Karat Financial, startup that offers credit cards specifically tailored to digital creators, raised $26m in a Series A round.
The funding round comprises two components where $11m was led by Union Square Ventures with participation from GGV Capital, SignalFire and several of Karat’s creator-users, including real estate YouTuber Graham Stephan, vlogger Carter Sharer, DJ 3LAU, Nas Daily, Twitch chess streamer Alexandra Botez among and 20 creators including TikTok star-turned-VC Josh Richards and actor Jared Leto.
In addition to $11m in equity funding, Karat has also raised $15m in debt financing, with this sum being solely allocated to cover spending by Karat cardholders. Previously, Karat had been using its own funds to front these balances.
Karat, which was founded by Eric Wei, former product manager at Instagram Live and former venture capitalist Will Kim, raised a $4.6m seed round in June 2020, with illustrious backers including Twitch co-founder Kevin Lin, Twitter co-founder Biz Stone, former TikTok CEO Kevin Mayer, former YouTube CEO Steven Chen and CAA founder Michael Ovitz. Founded in 2019, it earned a spot in Y Combinator’s Winter 2020 accelerator.
It will be using these funds for cross-company hiring — including engineers, designers, underwriters, capital markets experts and influencer partnerships coordinators on the community side. Funds will also be allocated to public-facing events and marketing to drive new users and educate creators about finances. The goal, it said, is to build additional products like bank accounts and payments and bundle that back in with the card.
After it emerged from stealth last June, it aimed to provide financial services for the creator economy including the livestreamers, YouTubers, and other creators who have carved out new careers in the gaming industry, who are frequently rejected from various lines of credit. Karat analyses creators’ follower counts and engagement rates and hands out cards without fees that tout better credit limits with creator-centric perks.
It currently monetises via interchange fees — or the processing fees that merchants share with card issuers. Karat has created a “black card,” which users can use to pay for services and get money, and pay it off each month like an American Express Card.
Karat cards are currently available on an application-only basis. In terms of eligibility, most card-holders are established creators with more than $500,000 in annual income and $50,000 in savings. The company underwrites creators mainly based on non-traditional metrics like audience engagement. In terms of followers — though these figures aren’t set in stone — they count either 100,000 YouTube subscribers, several hundred thousand Instagram followers, or several million TikTok followers.
The company’s Series A arrives as Karat reports it has seen transactions grow by 50% every month for the past year, with total payments volume clocking in at eight figures since launch.
Creators who carry Karat cards includes Josh Richards and Griffin Johnson (who are also investors in the company), Lenny Rachitsky, TierZoo, Sam Kolder, Wendover Productions, Lizzy Capri, TheRussianBadger, Nas Daily, Real Engineering among others.
Wei was quoted by TechCrunch as saying: “Banks need to understand you in order to trust you, and it’s only when they trust you that they’re willing to give you credit, process your payments and hold your money.
“If Alexandra Botez has 800,000 followers, and let’s say a tenth of them are paying a monthly subscription fee on Twitch, you can actually back into what these creators’ income streams are and develop a better underwriting model than what the banks have today.”
From Greenwood, the Black-centered neobank; to Daylight, which offers financial services to LGBTQ community, Karat Financial joins the growing list of FinTech startups catering to underserved communities.
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