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Lending Club to Be First of Many Crowdfunders to Hit the Market

NEW YORK (TheStreet) -- Those seeking good news from the wreckage of a Ukraine-Russia War market should cuddle up tonight with the S-1 for Lending Club. The planned IPO is estimated to be worth $500 million and values the company at $4 billion.

Lending Club is a bank that receives its capital from crowdfunding. People apply for personal loans on one side of the online window, and investors apply to lend the money on the other. At of the end of June the company said more than $5 billion had been lent, drawing almost $500 million in interest.

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Those Buffett-like returns come with whopper-sized risks. Or so it appears. Bloomberg notes that most of the investment capital is coming from institutions, with Lending Club acting as principal to both sides of the loan. Lending Club is turning loans into notes, selling the notes, and collecting on them for lenders. It's a middleman, processing loan transactions on one side, note payment transactions on the other.

So far it is a roaring success. The S-1 shows the company is nearly on target to double its net revenue this year, with $98 million having come in during all of 2013 and almost $87 million coming in for the first six months of this year.

The reason it needs to raise capital can be seen on the expense side. The first six months of 2013 saw $5.9 million spent on "engineering and product development" -- computers and software -- $16 million spent on marketing and $6 million spent serving loans. Spending has since ballooned, to $13.7 million on engineering, almost $40 million on marketing and almost $16 million spent on loan servicing. This turned the first half of last year's $1.7 million profit into a whopping $16.5 million loss, but that's what you do when you're growing fast -- you spend ahead of it.

While Lending Club is based in San Francisco, the IPO has New York written all over it. Morgan Stanley (MS) , Citigroup (C) and Goldman Sachs (GS) are handling the offering. The chief risk officer comes from JP Morgan Chase (JPM) . The chief financial officer comes from Charles Schwab (SCHW) and the chief technology officer from Visa (V) . We've even got a Larry Summers sighting. The former Treasury Secretary is on the board.

But the key to understanding this deal, it seems to me, lies in Atlanta, where I live.

Ever since the creation of "discount brokerages" in the 1970s, the process of buying and selling financial instruments has come to look more and more like credit card transaction processing. The company that bought the New York Stock Exchange last year, Intercontinental Exchange (ICE) , is basically a transaction processor, just like a dozen or so other companies along I-285 in Atlanta.

So in evaluating Lending Club, or any crowdfunding IPOs that might follow, keep an eye on the technology platform and who is running it. The resume of CTO John MacIlwaine, who joined in mid-2012, is the kind of thing you should be looking for.

MacIlwaine headed Web application development at Visa, worked on the Dean Witter trading platform for Morgan Stanley, and he even has experience with Green Dot, the prepaid cash card company. That's a lot of different transaction platforms serving lots of different kinds of customers.

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That kind of gilt-edged experience should mean more to you, as an investor, than the Goldman Sachs imprimatur. Look for it as more of these deals come to market. How the processing is being handled, and by whom, matters a lot. I predict a lot of folks in Atlanta will be polishing their resumes in anticipation of what is to come.

At the time of publication the author owned no shares in companies mentioned in this article. Follow @danablankenhorn

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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