Loan start-up Prosper raises $20 million, led by Sequoia

SAN FRANCISCO (Reuters) - Prosper, a leader in the fast-growing "peer-to-peer" lending sector, said on Tuesday it raised $20 million from venture capital firms led by Sequoia Capital, stepping up competition with rival Lending Club.

Prosper also named Stephan Vermut, a veteran from the hedge fund brokerage business, as its chief executive. Dawn Lepore had been serving as interim CEO since last March.

Peer-to-peer lending cuts out banks by linking individual investors who want to loan money with those looking to borrow cash through an online marketplace.

Lending Club - which counts high-profile economist Larry Summers and John Mack, the former CEO of Morgan Stanley, as board members - is the largest peer-to-peer lending marketplace.

The sector is growing fast, with Prosper's revenue and loan originations doubling in the past year. The growth is being partly driven by increased interest among institutional investors, such as hedge funds, in peer-to-peer loans as a new asset class.

Vermut was the founder of Merlin Securities, a so-called prime brokerage firm that specializes in serving hedge funds. Wells Fargo & Co. acquired Merlin in April.

Ron Suber, former head of global sales at Merlin, is also joining Prosper to help expand the firm's presence among institutional investors.

(Reporting By Alistair Barr; Editing by Leslie Adler)