SeedFi closes on $ 65 million to help financially struggling Americans move up – TechCrunch
Millions of Americans live paycheck to paycheck and struggle to break out of a cycle of debt.
A startup is developing financial products for this segment of the population, with the goal of helping them create credit, save money, access funds, and plan for the future.
This startup, SeedFi, announced on Wednesday that it had raised $ 50 million in debt and $ 15 million in a funding round led by Andreessen Horowitz, also known as a16z. The venture capital firm also led SeedFi’s $ 4 million seed funding when it was founded in March 2019.
Flourish, Core Innovation Capital and Quiet Capital also participated in the latest financing.
SeedFi was founded on the premise that it is difficult for many Americans to get ahead financially. Its founding team has worked in both startups and large banks, such as JPMorgan Chase and Capital One, and assumes that many traditional financial institutions are just not designed to help Americans who are struggling financially. progress.
“We saw firsthand how the system was designed to make disadvantaged Americans fail,” said Jim McGinley, co-founder and CEO of SeedFi. “Our average customer earns $ 50,000 per year, but he pays $ 460 per year in overdraft fees and payday loan companies charge him an APR of 400% or more. They barely earn enough to cover their expenses and any misstep can set them back for years.
In her previous roles, McGinley has helped create responsible alternatives to payday loans for underserved communities.
“There I got a glimpse of the financial difficulties they had and the need for better products to help them move forward,” he told TechCrunch.
Co-founder Eric Burton said he could relate because he grew up in central Texas in a “super poor family”.
“I have experienced all the difficulties of being on a low income and the need to take out high-priced credit to live on a daily basis,” he recalls. “Personally, I was trapped in a cycle of debt for a long time.”
In fact, a job offer he received from Capital One was temporarily canceled because the company said he had “bad credit,” which turned out to be the result of unpaid medical bills. ‘he had incurred at the age of 18.
“I didn’t know them, but I was able to get the job after using my signing bonus to pay off that debt,” he said. “So I can understand how a certain starting point makes it very difficult to progress.”
SeedFi’s goal is to get to the root of the problem. It launched in private beta in 2019 and has helped its initial customers save over $ 500,000, even during the COVID-19 pandemic.
Now is the launch to the public with two offers. One is a credit creation product designed to “build strong long-term savings habits.” Customers save as little as $ 10 on each paycheck, which is reported to the credit bureaus to establish their credit history, and are then able to generate $ 500 in savings in six months.
After six months of on-time payments, SeedFi customers with no credit history were able to establish a credit score of 600, while customers with existing credit scores and less than three credit accounts increased their score by 45 points, according to the company.
The concept of allowing consumers to build credit histories beyond traditional methods is becoming increasingly mainstream. Last week we wrote about Credit Tomo, which provides customers with a debit type credit card so that they can build up credit based on their cash flow.
SeedFi’s other offering, the Borrow & Grow Plan, is designed to be a more affordable alternative to installment or payday loans. It gives consumers “immediate access” to funds while helping them build savings and credit.
Andreessen Horowitz general partner Angèle strange , who joined SeedFi’s board with funding, believes that there is “a huge business opportunity for new entrants to financial services to reach historically underserved populations through better product experiences, underwriting and technology ”.
In a blog post, she shares an example of how SeedFi works. The company assesses the risk and grants credit to a customer that might traditionally be difficult to obtain. It determines the amount to lend, as well as the proportion of dollars to give as money now to savings.
“For example, a typical SeedFi plan might be structured like $ 500 right now and $ 500 set aside in a savings account. The borrower pays back $ 1,000 over time, and at the end of the plan, he or she has $ 500 in a savings account. Not only has the borrower paid a lower interest rate, but he is in a position to better financial situation after making the decision to borrow money, ”Strange writes.
Going forward, SeedFi plans to use its new capital to expand its product line and grow its customer base.
“We will be able to more effectively fund our growing loan portfolio and serve more clients,” McGinley said.