The transaction, which effectively values Lending Club at around $1.55 billion, validates much of the thinking around crowdfunding.
The central premise of crowdfunding is that a large group of people, with access to transparent information and the ability to communicate in real time, will make efficient decisions with their own money. It was for this reason that Congress amended the Securities Act of 1933 in the 2012 JOBS Act to open the doors to crowdfunding in the U.S. (Prior post).
Lending Club is not a crowdfunding portal, as envisioned by the JOBS Act. Rather, Lending Club collects loan applications from a large number of borrowers. Members of the Lending Club website have the ability to fund loans to those applicants. The loans themselves are made via Lending Club, which bundles the loans into separate securities which are sold to the Lending Club members. As a result, while members decision which borrowers to whom they will loan money, the loan is made indirectly through a Lending Club subsidiary.
In contrast, the JOBS Act created a legal entity called a "crowdfunding portal" which is supposed to facilitate direct investments in securities from individual companies (or "issuers") and individual investors. Although the Lending Club relies on the crowdfunding theory of marketplace efficiency, its legal structure is different from that contemplated by the JOBS Act.
The importance of Google's investment is that it validates the theory behind crowdfunding. Google chose to invest $125 million in Lending Club because it believes that technology is making it possible to derive value from the efficient decisions that crowds can make. Congress chose to unlock that potential to investors as well through the JOBS Act. the SEC, however, has failed to do its job by issuing the regulations that were required by the Act to make securities-based crowdfunding legal.