Employee churn is one of the biggest challenges facing organizations working in competitive environments. Today a startup is launching with a new product to add to the artillery of tools that HR people are using to combat that. Keep Financial is building a platform to help employers provide retention bonuses in the form of forgivable loans — forgiving the loan typically based on them staying at the company for an agreed length of time — and alongside its launch the startup is announcing $9 million in funding.
The seed round is being led by Andreessen Horowitz, with Launchpad Capital, Thomvest Ventures, Cambrian Ventures and Worklife Ventures also participating. Keep was founded only four months ago, and it has yet to release any product, let alone sign up any customers. It got on a16z’s radar however in part because it was co-founded by a pair of entrepreneurs with a strong track record in fintech, an area it’s been very active in backing: Rob Frohwein and Kathryn Petralia previously co-founded Kabbage, a trailblazer in the world of AI-powered small business loans, which was acquired by Amex in 2020 for $850 million. (And technically Petralia has not quite left but will be doing so very soon, I understand.)
(Note: a16z did not back Kabbage but it was most definitely on its fintech radar — see here, here and here — and even as a large part of the firm focuses on web3, crypto and other decentralized concepts, it’s still placing bets elsewhere too.)
The concept of forgivable loans has been around for years, and beyond being used as a retention tool, they really came into focus during COVID-19 as a government-backed funding mechanism for companies facing challenges making payroll and other financial hardships during the pandemic. In the world of employee retention, they have been used not just to get hires to stay with companies for longer — if they meet the terms that have been agreed, the loan is erased; if they leave before then, they must pay it back as you might a loan — but also tied to certain performance targets.
The key innovation with Keep — which, as its name implies, is focused initially at least on the retention aspects — is that it has transformed the concept into more easily provisioned service, part of the bigger fintech wave of loans as a service. With the market relatively untapped, Keep believes that it could ultimately increase the amount that employers provide in retention and compensation across the board.
“There was $8.9 trillion awarded in compensation in the U.S. last year, but less than 2% of that was in the form of retention bonuses,” Frohwein said in an interview. Big parts come in the form of options and other stock-related compensation, but as he noted, the structure of that is often very abstract and doesn’t make sense to a lot of employees and at the end of the day, still doesn’t really tie them into any sense of commitment to staying at a company. “I believe a company like Keep could change the face of compensation. We believe we could grow that 2% to 10%.”
Doing the math, that works out to an $890 billion opportunity if all goes as planned.
Previously, Frohwein said, companies that might have considered forgivable loans a retention tool would have constructed them and managed them internally. Handing over that process to third party (like Keep) not only opens up the concept to a much wider range of business sizes — SMBs being a key area of interest for these two founders — but it also adds significantly more flexibility into how the loans get provisioned, and what might be constructed around it.
As Keep envisions it, a portion of its customers, typically the larger ones, will still front the money for those loans themselves; others will lean on Keep as a loans provider. Keep itself is raising this seed as equity but is also securing some debt funding that will be used to loan out money.
Keep will initially make money itself based on provisioning and managing those loans: 2.75% of the loan amount, Frohwein told me. There is no interest on the money unless an employee leaves before the end of the agreed term and does not pay back the full sum (or agreed proportion) within 60 days of that. That subsequent interest, he added, will be a “simple interest payback schedule” that will typically be lower than what you might get from a bank.
Around this, over time Keep plans to add in more services around the loan, Frohwein said. This could include payment cards, advice and services for mortgages or car financing, or investing, or other potential areas where bonuses are often applied by their recipients.
Anish Acharya, a general partner at a16z, led the investment for the firm.