Sequoia hands off Elevate board position after Goguen scandal

Michael Goguen
Lido Vizzutti | Flathead Beacon | AP

Elevate Credit's updated IPO prospectus includes the online lender's latest financials, as well as a new revelation: Sequoia Capital no longer has a partner on the board.

Former Sequoia partner Michael Goguen was an Elevate director until news surfaced in March of a sexual abuse lawsuit filed against him. When Sequoia fired Goguen, the storied Silicon Valley venture firm was expected to replace him on the board.

But in Elevate's filing on Friday, which said Goguen was removed from the board on March 11, the list of directors didn't include a Sequoia partner. The firm remains the largest investor with a 27 percent stake.

Sequoia's seat is now occupied by the first female on Elevate's nine-person board.

The Fort Worth, Texas-based company announced the addition of Saundra Schrock as a director last month. Schrock, a former executive vice president at JPMorgan, ended up replacing Goguen on the board instead of getting a new seat.

"In advance of the IPO, we were looking to expand the board in particular to increase diversity," Elevate CEO Ken Rees said in an interview Monday. Sequoia "allowed her to be their official board representative."

A Sequoia spokesperson confirmed Rees' version of events. Pat Grady, a Sequoia partner who is also a backer of web lender Prosper Marketplace, still attends the board meetings.

The need for diversity was already a hot topic in tech. It became all the more important for Elevate after the allegations against Goguen.

The March 8 lawsuit by Amber Laurel Baptiste alleges she was abused "sexually, physically and emotionally for over 13 years." Goguen had previously agreed to pay Baptiste $40 million as part of a settlement, but paid $10 million, the suit says.

Goguen filed a counter complaint the following week, referring to the suit as a "shakedown" from a jilted ex-lover.

Sequoia acted quickly in firing Goguen after the lawsuit was made public, but it underscored a noticeable problem. Like many venture firms, Sequoia didn't have a single female investing partner in the U.S.

"We were obviously aware we didn't have a woman on our board and knew that needed to be corrected," Rees said. "We had a search out for a new board member well before the situation with Mike arose."

Separately, Elevate is facing a skeptical investment environment. The company postponed its offering in January, citing unfavorable market conditions.

It's been a dead year for tech IPOs, with not a single venture-backed company going public in the U.S. since December. Software developer Twilio filed its prospectus in May, while data storage vendor Nutanix has been on file since December.

In Elevate's updated prospectus, the company reported a 46 percent increase in first quarter revenue to $130.7 million. Net income jumped to $5.79 million from $898,000.

Despite growth in sales and profitability, the public markets look particularly daunting for online lenders. LendingClub has gotten crushed since the sudden firing of founder and CEO Renaud Laplanche last month after the board discovered he knew of improper loan sales.

Business lender On Deck Capital is about 75 percent below its IPO price in late 2014. And in the start-up market, personal lender Vouch is shutting down, The Wall Street Journal reported over the weekend, citing people familiar with the matter.

"I don't think the market is fundamentally different from what it was five months ago in receptiveness to tech IPOs," Rees said. "We're still going to wait to see a broader improvement in the IPO market before we go ahead."

Elevate issues nonprime loans via the internet to borrowers who would otherwise typically go to storefront payday lenders at much higher rates.

Unlike LendingClub and Prosper, which fund loans with capital from a wide assortment of individual and institutional investors, Elevate counts on financing primarily from a single firm — Victory Park Management — and carries the loans on its balance sheet.

One of the main concerns surrounding Elevate has gone away, Rees said, following the proposal last week of a new rule from the Consumer Financial Protection Bureau.

The CFPB said on June 2 that its proposal is designed to end "payday debt traps" by forcing lenders to better ensure that customers can repay the loans.

Rees said the proposal is designed to get rid of "bad actors," but would have very little impact on Elevate because of the company's comparatively lower rates and sophisticated underwriting.

"It was one of the last question marks about our company," he said.

Clarifies story to say that Sequoia is represented on the board by Schrock, and to say that the firm has no female investing partners in the U.S. It does have female partners elsewhere.