "looked at us like black sheep." Their best offer, for an unsecured loan, was $14,000 at 14.99%. Turning to Prosper, Staley asked for $25,000 at 12.99% interest, but his listing proved so popular—attracting 544 bids—that the rate ultimately tumbled to 11.45%. There were 241 winning bidders, and Staley feels personally connected to each and every one. "It's almost like having a private IPO," he says. "They're like co-owners in the store."
"I look for people who understand what their situation is," Corbett says. "So many are in such denial that they'll sketch out a budget to pay off a loan in two years when their debt is 50% of income." Staley's profile, though, "jumped out at me. He seems to have his arms around his situation, and I made a larger loan than usual."
Having worked with microfinance in developing nations, Slason sees Prosper as a similar tool. "A lot of people have stories about how their credit scores don't capture their true worth, and I find that intriguing. The detail [Staley] went into describing his and his wife's plans and experience really solidified my involvement."
"I like to bid on loans where that person is going to improve their financial situation rather than make it worse," Cecchettini says. "[Staley's] credit was just flawless, and I figured even if his business were to fail, he'd probably still pay the loan back. But as an entrepreneur, it's exciting for me to see other people start their own business."
A version of this article appeared in the April 2007 issue of Fast Company magazine.