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Karat Financial is taking over big banks by serving creators

There is more than 50 million creator of the creator’s economy with 3.2 million who consider themselves full-time, pulling in six-figure incomes. As creators continue to turn online content into legitimate business, Financial carats targeted position itself as an indispensable resource where they believe traditional banks were not.

Karat Financial launched out of stealth last year from the Winter 2020 Y Combinator’s batch and raised $ 4.6 million in seed funding from the likes of Twitch cofounder Kevin Lin, Coatue, and SignalFire. And today, the company is announcing a combined $ 26 million in financing including $ 11 million in Series A led by Union Square Ventures and another $ 15 million in debt financing.

In a way, this fundraising round legitimizes Karat’s financial mission to reshape content creators as full-fledged entrepreneurs.

Eric Wei, co-founder and co-CEO.

Wei, a former product manager at Instagram, started Karat and Will Kim, a former analyst for Goldman Sachs, as a way to provide content creators with financial resources found traditional banks have refused. The inaugural product, the Karat Black Card, approved applicants based on their income and social-media followers rather than FICO scores. Also, the Karat Black Card’s reward system offers customizable cash-back options based on a creator’s industry.

“The creator’s economy didn’t exist 15 years ago, and now it’s a $ 50 billion industry — that’s crazy,” says Kim, who shares the role of CEO with Wei. “That’s what we see as an opportunity here: With the emergence of any new economy, there will be a need for new tools, and credit is fundamental to all that.”

At launch, Karat Financial has built more for mid-level creators who have established a sustained following, but are at the point in their business where they need to level up. Currently, the average Karat Black Card member has an annual income of $ 500,000, 250,000 followers through social accounts, and $ 50,000 in savings.

However, the company is looking to expand the pools of applicants.

[Image: courtesy of Karat]

“What we’re moving into is anyone who can go through our waiting lists and share their information because we’ve realized what we care about is your full-time business that benefits from a [corporate] four more than anything, ”Wei says.

Karat Financial joins the growing list of fintech startups catering to disadvantaged communities. From Greenwood, the black-centered neobank; a During the day, which offers financial services to the LGBTQ community, the question is often “do group X really need their own financial platform?”

“I think this industry is going through a once-in-a-multi-generation period of transformation,” says Ryan Falvey, founder and managing partner of Financial Venture Studio, a VC company that specializes in fintech. “The big banks in this country are not interested, nor are they able to serve most consumer-filled stops.”

For Falvey, large banks are mainly focused on growing the wealth of their current customers as opposed to growing their new number. For boots, traditional banks make most of their money from credit card services and transactions rather than debit or charge cards.

“They also generally don’t really want to serve a lot of low-income consumers, including most Americans and almost everyone under the age of 30 in this country,” Falvey says. “What this means is you have an exciting opportunity to build a brand and market share in an environment where incumbents are not investing much.”

That said, a key point to consider for these upcoming financial services is the use case, which Falvey admits he didn’t see first with Karat Financial when he watched the business while he was at Y Combinator. “I’m not sure we were convinced that [Karat Financial] there was a sufficiently different use case, “he said.” But as I learned more about the space, it seems like it might’ve been a miss. The creator’s economy really exploded last year. “

In this explosion, creators, including twitch streamer and chess player Alexandra Botez, were in need of funding to capitalize on the boom.

[Image: courtesy of Karat]

Botez started its Twitch channel in 2017, and over the course of two years has grown from 20 average viewers to around 400 per stream. But the one-two punch of the pandemic gives more people time to learn the failure and the overwhelming popularity of Netflix’s drama The Queen’s Gambit inspires a monte interest in the game, which benefits Botez’s channel, BotezLive. Botez incorporated as an LLC last spring, bringing on her sister to stream with her full-time and hiring an assistant and video editor.

However, when he went to open a business line of credit in Chase, he hit a rip. Despite having a credit score of over 800 and a personal credit account with the bank, they rejected it. “They refused to tell me anything. They were like, ‘just try again in a certain amount of time.’ So then I did. I tried it again in a certain amount of time, and they rejected it again, “Botez says.” I was like, I never work with Chase even if I can, you’re stupid! It was really frustrating. “

Botez began to hear similar stories from creators. As fate would have it, he and Wei were in the same year at Stanford University and were also part of the Y Combinator group. So when Wei needed the creators to join Karat in its early days, Botez was an obvious choice.

“I understood the pain points so well that when they launched me on the call, in the first 30 minutes, I was like, this is incredible. Can I please an angel investor?” Says Botez, who in fact a supporter of Karat. “I realized how great at one point this pain was for me, for others in the space, and how much potential there is here to build the financial infrastructure for creators.”

For Wei and Kim, the goal is to expand this financial infrastructure beyond a charge card and into other services such as tax preparation. “There are so many traditional institutions already existing, why are people coming to us? Because these traditional institutions are not doing a good job of reaching a new population under banks,” Wei says. “We want to make the very first and top choice for creators to come in and build more for them. All the existing [banks] does not do so anymore. They failed. That’s why we’re here. “

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