Market Commentary By Prosper Co-founder and Chief Executive Officer, Chris Larsen

In May, a record number of loans – in terms of dollars and units – were funded in the Prosper marketplace. The sudden increased supply of loan listings with an attractive risk-return tradeoff (as cited in last month’s survey) was the key driver of the record level of originations. Also notable in May and worthy of further discussion are two recently introduced marketing initiatives.

Earlier this spring, Prosper began testing a radio advertising campaign in select major metro markets, and in early May we unveiled our new Lets Bank on Each Other^™ tagline and pilot TV ad campaign in the Minneapolis metro region. No actors were used for the television campaign; rather they feature real Prosper borrowers and lenders who have benefited financially and socially through their participation in the marketplace. In June, we expanded the television campaign pilot to select San Francisco Bay Area markets and continued our radio campaign in select markets around the country.

Another new initiative is the enhancement we made to our Facebook application. After experiencing very limited success on Facebook, in mid-April we decided to lower the minimum instant transfer amount to $50 for lenders who install the Prosper Facebook application. For lenders who do not install the application, the minimum instant transfer amount must be $500 and less than 20% of their active loan value. Since the introduction of the new feature, the adoption of the application has significantly increased, growing from a mere 400 users to approximately 4,000 users. This indicates that the added benefit is serving lender demand for lower minimum instant transfer amounts. In addition to the $50 instant transfer feature, the application enables Prosper members who use Facebook to share their Prosper listings, bids, and watched listings with their family and friends on Facebook.

Definitions

Attractive Risk-Return Tradeoff: For purposes of this survey release, listings are considered to have attractive returns if, based on historical loan repayment performance of Prosper borrowers with similar characteristics, they are priced sufficiently to compensate lenders for risk. Risk includes both the risk of non-payment by the borrower and other risks associated with people-to-people lending. In general, as the credit quality of the borrower declines, the range of possible returns widens, requiring a larger risk premium to compensate the additional uncertainty. The amount of risk premium required to compensate for a given level of risk is a subjective judgment. The following formula is used by Prosper to determine if a listing is priced adequately to have an attractive risk adjusted return: Maximum Borrower Rate > Risk Free Rate¹ + 3.25% + (Expected Annual Default * 1.5) + Prosper Servicing Fee. All lenders must make their own judgments with respect to what constitutes an adequately priced listing.

¹Risk Free Rate = 2-year CD national rate on BankRate.

Since Inception: November 1, 2005 through May 31, 2008. Prosper’s by invitation only “friends and family” launch began on November 1, 2005 and Prosper launched to the general public on February 13, 2006.

2008 Year-to-Date: January 1, 2008 through May 31, 2008.

2007 Year-to-Date: January 1, 2007 through May 31, 2007.

Prosper Select Index: The Prosper Select Index return is the estimated average annual return on principal, based on actual delinquency performance to date. The Prosper Select Index includes AA - E credit grade loans for borrowers whose credit reports at the time of application indicated zero current delinquencies, three or fewer credit inquiries, and a debt-to-income ratio of 40 percent or less. The annual return period reflects loans originated in the twelve month period ending one month prior to the observation date of May 31, 2008. Prime Select includes AA and A credit grade loans (credit scores of 720+). Near Prime Select includes B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime Select includes E credit grade loans (credit scores between 560 and 599).

Average Borrower Rates: Average Borrower Rates are the weighted average borrower rates on Prosper Select Index loans with loan amounts between $5,000 and $10,000. Rates shown are interest rates, not annual percentage rates.

Mix of Funded Borrowers: Prime includes all AA and A credit grade loans (credit scores of 720+). Near Prime includes all B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime includes all E and HR credit grade loans (credit scores below 600).