While Greece and its creditors continue to play a game of chicken, a startup out of Germany putting a big data spin on the business of loaning money is raising a large round of funding.
TechCrunch has learned that Kreditech, an online finance startup that loans money to consumers who have little or no credit rating, is raising around $110 million in a Series C round of funding. One part of that has already been secured from one of the better known VCs and entrepreneurs in the startup world. €37.5 million ($44 million) is coming from investors that include Peter Thiel, one of the co-founders in PayPal and a prolific investor who has backed Facebook, Palantir and many others.
The rise of Kreditech speaks to a big upswing for “fintech” startups, with others out of Europe like WorldRemit, TransferWise and Funding Circle all raising large rounds of funding, and larger M&A movements pointing to a bigger growth for the space overall as tech businesses continue to disrupt the traditional banking system. Just last week, PayPal acquired Xoom for $890 million.
Thiel’s involvement with Kreditech was first reported in the German press, which actually gave a higher figure for the full round. We’ve confirmed this first tranche and have been told the round could be around €100 million. We also understand that it may be around three months before the full round is finalised and announced officially.
We’re still trying to nail down who else might be involved in this round. To date, Kreditech has raised €70 million ($78 million) in equity and €185 million ($206 million) in debt. Previous investors in the company include Blumberg Capital, Värde Capital, Point Nine, Kreos and Global Founders Capital.
One possibility (just my own conjecture, not confirmed) is that this round could also include a strategic investor in the form of an e-commerce company. That’s because while today Kreditech positions itself as a direct to consumer offering, one strategy that it’s looking to pursue is to partner with larger businesses who might want to offer customers alternative financing options to purchase items on their sites.
(Coincidentally, Griemens likes to refer to Kreditech as the “Amazon of consumer funding,” a reference to how the company would like to become a one-stop shop for all of a consumer’s online finance needs. “What Amazon has done for commerce, we would like to do for how you manage your own finances,” he told TechCrunch in January.)
We’d actually first heard about this Series C in January, when Kreditech secured a $200 million facility from Victory Park Capital to expand the number of loans made on its platform (Victory Park has also provided financing capital to startups like Square, Kabbage and Borro). At the time, Kreditech’s CFO Rene Griemens told us that the company would start fundraising for its Series C later this year. Speculation was that it would be on a pre-money valuation of $750 million, but that valuation was never confirmed.
That valuation points to some significant growth for the company. A year ago, when the company raised a $40 million Series B, it was valued at just $190 million. This year, Kreditech is on track to grow its 2015 run rate 3.5 times on 2014, which was $130 million.
The company’s business model is based on fees and interest on its loans. In 2014 the company made €21 million in revenues and expects to make €55 million ($62 million) in 2015. The company also claims underlying profitability in its most mature markets, although it’s also been ploughing proceeds into growth and customer acquisition — as it intends to do with this next Series C.
While a lot of tech companies out of Europe have looked to the U.S. market to scale up, Kreditech is taking a page from another big player in the European tech world, Rocket Internet (whose co-founder Marc Samwer is an investor in Kreditech), in how it has chosen to grow.
The company has largely circumvented the U.S. market (“largely” because it’s picking up funding from there, if not customers) in its roll out. Instead, it has focused more — but not exclusively — on countries with developing economies and people who are lack credit ratings and possibly bank accounts. Today it’s active in seven markets — Australia, Germany, Kazakhstan, Mexico, Peru, Poland, Spain — and will next be adding Romania and Brazil to the list.
There are a lot of questions raised about whether companies like Kreditech are playing a high-risk game by going after the user segments that it does. But Kreditech claims to be fighting such tendencies with tech.
Indeed, it has built out a very tech-centric solution to financing loans and making up for a lack of credit history. Kreditech uses around 20,000 data points to assess a person’s suitability as a loan candidate. Those data points can be single lines in bank account statements to behavioral info such as a person’s interactions with web sites and social data.
Those data points are then grouped into clusters that help determine the likelihood that a specific customer would pay back a loan.
Kreditech has a relatively low acceptance rate — 80% of applicants might get refused — but Griemens claims that it has a better default rate than traditional banks.
On top of its vetting process, Kreditech also follows in the tradition of other online lending startups in claiming a much faster turnaround on applications.