Some online loan platforms have taken a hit of late, but not all of them are struggling: today, CommonBond, a platform that specialises in loans and refinancing for students, is announcing that it has raised $300 million in debt to loan out to prospective borrowers; and a further $30 million in a Series C equity round to continue building out its platform.
On top of this, the company has acquired another startup, Gradible, for an undisclosed amount to add new services to its business, specifically providing a facility for future employers to contribute to student loan payoffs. (Think of it as a 401k for student loans.)
The funding comes as NYC-based CommonBond says it’s passed the half-billion dollar mark for funds lent on its platform since going national three years ago. David Klein, the company’s CEO and co-founder, told TechCrunch that the company is profitable on a per-loan basis and projects that it will be fully profitable as a business in 2018.
The funding announced today included investments from new backer Neuberger Berman Private Equity, which led the $30 million Series C equity round, as well as August Capital, Tribeca Venture Partners, Social Capital, Nyca Partners and Victory Park Capital — all previous investors in CommonBond.
Others investors in the startup include notable individual backers with strong ties to the finance industry: such as ex-Citigroup CEO Vikram Pandit, former Thomson Reuters CEO Tom Glocer and ex-Barclays Private Wealth CEO Tom Kalaris.
CommonBond is not disclosing its valuation with this round. “We have strategically decided not to play the unicorn game,” Klein said in an interview. “But what I can tell you is that if we were a private company when you bought our stock and were now going public, you’d be happy with the return.”
He also described it as an “unstructured upround”, in reference to situations where a valuation is tied to complex terms that might be seen as a down-round in another light. As a point of reference, one of CommonBond’s competitors, Social Finance (SoFi), raised money last year at what was thought to be a $4 billion valuation.
The $30 million in equity funding takes the total raised by CommonBond to date to just under $80 million. The $300 million being announced today, meanwhile, is separate from a $275 million round that was reported earlier this year. Taking equity and debt funding altogether, the company has raised around $1 billion.
All of this is, of course, not happening in a floating bubble. On top of all the controversy that some loan platforms have stirred up with their financials and business models, the whole issue of student loans has found itself in an unlikely spotlight in the current Presidential campaign, almost a by-product of how charged this area is for many going through costly higher education in the U.S. (and increasingly elsewhere) today.
Klein said that the equity funding his company is announcing today is the first major round of financing raised by an online loan platform this year in the U.S. (The UK’s Future Finance, a would-be competitor that also focuses on students, raised $171 million earlier this year both in debt and equity.) So what is CommonBond doing right, exactly, that others are not?
The key, Klein said, is in the demographic that the company is targeting. “There is a broader theme that not online lenders are created equal,” he said. “Generally, it depends on the asset class and credit spectrum, and if you plot all the lenders, you will actually see some variability.”
In the case of CommonBond, he said that some of the important factors are the fact that it targets higher education students, who will be earning more over the years when they are working, and it’s also seeing a growth in its loan volumes, which are double what they were a year ago — although the company is not disclosing actual numbers.
There is also the nature of CommonBond’s platform, too. As with other online lenders, the idea here is that the company uses its own algorithms for determining a user’s credit score, and cuts out banks from the whole equation when processing the whole loan online. This, he said, typically means that on average users are saving $15,000 per loan through CommonBond.
And something that I don’t hear many loan companies talk about as much is that CommonBond has tried to make its sales team fit its demographic: “We hire people out of schools like Cornell and Duke to answer live chats and to simplify what can be a complex decision,” Klein said.
Another reason perhaps for CommonBond’s interest from investors and general growth is because the market is still relatively untapped. Today, around 93 percent of all student loans are still made from the government. Services like Sallie Mae (a consumer bank that originates and services private student loans) and other private lenders and startups like CommonBond and SoFi make up the rest.
That is where the Gradible acquisition comes into play, too. The company — which had raised funding from the likes of AngelPad, 500 Startups and Kima Ventures — will help CommonBond differentiate itself from SoFi and others by giving it an extra set of services to offer to students not just during periods when they are in school, but beyond. The Gradible deal — terms of which were not disclosed — will also mean that CommonBond can tap further into the loan refinancing market as well, competing more against the likes of Earnest.
It’s this differentiation and offering a multifaceted platform that’s also brought the attention of investors, who appear to be patient when it comes to seeing how the platform and business model overall will develop over the years, despite setbacks in the wider industry.
“Among the hundreds of fintech lenders out there, CommonBond stood out to us for its sophistication in underwriting, capital markets, technology and customer acquisition,” said Brien Smith, Managing Director at Neuberger Berman, in a statement. “It’s still early days in online lending’s disruption of traditional finance, and we believe CommonBond, with its world-class team and history of consistent performance, will continue to be a leader in the space for years to come.”