Just when the online lending scene seemed mired in doldrums and doubt, New York-based CommonBond landed several deals to shake things up.
The company announced on Tuesday it raised $30 million, in a Series C equity round led by Neuberger Berman Private Equity, and it also acquired Gradible, a New York-based student loan evaluation company.
In addition to those deals, David Klein, CEO and co-founder of CommonBond, says his company bulked up the lending capabilities of its platform via $300 million in loan purchases by an undisclosed asset management firm. With these latest infusions, he says CommonBond has more than $1 billion in combined financing, with $70 million of that as equity funding.
The Series C round will go towards new hires in technology, finance and capital markets, and business development, Klein says. The company currently has more than 80 people on staff, but he declined to specify how many new openings he plans to fill.
The round included existing investors August Capital, Nyca Partners, Social Capital, Tribeca Venture Partners, and Victory Park Capital. Among the notable individual investors were Vikram Pandit, former CEO of Citigroup; Tom Glocer, former CEO of Thomson Reuters; and Tom Kalaris, former CEO of Barclays Private Wealth.
CommonBond’s latest acquisition is part of its plan to further build out its software and scale up its loan operations, Klein says. Gradible, founded in 2013, developed an online personal finance platform that offers recommendations to users on how they can repay their student loan debt.
For now, Gradible remains a standalone brand, though CommonBond’s plan is to absorb it completely. Two of Gradible’s co-founders, Pete Wylie and Grant Biles, have stayed on and joined CommonBond.
Bringing Gradible into CommonBond, Klein says, will help his company build out a platform that will let employers offer their workers help in paying off their student loans. This includes employers making contributions to their workers’ student loan payments, comparable to 401(k) matching plans. “Employers want this as a way to attract and retain top talent,” Klein says.
Currently, just a small percentage of companies offer their employees benefits related to student loans, he says. However, Klein expects this idea will catch on and spread to more than 25 percent of companies within the next two years. “It is fast becoming an advantage in bringing new folks onboard,” he says.
Student debt has arguably reached crisis levels in this country, spurring doubts about how such loans will ever be paid back. Debate continues on whether or not there actually is a crisis, and the effect it could have on the economy, but the debt—which tops $1.2 trillion by some measures—is not going away anytime soon.
“A third of the workforce today is made up of millennials,” Klein says, “and about 75 percent of them have student debt.” CommonBond’s software and data are used to cut the costs of student loans, a service which he says is increasingly in demand among recent college grads looking to shed their debt.
Despite the need Klein sees for new approaches to financing, the overall online lending industry is going through a variety of growing pains. In recent years, expectations rose around online lenders—some of which he says may have gone too far. “You had really hot headlines talking about how marketplace lending would effectively bankrupt the banks,” Klein says. “That was way too extreme.”
For a time, there was a stampede of rivals looking to become the next Lending Club or Prosper Marketplace. These days attitudes have changed, he says, with numerous news outlets trying to proclaim the death of marketplace lending as investors retreat. Klein says CommonBond’s equity round might be the first for any online lender of scale this year, a drastic shift from the days of ready cash for this sector. “Last year, there were at least 13 instances of equity investment,” Klein says.
Of course each company in online lending, he says, faces challenges specific to its niche—whether in unsecured consumer lending, student loans, small business financing, or mortgages. To Klein, that means the narrative is more nuanced. “Any business in marketplace and online lending requires the credit investor to provide lending capital over time,” he says. “If your loan performance isn’t there, or if you’re screwing up in some capacity, it is going to pause or dry up.”
