New occupations have flourished on the web; among them, merchants on online marketplaces like Amazon and eBay.

But these new occupations are not supported by Main Street’s banks, and sellers are often deemed too risky for a loan.

To meet the demand, organizations like Atlanta, Georgia-based Kabbage are providing working capital to small-business owners so they won’t need to put personal assets on the line, like a house or car.

And Kabbage just announced it has closed a credit facility of $75 million, its largest to date. After just two years of operations, Kabbage claims to deliver more advances than any other provider in the industry. For this reason, Kabbage was named the winner at VentureBeat’s recent Innovation Showdown at our CloudBeat conference.

The company says it has extended more than 60,000 advances and expects to provide more than 100,000 by the end of the year.

CEO Rob Frohwein explained in a recent interview that the engineering team is analyzing all the data it can gather to make “educated guesses” about a loan applicant’s future growth. Ideally, it is looking to fund merchants who are making about $1,000 a month through their online store.

“When we tap into the data, we can see how you [an online merchant] were doing six months ago and project how you might fare a year from now,” he explained. Kabbage provides funding to about 80 percent of the small businesses that apply — the big question, Frohwein admits, is how large the loan should be.

Kabbage monitors how merchants are interacting with their customers on social media sites, selling on UPS, or managing their finances in Quickbooks (Intuit’s accounting software for SMBs), as well as their transaction data from sites like eBay, Amazon and Etsy, to determine whether to give out a loan.

“There is a clear void in the market as traditional financing sources remain reluctant to lend,” said Victory Park Capital’s Tom Affolter.

Victory Park Capital led the funding round, and equity investor Thomvest Ventures also contributed.

If you run a small business, On Deck wants to lend you some cash. But it’s got to make some for itself first.

The online local lending company has raised $42 million in a series D funding round led by Institutional Venture Partners, which joins existing investors RRE Ventures, SAP Ventures, and First Round Capital.

On Deck offers short-term loans ranging from $5,000 to $150,000 to small businesses that need them. The system is especially attractive because it’s fast: On Deck says that the application process takes only minutes, and it’s often able to give applicants decisions within a day.

More significantly, On Deck looks beyond credit scores to determine eligibility, which can make a real difference to those with not-so-pretty credit scores.

The system seems to work pretty well. On Deck says it’s given $400 million to thousands small and medium-sized businesses since 2008. And it’s these businesses, On Deck says, that really fuel the economy’s growth.

With the cash, the company says it will be able to continue product development and increase its marketing efforts, which will help it reach more potential customers. 

On Deck CEO Noah Breslow says that his company intends to lend more this year than it has during its whole lifespan. And for cash-strapped businesses, that’s a good thing to hear.

Photo: Shutterstock

Prosper.com announced today that it has raised $20 million from the prestigious venture firm Sequoia Capital. It’s slated this funding to “accelerate Prosper’s growth at a time when the market for peer-to-peer and business-to-peer finance is rapidly expanding.” In short, to help Prosper out-prosper its competitor, Lending Club.

Prosper also announced it has appointed Stephan Vermut as the new CEO, the former founder and managing partner of Merlin Securities that was recently acquired by Wells Fargo.

“I’ve watched with great interest over the past few years as the peer-to-peer lending industry has grown substantially, and I believe Prosper is in a unique position to offer both borrowers and lenders unprecedented access to financial opportunity,” said Vermut in a statement.

People traditionally take out loans with banks. Prosper eliminates the middle man by connecting people who want to invest money with people who want to borrow money. Borrowers list loan requests between $2,000 and $25,000, and individual lenders invest as little as $25 in each loan and earn returns on their investment.

Prosper has enabled more than $400 million in personal loans since it pioneered this type of service in 2006. Over the years, it has hit some road bumps with the SEC, shutting down in 2008 after receiving a cease-and-desist letter for not properly registering under the Securities Act. The company has come back, however, and now claims to be growing at 100 percent year-over-year in revenue and loan originations. There have also been some product changes that inspire more confidence, and this money will take the Prosper into “its next phrase of growth.”

This is Prosper’s sixth round of institutional funding and brings its total to $94.7 million. Previous investors include a laundry list of venture firms, including Draper Fisher Jurveston, Crosslink Capital, Accel, and Benchmark.

Read the press release.

Based near the OWS encampment in San Francisco’s Justin Herman Plaza, Prosper is using crowdfunding site Indie Gogo to host its 99 Sandwiches campaign, raising money to donate 99 sandwiches per day to feed the protesters.

But Prosper’s own platform has the power to do more than donate sandwiches. It could shake up the banking industry at large, if its model catches on.

“Everybody knows that banking is broken, the system is broken,” Prosper co-founder and chief executive officer Chris Larsen told VentureBeat at Crowdconf, a crowdsourcing conference in San Francisco, today. “There’s no reason with the technology we have today, all this great stuff, that you couldn’t completely rewire banking in five years.”

That’s a bold claim.

Prosper makes it possible for individuals to lend out money and earn interest  on the money they lend, which has been the sole province of banks. But the reason this was not possible before wasn’t lack of technology, but because of regulations meant to protect banks.

If successful, Larsen thinks that the future of the banking industry could be Silicon Valley, not Wall Street.

