Silicon Valley lender raises nearly $50 million for subprime credit card push

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LendUp Global Inc., the startup online lender that tried to reinvent the payday loan, plans to take on a more mainstream financial product: the credit card.

The San Francisco-based lender said it raised $47.5 million in an equity deal to grow its card business. The investment values ​​LendUp at around $500 million, people familiar with the matter said.

The fundraising, completed last month, was led by YC Continuity, the late-stage venture capital fund of tech startup incubator Y Combinator, LendUp chief executive Sasha Orloff said. Mr Orloff declined to comment on the company’s valuation, but said it had achieved a “significant upside” from the last investment round.

By raising funds to roll out a credit card for subprime borrowers, LendUp will compete with mass banks such as

Capital One Financial Corp.

Last year, LendUp launched a limited version of a credit card aimed at similar borrowers, called L Card. The new effort will expand that brand.

Unlike rivals

loan club Corp.

and other established startups that aim to lend to middle to upper class households, LendUp has target less creditworthy consumers who have more difficulty accessing bank loans.

The company, which launched in 2012, began by offering short-term dollar loans, which can carry triple-digit interest rates. He says he’s improving payday loans by not converting unpaid debt into new loans and by rewarding people who repay with better terms.

LendUp is among the beneficiaries of startup investors who believe that targeting consumers turned down by banks and other lenders is potentially a bigger opportunity than focusing on wealthier customers. They point out that the big banks, in particular

Goldman Sachs Group Inc.,

are getting ready to expand their own efforts to lend to people with higher credit ratings.

But restoring subprime borrowers also carries more regulatory risk. The Consumer Financial Protection Bureau has previously reported a crackdown on payday lenders’ tactics. New rules recently proposed by the regulator require payday lenders to demonstrate a borrower’s ability to repay and make it harder for companies to deduct fees directly from the borrower’s bank account.

In a speech in December 2015, CFPB director Richard Cordray denounced subprime credit card lenders for charging excessive fees and interest that end up preventing cardholders from paying off their balances. “These cards put many consumers at risk,” Mr. Cordray said at the time.

LendUp’s L Card users can typically borrow between $300 and $1,000 at an annual percentage rate of between 19% and 29%. The company may also charge an annual fee of up to $60 per year.

Earlier this year, LendUp in conflict with Googlea unit of

Alphabet Inc.,

on a ban on payday loan advertising on web searches that LendUp said was too restrictive, throwing good and bad products together.

A Google-backed venture capital firm was an early investor in LendUp. Despite LendUp’s clash with the search giant, GV, formerly known as Google Ventures, has also joined the new round.

Adding to the new round, LendUp has raised a total of approximately $200 million since the start of the year, including $100 million in credit from Victory Park Capital, an alternative investment firm that has provided more than a billion dollars in credit to online lenders. .

With the credit facility, LendUp plans to keep its credit card loans on its books, which should help insulate the business from the difficulties the broader online lending industry is having in funding loans through sales to fund managers.

LendUp’s backers include some of the biggest names in venture capital, including Kleiner Perkins Caufield & Byers, Andreessen Horowitz and Russian billionaire Yuri Milner. Ali Rowghani, who manages YC Continuity and previously served as a senior executive at

Twitter Inc.

and Pixar Animation Studios, with the new investment, joined the LendUp board as an observer.

The company is also backed by QED Investors, a venture capital firm launched by some of Capital One’s founders and early employees. Some of the former executives call LendUp “Capital Two” and believe the company is poised to expand into the subprime lending space that Capital One has long dominated.

Write to Peter Rudegeair at [email protected] and Telis Demos at [email protected]

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