Affirm, the alternative lending site started by PayPal co-founder Max Levchin, has raised a $100M Series D led by fellow PayPal co-founder Peter Thiel’s Founders Fund.
The all equity round, which was confirmed to TechCrunch by the company, also included participation from existing investors including Lightspeed Venture Partners, Spark Capital, Khosla Ventures, Andreessen Horowitz, and Jefferies.
Fundraising For Expansion
While some of Affirm’s loans are packaged and sold to third-party banks, the company also carries some directly on their balance sheet. So, one reason for the large funding round was to prepare the balance sheet for a deluge of new loans that the company expects to issue over the next 6-12 months.
See, while most people use Affirm a few times a year to buy big-ticket items like a Boosted Board or Casper Mattress, the company is striving to reach a future where a user’s regular purchases are backed by Affirm loans. Think clothes from J. Crew or Lululemon, or supplies from The Home Depot.
And since the vast majority of these more regular retail purchases still happen in brick and mortar stores, Affirm is going to have to expand its current selection of merchants, and maybe even partner with some big-box stores like Target or Walmart.
A new partnership like this would presumably deluge the startup with customers, hence the large fundraising now in anticipation of a potential rapid growth in loan issuances sometime in the near future.
Affirm vs. A Credit Card
The obvious question in regard to Affirm’s short-term goal of offering users more loans for smaller amounts is should customers really be buying inessentials like Lululemon on borrowed money?
But Levchin has a different perspective. He explained that Affirm’s product (which is essentially a fixed-rate loan) is very different from a credit card’s revolving line of credit.
For example, Affirm loans have no late fees, no compound interest, and no “balance” to be carried. This is a stark contrast to a credit card which will exponentially compound your interest for each month you carry a balance.
Essentially, Affirm helps customers afford a Lululemon jacket by spreading out equal payments over three months, instead of putting it on a credit card where interest would compound each month.
The Future of Affirm
But Levchin knows that even if he is able to vastly increase the amount of loans issued by Affirm, the company’s growth will still be limited by the sheer fact that it doesn’t make sense to offer or accept a loan for products below a certain price point. And even if Affirm issues a dozen loans a year to each user, the platform is only being used about once a month by the consumer.
So, the startup will use some of this new funding to develop a host of services outside of traditional financing, all designed to grow and increase user engagement.
While Affirm hasn’t revealed what these products will look like, they made it clear that the new services are designed be used by Affirm users on a daily basis. These new products could be things like money management help, budgeting tools, or even something to help with overall personal financing decisions.
Also, Affirm will soon start reporting both positively and negatively to the major credit bureaus, which could help successful Affirm repayments translate into better overall credit for those that are young or just underserved by FICO credit scoring.
To date, the company has raised $420M in a combination of debt and equity funding, according to CrunchBase.