San Francisco-based online startup Credit Karma announced today it had finalized an $85 million dollar capital raising from several investors including Google Capital. According to an article in the Los Angeles Times, around half of the $85 million is from Google Capital, the company’s new vehicle for investing in maturing startups. The other $40-odd million of capital funds are being provided by Tiger Global, Ribbit Capital and Susquehanna Growth Equity. The latter two entities had invested in an earlier Credit Karma financing round.
The consumer credit report provider was founded in 2008 and has now raised a total of $118.5 million in operating capital. Credit Karma will use the new capital to increase its workforce of 110 employees and bring more products “that are going to be disruptive” to the market, company chief executive Ken Lin said.
Credit Karma business model
Credit Karma provides consumers with free access to their credit reports. They already offer a service to obtain a free snapshot of the personal credit scores. Credit scores are calculated based on loan-payment histories maintained by credit-rating agencies. Until now, these score had only usually been provided when individuals applied for a loan or signed up for other financial services that charged fees.
Users of the service can get a snapshot of their credit scores once a week. Credit Karma obtains its most of its credit score data from TransUnion, one of the three major U.S. credit-rating agencies (the other two are Experian and Equifax). The service also calculates a credit a score based on another formula used by the credit-rating agencies a used by most auto and home insurers.
Credit Karma has enjoyed excellent growth over the last year. Around 21 million people are currently Credit Karma users, according to CEO Lin, an increase of 12 million users from only about 9 million a year ago.
Credit Karma doesn’t keep the Social Security numbers required to open an account, but the business model does involve creating financial profiles of users to to customize the advertising that represents most of the company’s revenue.
It should be noted that although Google also analyzes personal data to decide which ads to show users, Credit Karma isn’t sharing any information about its members with Google.