Umair Haque / Bubblegeneration

Tuesday, February 07, 2006

Social Finance, Round Two

Prosper gets a round from Benchmark and Omidyar Network.

Prosper is a social finance play, similar to Zopa. I think both are cool; I have been a big fan of Zopa since it launched.

What's perhaps most interesting about this is that Benchmark has funded both Prosper and Zopa. It's unusual to take two bets on the same space. So what's the deal?

I think there are a few points to note:

1) This space isn't crowded. Competitive intensity is (very) low. That's because unlike other 2.0 verticals, finance plays have to think a little more strategically, because people are playing with real money - not just reviews, ratings, and rankings. In other words, there are natural, knowledge-based entry barriers.

2) The potential returns are very significant - the last meaningful innovation that took place in this space was, well, PayPal. And that was a looong time ago. Put another way, this is a vertical that's ripe for disruption; if either Zopa or Prosper are successful, they can begin to reshape the consumer finance value chain (which is worth a great deal more, than say, the local listings value chain).

3) Going out on a bit of a limb, I'd venture that it's probably worth a great deal to Benchmark to learn about how to disrupt this space, because one of the big market gaps in India and China right now is consumer credit - if they can transfer that learning there, their returns will be pretty spectacular indeed.

-- umair // 7:43 AM // 6 comments

Comments:

Hi Umair,

I think you're right - we always knew that we wouldn't have this space to ourselves for ever, and we've known about CircleOne / Prosper for a while now. We're planning on our US launch early in Q2 this year, so it'll be fascinating to see how the US responds to Prosper.

However they do, we're confident that there's plenty of space there for both of us for the foreseeable future as you say - and the rewards could be huge.

I'm not going to comment on the Benchmark funding piece except to say that yes, it is unusual, but our Benchmark partners have been nothing but helpful over the last 18 months.

I think that Prosper and Zopa have quite different approaches to the Social Finance space - my personal belief is that the winner will probably have elements of both. Of course, who that winner is is still to be determined :-)

Thanks for your support!

Cheers

Dave (Zopa)

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Dave // 1:35 PM

Umair,

I agree with your last point : for me, a good indicator of how disruptive this can be in an Indian context was when I saw that mind-bending micro-insurance initiative in India:
http://www.bubblegeneration.com/2005/06/massive-change-miracles-for-rs-7.cfm

Here's some food for thought for you: I personally believe that we need to do some really pioneering work in *social capital* to really understand this. Intuitively, I think the abundance of social capital in countries like India, especially compared to the West, should help the Indian innovate a whole lot more in this field than in the West. Think about defining measures like Capital Intensity and ROCE from a social capital viewpoint and then you put them in a *macro context* and marry them with the ocial finance thing to solve point problems like healthcare. Wouldn't that be awesome? How cool would it be to play interest rate arbitrage on ical capital? ;-) ;-). OK, I must stop now before I sound like a complete lunatic.

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Anonymous // 4:30 AM

Umair or others- As you look at the potential in this marketspace, how big do you see this growing in the next 3-5 years? What marketshare does Zopa have today- should have in future? and same for Prosper? Are there other competitors loooming?
-Student doing some research for a paper :)

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Anonymous // 3:20 AM