This morning Upgrade, a credit-focused fintech startup, announced that it has raised a $40 million Series D round that the company says gives it a $1 billion valuation. The Upgrade round slots neatly into a few trends TechCrunch has noted in recent quarters, including fintech startups raising at new, higher valuations, and some startups seeing sharp valuation growth on the back of comparatively modest raises.
In its Series D, Upgrade managed to, ahem, update its valuation from $500 million set during its 2018 Series C. Santander InnoVentures, the CVC associated with the banking giant Santander, led the latest investment.
Given the sheer deluge of fintech news in the last few years, you’re forgiven if Upgrade slipped through your nets. The company is a fintech startup with a credit-focus today, though it intends to add more neobank-like tooling — digital checking accounts, and so forth — in Q3. So, instead of starting with a checking-and-savings structure like so many neobanks, Upgrade kicked off with personal loans and credit cards.
The result of that focus, to hear Upgrade CEO Renaud Laplanche tell it, is that the company has managed to quickly scale its revenue base. This helps explain why the company raised so little money in its Series D; the company told TechCrunch it is currently on a $100 million run rate (month12, not quarter4) and is cash-flow positive.
On that note, how Upgrade managed to secure capital during the current, less certain era is somewhat clear from its growth story. (Growth, as we keep seeing, is still something VCs want to pour capital into.) According to Laplanche, Upgrade rang up $60 million in revenue in 2019 and expects $160 million this year. That’s nearly a tripling from an eight-figure base in a year — not bad at all.
If Laplanche’s name sounds familiar, it’s because he was the founder and former CEO of peer-to-peer fintech company LendingClub, which went public in December of 2014. Laplanche ran afoul of regulators during his tenure, leading to his ouster; he founded Upgrade after leaving LendingClub.
Upgrade has a different philosophy than some credit card providers, in the view of its CEO. “Banks have an incentive to keep customers in debt as long as possible,” Laplanche said during an interview with TechCrunch. Upgrade, in contrast, offers lower rates — cards starting at 6.9%, under what the CEO described as a market-normal entry rate of 12% to 13% — and set repayment periods for debts so that customers don’t wind up in a credit cycle that never ends, sapping them of financial health.
The model and Upgrade’s other products, like personal loans, have proved popular, by its own reckoning. The startup told TechCrunch that three million individuals have applied for credit from the company. That demand has led to rising loan volume — Upgrade expects to do $3 billion in lending this year, including $2 billion in personal loans and $1 billion in credit card volume, it said — and a growing user base.
That user base is part of why the startup is targeting banking in the near future. And that move is why it needed money. Let’s explore.
The startup’s move into banking makes a bit of sense, given that it already has customers. One constant in the fintech world is the offering of more services to existing customers, helping drive up their lifetime value (LTV) and thus making their cost to acquire (CAC) more palatable.
Upgrade is just doing this normal move in reverse. Instead of starting with checking accounts and debit cards, which yield regular interchange incomes, it started in higher-margin credit and is moving into the lower-profit consumer banking world next. Q3, according to Laplanche, is when we should expect to see more from the company on this front.
Which brings us to why Upgrade raised at all. Per its CEO, the company might run cash-flow negative for six to nine months after the launch of its banking tools. Upgrade could roll out the new services slowly, he said, but decided instead to raise external capital and be more aggressive.
Upgrade is an interesting startup story and a comeback tale of sorts for Laplanche. More as we have it.