“You need banking, but you don’t need banks,” said Larsen.

In order to launch his company, Larsen invested $10 million and spent five years fighting through a bramble of regulations meant to protect banks and stifle innovation. As evidence of the banking industry’s hold over the political system, Larsen pointed out that there are 61 members of the House Committee on Financial Services, the legislative entity that governs banking and finance. He said that there are perhaps two startups that exist today that are able to charge interest on peer-to-peer transactions, out of as many as 100 that were started around the same time as Prosper.

In a recent blog post, “Why Hasn’t a Facebook of Banking Emerged,” Larsen implored anti-Wall Street protesters to use new technologies to support the movement, and support innovation.

…[W]hile it’s important to keep up the demands for change, we also need you to start using these new technologies and spreading the word when you find one that excites you. Use a crowdfunding site to support a project, make a $25 bid on a peer-to-peer lending site. Start-ups are, well, start-ups, and every show of community support could make the difference between obscurity and escape velocity. Vote with your wallet.

This last point is an important one.

Larsen does, however, think there’s a role for banks in preventing their own demise, and he encourages them to make their infrastructure available to startups, as a platform for innovation.

“[Y]ou don’t have to just stand by and get pummeled….Even if these start-ups are tiny now and even if their stated mission is to destroy your franchise, partner with them. Technology is not going away, it’s accelerating with or without you. It’s time to stop cutting your R&D budgets and start embracing new, big ideas.

While Chase bank may have an iPhone app that allows customers to make deposits to their accounts by taking photos of checks, Larsen says this type of solution is “bolting on little pieces to a system that isn’t serving people well.”

Prosper has funded more than $271 million in person-to-person loans to date. As a startup, it has received $74.5 in investment from Jim Breyer of Accel Partners; Tim Draper of Draper Fisher Jurvetson; Jerome Contro of Crosslink Capital, CompuCredit; Omidyar Network; Capital One Co-founder Nigel Morris of QED Investors; Court Coursey of TomorrowVentures and Larry Cheng of Volition Capital.

Larsen’s last company was eLoan, which he co-founded in 1998, and eventually took public.

Prosper is going to need luck, time and a lot of support if its going to have a chance of taking on the multi-trillion-dollar financial industry, which accounts for 7 to 8 percent of the U.S. gross domestic product, twice as large a proportion as it commanded in the 1960s. Chances are slim that executives at banking giants like Citibank or Bank of America are worried much about Prosper, if they have even heard of it.

Such long odds don’t daunt Larsen, who has passion to push him forward.

“We’re in a crisis here. We have a yield-starved world, and we have a credit-starved world, which is kind of funky. That means banking is truly not working.”

Related articles

• Protestors block bank entrance, snarl traffic in San Francisco (venturebeat.com)
• Dylan’s Desk: Is it time to occupy Silicon Valley? (venturebeat.com)
• Lendio and Prosper.com Bring Personal Loans, Affordable Capital to Small Businesses (prweb.com)

This was the startup’s fourth round, and it represents a break in Union Square co-founder Fred Wilson’s pre-2008 investment philosophy.

For several years, Wilson, a veteran investor and blogging firebrand, had held the opinion that seed investments were actually less risky than late-stage deals. In 2007, he wrote on his blog, “As a VC making direct investments in companies, I think we take on way more risk when we invest in a later stage company than an early stage company…

“When I go back over time and look at my personal portfolio, some 50-plus companies, I see this fact so clearly. The returns are higher on the seed and first round investments I’ve made… I suppose that’s also an indication that I am better at seed and early stage investing and that there are others who are better at later-stage investing than me.”

Late-stage investment has become something of a trend since the market crash in late 2008. In 2007, early-stage investments were slightly higher than late-stage fundraising. However, the balance has shifted, with slight differences giving way to entirely uneven divisions between early- and late-stage activity.

In 2009, VC fundraising hit a six-year low, meaning there would be less money to go around for the quarters to follow. In the immediate aftermath, early-stage investments, with their smaller deal sizes, were an attractive option for many; but eventually, multi-stage funds became more popular and investors became more squeamish about early-stage funds.

In September of 2009, Wilson wrote about VC investing during a downturn, saying, “Early in a cycle, you want to back young companies at bargain prices… Late in a cycle, you want to back established companies that need a ‘last round’ to get to break even.

“I’ve been in the venture capital business since 1986 (that was a down cycle) and I’ve seen this happen at least three times, probably four times now.”

Then, late last year, Wilson and Union Square Ventures raised $200 million to establish a late-stage fund. The fund’s first deal is the $25 million Series D for Lending Club. The round is small by late-stage standards; it’s exactly the same amount Lending Club raised for its third round one year ago.

Of today’s investment, Wilson writes, “We’ve been interested in peer-to-peer lending marketplaces for about five years now. We’ve studied the category closely but have never found the right entry point. We have watched Lending Club innovate by delivering better risk assesment and mitigation which has led to better returns for lenders.”

In a word, Wilson and Union Square see Lending Club, like most other strong late-stage startups, as a sure bet with a relatively quick return on investment.

Lending Club recently passed $325 million in total loan originations; the startup is currently giving out more than $20 million each month in prime consumer loans.