The creator economy is changing the way that people earn a living, whether you’re an Instagram influencer or a freelance graphic designer. But traditional banks haven’t caught up. Karat Financial, based in the United States, has raised $26 million in a Series A fundraising round.
The company distributes business credit cards only to content creators. Union Square Ventures was the lead investor in the round. GGV Capital, SgnalFire, and a number of digital content providers were also present. The fintech company’s financing round includes $15 million in debt and $11 million in venture capital.
Take, for example, Alexandra Botez. On Twitch, where she has 877,000 followers, earns six figures playing chess. However, she was turned down twice for a corporate credit card application. Meanwhile, the creator of TierZoo, a YouTube channel with 2.7 million subscribers, was turned down for an apartment because his landlord didn’t consider his business to be legitimate.
When Eric Wei was a product manager at Instagram, where he helped design Instagram Live, he noticed this disparity. Wei founded Karat Financial, a better financial system for digital producers, with co-founder Will Kim, a past investor with venture firm Lucky Capital. It reported today to have raised $26 million in a Series A round led by Union Square Ventures, with participation from GGV Capital and SignalFire.
Eric Wei and Will Kim’s Verdicts
“Banks need to know you to trust you, and only when they trust you will they provide you credit, handle your payments, and store your money,” Wei explains. “If Alexandra has 800k followers and a tenth of them pays a monthly subscription price, you can actually back into what these producers’ income streams are and construct a better underwriting model than the banks have,” says Wei.
Karat, on the other hand, isn’t tackling a problem that just the top 1% of digital authors face. Even for self-employed small business owners or gig workers, finding a landlord who will rent an apartment without proof of employment letter and frequent paystubs might be difficult.
Karat was launched by Wei and Kim in 2019 and was accepted into Y Combinator’s Winter 2020 incubator. Karat received $4.6 million in venture capital from investors including Twitch co-founder Kevin Lin before June 2020, when it released its first product, the Karat Black Card, a credit card for creators.
“As part of our verification process, we strive to evaluate creators as businesses,” Wei explained. The Karat Black Card has no interest or fees, and it only makes a small profit from bank interchange fees. Karat will also provide the creator free credit for sponsorship payments. So, if you’re an influencer who was paid $1,000 to shoot a video for a clothes firm, getting paid may take months. Karat will offer you $1,000 right now if you promise to repay them whenever the clothing manufacturer pays you.
Karat has proven its concept with month-over-month growth of 50% and transactions in the eight figures since its inception last year. Jared Leto, 3LAU, Nas Daily, and Josh Richards are among the more than 30 creators that have invested in Karat, and this is without the use of influencer marketing.
Wei explained, “It turns out that when you do a fantastic job for creators, they spread you around to other people.” Since then, they’ve added YouTube co-founder Steven Chen, Twitter co-founder Biz Stone, former TikTok CEO Kevin Mayer, and former Wealthfront CEO Adam Nash to their list of investors.
Karat’s ultimate goal
Karat’s ultimate goal, though, isn’t to give creators recognition. They started with a credit card to establish their concept, but they intend to build a financial infrastructure for creators in the long run. This includes assisting them with the launch of item lines, the incorporation of their firm, the acquisition of a mortgage, the acquisition of business financing, and the filing of their taxes.
Wei claims that this would happen after the company’s Series B, allowing for a more profitable revenue stream than bank interchange fees.
Wei explained, “We chose to launch Karat using the same tried-and-true fintech playbook.” “Begin with something easy before moving on to the more complex products. As a result, the card is merely a means to an end for us. We use the cards to strengthen our financing model and earn trust from creators, with the goal of someday becoming Square for creators.”
Wei and Kim are already receiving texts from their online celebrity customers requesting that they serve as their de-facto financial counselors. Wei explained, “We’re simply like, oh my gosh, we love you, but we’re not developing those items yet.” “When we reach Series B, we will do that, and yes, we will charge you money because we will provide you with greater service than what is currently available.”
Karat wants to increase its workforce with new hiring and begin looking at new product development with the recently announced Series A financing.