Softbank Invests $250M in Online Lender Kabbage

Softbank Group Corp, a Japanese multinational telecommunication and Internet corporation, is investing $250 million in Kabbage Inc, one of the biggest U.S. online lenders to small businesses, the latest financial technology investment by the Japanese technology conglomerate. This is by far the largest equity investment in such lenders outside of China.

Kabbage History

It was founded in 2009 in Atlanta to provide loans to vendors on eBay. It has provided nearly $3.5 billion in funding to small businesses. It has grown to over 115,000 customers and built and automated platform for lending money to individuals using data points in order to determine a customer’s credit score. It uses an artificial intelligence system that analyzes hundreds of real-time sources of data on companies, from Facebook pages to UPS shipping account. Its digital technology is also used for automated lending by institutions such as Banco Santander, Scotiabank and ING Greop NV.

Ms. Petralia said 95% of its small business borrowers “have a 100% automated experience” and they complete loan applications in 10 minutes on average, compared with the many days it can take at a traditional bank.

“Our customers can get a checking account at a bank, but they just can’t get a small business loan, the banks won’t let them, so they have no choice but to come to us,” she said.

Kabbage gives its loans through Celtic Bank, a Utah-chartered lender. It has financed its rapid growth by securing loan payments. Ms. Petralia said it kept the credit risk in the loans and had reserved 6 cents in every dollar of loans for bad debts, “we’re pretty comfortable with that.”

In 2015, Kabbaged had raised $135 million in a Series E funding round and entered the level of unicorn startups with a valuation of $1 billion and more.

Some of its investors include UPS Strategic Enterprise Fund, Mohr Davidow Ventures, Warren Stephens, SV Angel, Thomvest Ventures, BlueRun Ventures, David Bonderman, and the founder of TPG Capital.

Kabbage’s Plans

The Atlanta-based startup, which operates in North America and Europe, will use the equity funding to add more lending products and other types of financial services.

Kathryn Petralia, cofounder of Kabbage, said that the deal would finance growth in the company’s direct lending operation, which has provided nearly $3.5 billion of funding to more than 100,000 small businesses in the U.S. She said the latest funding round, which takes the total raised by the company to $500 million and values it well over $1 billion, would also fund an expansion of its platform that partners with banks to help them make automated loans to small businesses.

In addition, Kabbage plans to launch in Asia within the next 18 months, cofounder and Chief Executive Rob Frohwen said. Talks with banks in India, China and Japan to license its technology are underway, Frofhwen revealed. The startup is amongst a group of young financial technology companies that make use of digital technologies to offer credit faster than brick-and-mortar institutions.

“We believe that our system can be deployed rapidly on an international basis,” Frohwen said.

There has been a speculation that Kabbage is planning to make a bid for OnDeck, a rival digital lender that went public in 2014 and has since suffered an 80% fail in its share price, hit by growing losses, rising defaults and higher funding costs.

“Our partnership with Softbank accelerates our goal of providing a suite of services to small businesses globally that is centered on real-time and persistent access to a wide variety of data,” Frohwen added.

He also plans to spend the next 12 months or so positioning the company for a possible initial public offering. Kabbage expects more than $200 million in revenue in 2017, roughly double what it generated in 2015, he stated.

For Softbank, the investment marks another significant move into the fintech market, coming on top recent bets on personal lending outfit SoFi and India’s Paytm.

Softbank Stock Performance

Meanwhile, by 3:00 PM GMT +9, Softbank Group Corp traded 0.32%, or 28, to 8,813 JPY . It opened in  8,800 JPY, with a session high of 8,863 JPY  and a session low of 8,764 JPY . Its market capitalization was 9.70 trillion, with a P/E ratio of 11.3 and a dividend yield of 0.50%.

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