Concerns over the student loan crisis in the U.S. continue to roil through the economy (even reaching into the campaign trail of the next presidential election), and increasingly venture investors are betting on startup companies like SoFi and CommonBond as potential solutions.
In the dog days of summer the San Francisco-based lending startup, SoFi, managed to put together a $1 billion round, which valued the company at $4 billion and put it among the top 40 banks by market capitalization, according to The Wall Street Journal.
Now, the New York-based lending marketplace, CommonBond, has managed to attract a more modest — but still significant — $35 million in fresh financing for its own expansion plans.
The moves come as private lending assumes a larger role in students’ quest to find money to pay for college with statistics like this one cited in The New York Times:
Private loans represent only an estimated 7 to 10 percent of the $1.27 trillion student debt outstanding, but new loans are on the rise. Lenders made $6.7 billion in new private loans in the 2014-15 academic year, according to MeasureOne, which analyzes data from six lenders and holders of private loans, which collectively represent about 71 percent of all outstanding loans. That is up about 14 percent from $5.87 billion in 2009-10.
All this as studies continue to show the importance of a college education to social mobility, as data from the Brookings Institute demonstrates.
With its new financing, led by experienced lending investor August Capital with participation from the New York financial services investment firm Nyca Partners, CommonBond will look to expand its headcount and lay the groundwork for its entrance into other markets.
Like other startup lenders, CommonBond sees its initial focus on a certain segment of the population — in this case, at its inception, college students seeking professional degrees — as a gateway to selling other financial products.
From its base in downtown New York on the border of Chinatown and the Financial District, CommonBond’s 35 employees are laying the groundwork for a broader marketplace lending platform.
In the short term, the company is looking to grow its footprint beyond the 200 graduate school programs whose students currently receive its loans to over 2,000 schools nationwide, according to chief executive officer, David Klein.
Increasingly as these students begin to look at life beyond the classroom, Klein sees opportunities to get into the mortgage business, and personal credit.
“We would expect to pilot our non-student loan product in the next six-to-twelve months,” says Klein.
Previous investors Tribeca Venture Partners, Social + Capital Partners, and individuals like
Tom Glocer, Tom Kalaris, and former Citi chief executive, Vikram Pandit, also participated in the round.
Beyond the ability to expand its headcount and enter new markets, Klein said the fresh cash would allow his company to attract bigger pools of capital. Klein declined to comment on the post-money valuation following this latest capital raise, but one person with knowledge of the deal said it was a significant up-round.
That would mean that the $100 million round the company raised in 2014 would have been primarily debt to fuel its lending business, rather than equity that CommonBond took in.
Whatever the books say, CommonBond’s growing roster of partners points to a demand from the market for new products. Klein elaborated on the company’s recent successes including a deal with traditional student lending company Nelnet, which translated into $150 million worth of loan purchases made through the platform, along with the first securitization and credit rating of the company’s products by Moody’s.
CommonBond’s loan originations have increased over six-times as of mid-2015, and it will execute nearly half-a-billion in loan transactions by the end of the year.