Student lending startup Funding University has raised a $5 million strategic funding round in equity and debt. The $2.4 million equity portion was led by Silicon Valley-based Deciens Capital with participation from Valor Ventures, Asia-based fund GMO Ventures and additional angel investors. Additional investment was allocated in debt from the Caerus Foundation in Chicago to allow Funding U to start giving out loans nationally.
“We’re actively in market now using the debt. For us, the debt is used 100 percent for lending — the investors on the debt side get a 7.5 percent return from us for use of their capital, which is a nice yield in this economy and money that’s doing good,” says Jeannie Tarkenton, founder and CEO of the three-year-old startup.
Tarkenton hopes to leverage the equity funding to build her team, further technology development in anticipation of national expansion, and nurture more bank and lender relationships.
Over 44 million Americans collectively hold nearly $1.5 trillion in student debt — that’s 1 in four Americans currently paying off student loans. The average student loan borrower graduates with $37,172 in student loans, according to recent reports.
Atlanta-based Funding University aims to disrupt that loan cycle by offering small loans, typically less than $10,000, at affordable interest rates to students without co-signers. The data science algorithms behind their platform allows Funding University to pinpoint the risk profiles of the interested students based on their application, academic performance, earning potential and historical data. They must have a maximum 15 percent projected post-grad debt-to-income ratio.
“We could make money off of people, which unfortunately is what a lot of these students have gotten into. We are hoping that if this company continues to grow, we can catch the problem before it starts,” Tarkenton told Hypepotamus previously.
In 2016, Funding U performed a small pilot with 20 students, during which they learned that the scale of the market was larger than expected — they received $10 million worth of demand from students across the country in less than 30 days. In 2017, they tweaked their data to build a more robust risk profile that would determine the student’s probability of graduation as the primary underwriting peg for their portfolio. They’re currently focusing on junior and senior-level students.
“We automated our initial screen and went into market with a broader wait list outreach to learn more about our customers and build a big pipeline,” says Tarkenton. “We got $100 million in loan requests, and $15 million of that would’ve been loans that we originated. We spend the last six months raising the money to meet that demand.” Funding U saw a 1078 percent increase in new users and a 1623 percent growth in pre-qualified loan volume through their platform in just the last year.
Previously, the ATDC Accelerate portfolio company raised a $1 million seed round in 2016 backed by Amazon CEO Jeff Bezos’ personal investment company Bezos Expeditions.
“One of the things Valor likes best about Funding U’s plan is rather than taking on the whole colossal student loan market, Funding U is focusing exclusively on the responsible, full-time student with a strong academic track record who is filling a small gap between what they can contribute and what it costs to stay in school full time,” Atlanta-based Valor Ventures wrote in a blog post. “[…]It’s an adventure, it’s a meaningful business, and it’s a big opportunity.”
Funding University is aiming to have between 300 and 1,000 loans in market following this round and then move to the next stage of their growth.