It’s a little bittersweet when two of my favorite fintech companies combine. I am happy for both, but will miss seeing what BillGuard could have done as a stand-alone financial transaction watchdog (see note 1). After raising $16.5 million, the $30 million in cash—plus undisclosed amount of Prosper stock (note 2)—should provide a decent payday for investors, founders and employees. Caveat: without knowing the liquidation preferences of later investors, or the stock piece, we don’t really know how all the stakeholders fared.

From the sounds of it, though, it’s no acqui-hire. BillGuard said it’s tripling its dev team to 75 and will be heading full-speed-ahead on its product roadmap. That sounds good for BillGuard.

The more difficult question is why Prosper is spending 20% of the $165 million it raised in April on an ancillary service? The company says it is looking to move into broader financial management. And with 1 million visitors per month—the vast majority of which are likely to be unqualified for a Prosper loan—marketing PFM and credit-monitoring services have some appeal. But it seems like it could be a distraction (note 3).

But at least from the outside, I’m not seeing BillGuard as a significant value-add at this point. Even if Prosper were to convert 1% of its 1-million/mo traffic (optimistic) into BillGuard’s $5 to $10/mo credit-monitoring services with a margin of 50%, that would only add $75,000/month to the bottom line or about $900,000 in the first year—assuming 50/50 mix at the two price levels. Depending on attrition rates, that would grow over time, but it’s still not a great return on $30+ million. And if Prosper is looking to mine BillGuard’s 1.7 million customers for new loans, the lender could have done it much cheaper via partnership.

Peter Renton, writing at LendAcademy, has the best justification for the deal I’ve seen. Prosper needs something to stay engaged with loan customers—and presumably denied loan customers—since there is little reason for them to log back in once the loan has been made and automatic payments established.

All those reasons are part of the valuation. But my guess is that Prosper has something grander cooking, and BillGuard is just a piece of that puzzle. Perhaps they seek to take on Credit Karma in the broader credit-reporting/lead-gen space. I look forward to more news down the road.

——

Notes:

1: Chris Larsen showcased Prosper at our initial multi-unicorn-producing Finovate in NYC in 2007, winning our very first Best of Show trophy (along with Mint and MortgageBot).
BillGuard was named Best of Show at its two Finovate appearances, 2011 and 2012.

2: The terms of the deal were not disclosed in the official announcement. VentureBeat appears to be the widely cited source of the “$30 million plus stock” terms.

3: I bet Prosper’s FI investors—BBVA, Suntrust, Chase, USAA—like the deal. They not only have an inside peek at BillGuard’s metrics, but also a ringside seat to see how a lending specialist can or cannot expand into broader banking/PFM services.