Andy Swan

I commented to Allen, the post author, that I think it's very important that he include Andy's stated loan-making strategy before he starts casting doubt on Prosper's, or peer to peer lending in general's, effectiveness:

"We focus our lending efforts on people who [...] Have a lower credit score (and are thus willing to pay higher interest rates)"*

While Andy does try to mitigate that risk, he's still purposely lending to the highest-risk group available.

Using Prosper's own (very useful) dynamic statistics page, we can see that of all loans made since March 28th(when Andy made his first loan)^, 8.17% are late. BUT, only 4.53% are over 1 month late. Furthermore, out of the total number of late loans, ~60% are loans made to D, F, and HR credit ratings, the low credit score group Andy loaned to.

When you loan to a high risk group, you have to be willing to accept the potential negative consequences of that risk. Andy decided to limit that risk, but I think he staked too much importance on loaning to people with no delinquencies on their credit report, forgetting that past performance is not always a good indicator of future actions.

By Andy's own admission, he's gained 10% on the 5k he loaned. Hardly cause to start waving the bad debt flag, especially if the 2/3rds of his bad debt that are 1 month late or less come back to current, with late fees.

I've been keeping my own coverage of social lending services updated. I hope you'll find it…

Background for other HN'ers:
The author Andy Swan is a successful multiple exit entrepreneur and seed investor. From the site:
"I've started and sold two companies.
I have investments in 7-8 others.
I love helping passionate people create wealth.
Win."

Andy's one of the regulars on AVC, has an extraordinarily sharp business sense, and he's also a connoisseur of Pappy Van Winkle Bourbon: http://andyswan.com/blog/?s=pappy