Small business lending platform Kabbage snatches $ 250 million from Softbank – TechCrunch

Kabbage, a company with some 115,000 customers and $ 3.5 billion in loans that has built an automated platform to lend money to small businesses and individuals using large numbers of data points to determine the customer’s credit rating, announces its own big deal today. .

SoftBank Group invests $ 250 million in Kabbage – funding that Rob Frohwein, co-founder and CEO, said the company plans to use to expand its business in the United States; launch even more analytical tools to deliver loans to specific verticals; expand into new markets such as Asia; and explore acquisitions to add new products to its business, such as payments.

The investment, a Series F, brings the total raised by Kabbage in equity to $ 500 million (in addition to some $ 3.5 billion in securities), and will bump the company’s valuation to more than $ 5 billion. ‘a billion dollars.

For some background: In 2015, when he raised a $ 135 million Series E, Kabbage entered the so-called “unicorn” startup echelon with a valuation of $ 1 billion. In an interview with TechCrunch this week, CEO and co-founder Rob Frohwein declined to cite a specific number, but said the latest investment was at a “significant amount” which was over $ 1.25 billion but not quite $ 2 billion.

Founded in Atlanta in 2009, Kabbage was one of the first to pioneer the concept of using big data analytics to underwrite and monitor loans: down to larger macro datasets, to decide whether whether or not to lend money (and how much to lend).

In an era when a number of other online small business lenders like OnDeck and Can Capital have stumbled upon uncertain business models, amid a larger upheaval across the entire online lending industry, Kabbage s ‘is developed. Frohwein attributes this directly to its big data set, which now aggregates some 1.5 million data connections to help make decisions.

“When the proverbial shit hit the fan in the online lending space a while back, the folks at Kabbage were nervous. All I said was ‘finally!’ ”, Frohwein remembers. “What has happened is that we now have a certain separation between companies that weren’t focused on creating differentiated solutions and those that are trying to do something different. We have passed the stage of buffoonery. A little a handful of companies have differentiated themselves and I think Kabbage is one of them. “

He said Kabbage is profitable in its lending business, but not yet in its platform operation – the latter is a more recent division launched in 2015 that essentially powers other lending business, alongside its own operation. retail outlet of Kabbage. (Clients include Kabbage himself, which owns a Karrot consumer lending business, as well as major banks like ING, Santander and Scotiabank.) “As a business, we will be profitable in the fourth quarter by a point GAAP view, ”he said.

While Kabbage’s Big Data formula is used today by several other fintech companies, most notably Kreditech (which aims to help create credit scores for “unbanked” people and is supported by Peter Thiel and Naspers ), Fundbox (also with a long list of interesting investors including Jeff Bezos) and BlueVine (backed by Citi Group, among others) – Kabbage plans to take its own dataset to the next level.

One area will be loans for specific verticals or types of businesses: the idea here is that if you’re a construction business or a restaurant you’re likely to have very different cash flows, so Kabbage would like to develop ways to provide more loans. personalized and less full of flaws and frictions that can easily be avoided if the lender better understands the borrower.

Today, Kabbage already claims greater customer loyalty than many other lenders: Frohwein said on average his customers borrow from Kabbage 20 times over three to four years: he claimed that for comparison, the industry average is 2.2 times.

We also need to keep an eye on the company’s acquisitions and entirely new product launches. Some have suggested he might try to buy OnDeck as part of a consolidation deal, but our sources say this was all speculation and a more likely scenario would be to acquire companies to add new services to the platform, rather than as a consolidation transaction between similar competitors.

Asked about it, Frohwein didn’t say which new product launches or acquisitions might come first, but he pointed out payments as an interesting area.

“To look at how PayPal and Square went from being a payments company to being a small business lender, ”he noted. “There is a clear connection between how companies view these two areas of business, so it’s not a giant leap of faith for us to consider this. “

While SoftBank has been making major waves in the investment world lately with huge investments from its new $ 100 billion Vision Fund, this latest effort with Kabbage comes directly from the SoftBank Group (and $ 250 million suddenly seem modest when you think of $ 100 billion). From what I understand, this could potentially be incorporated into the Vision Fund later, but for now, this represents very interesting strategic opportunities for Kabbage.

These could come in two general forms. First, there is the expansion of Kabbage’s retail and platform business further into Asia (where it has so far only worked as a white label platform partner) .

Second, there is the ability to work with a myriad of companies in SoftBank’s portfolio. Nothing has been announced so far on this front, but remember that SoftBank’s various holdings include Sprint (which has a large number of small business clients); Lyft and a number of other ride-sharing startups (another industry that relies heavily on very small businesses: independent traders); SoFi; and much more.

In this regard, SoftBank’s investment looks like a smart bet placed on a company that it believes could leverage its network in interesting ways.

“SoftBank invests in market-leading companies that dramatically improve the customer experience and expand markets through advanced technologies and data capabilities,” SoftBank CEO David Thevenon said in a statement. “We invested in Kabbage because their unique automated lending platform leverages open data networks and best positions them to empower small businesses around the world. “