July 13, 2015
Kreditech is an online finance startup that loans money to consumers who have little or no credit rating. The company is on its way to raising around $110 million in its Series C round. A part of the funds to be raised is already in its kitty, which came from one of the well-known VCs and entrepreneurs in the startup world. Around €37.5 million ($44 million) is being poured in from investors that include one of the co-founders of PayPal, German-born billionaire Peter Thiel, who is previously known to have backed Facebook, Palantir and many others. According to reports, Thiel is reportedly investing double-digit millions in what is termed the riskiest of all the startups in Germany.
Kreditech’s business model runs on fees and interests on its loans. In 2014, it made €21 million in revenues and expects to make €55 million ($62 million) in 2015. It also claims underlying profitability in its most mature markets. The Series C will help it to push proceeds into growth and customer acquisition. Kreditech’s emergence and rise with others from Europe like WorldRemit, TransferWise and Funding Circle is an indication of a bigger growth prospect for the lending space overall. These FinTech startups are also raising large rounds of funding and are involved in larger M&A movements, reinforcing the fact that tech businesses will continue to disrupt traditional banking system in the very near future.
Kreditech’s previous investors include Blumberg Capital, Varde Capital, Point Nine, Kreos and Global Founders Capital. To date, the company has raised €70 million ($78 million) in equity and €185 million ($206 million) in debt. Market watchers are forecasting that the current round could also see strategic investor participation from an e-commerce company as Kreditech is poised to position itself as a direct consumer offering. It’s a strategy that the company will be following so that it can partner with larger businesses later, some of who may want to offer its customers alternative financing options to buy items from their sites.
Reports of Kreditech’s Series C round started floating around in January when the company netted a $200-million credit facility from Victory Park Capital to be able to increase the number of loans on its platform. CFO of Kreditech Rene Griemens had given indications of a C round later this year. There was talk about it being on a pre-money valuation of $750 million, but that was never confirmed. However, a year ago, Kreditech raised $40 million in its Series B and was valued at $190 million. This year, it’s racing to grow its 2015 run rate 3.5 times compared to last year, which was $130 million.
While Kreditech is busy building itself up, there are concerns on whether companies that depend heavily on technology in a high-risk business will see through it all. But the company says that its tech-centric solution fills the gap suitably. Kreditech uses about 20,000 data points to work out the feasibility of a loan candidate. These data points can be single lines in bank account statements to the behavioral analysis of a person’s interactions with websites and social data. This information is then grouped into clusters to determine if a specific loan applicant would pay back a loan. Kreditech has a low acceptance rate where 80% applicants might be refused, but the company claims that it has a better default rate than traditional banks. It also claims a faster turnaround on applications. To scale up, the company is mostly looking at developing economies where people lack credit ratings and possibly even bank accounts. It’s currently active in seven markets: Australia, Germany, Kazakhstan, Mexico, Peru, Poland and Spain with Romania and Brazil next in line on its radar.