Lenddo, a startup founded in 2011 with offices in Manila, Bogotá and New York City, is announcing an $8 million Series A funding round today. The funding will help Lenddo bring its social reputation model of helping users demonstrate how worthy they are of credit via their social network connections to more markets across the world, with a specific focus on emerging markets. The funding round includes Accel Partners, Blumberg Capital, Omidyar Network, iNovia Capital and Metamorphic Ventures, as well as several Angel investors.
In an interview, Lenddo CEO and co-founder Jeff Stewart explained that the Lenddo model came naturally to him and his co-founding team as a result of doing lots of business in developing markets where there is an emerging middle class.
“Me and my co-founders are all serial entrepreneurs, and we had companies we’d founded all over the world, all sort of in the internet and technology space,” he said. “Our employees would come to us because they needed loans. We tend to hire from the best universities, these are highly educated, highly employable people, yet they couldn’t access loans. So we started to look at what it would take to get them access to credit.”
That led the team to discover that while traditional lending models in the countries they were looking at didn’t really work for the new middle class seeking funds, and the team turned to the model of microfinance as inspiration for how to proceed. “What really got our attention was that in microfinance, everybody repays. There’s about a 98 percent repayment rate on microfinance loans, looking at markets around the world where they’re used,” Stewart said. “The social enforcement mechanisms of microfinance works.”
Hence, Lenddo’s idea of using an individual’s social connections to prove their trustworthiness with financial institutions and give them access to services that wouldn’t otherwise be available. It’s a way for individuals living in non-credit-based economies to supplement or replace their often nonexistent credit histories, which could then provide them access to funds for startup capital and more.
Lenddo itself makes money by charging its partners for its services arranging, administering and closing out loans, which it provides exclusively to only two markets right now, the Philippines and Colombia. Lenddo already has members in 35 countries, however, and Stewart emphasized that Lenddo isn’t just about getting loans, but about providing members with a reputation score they can carry with them in whatever capacity they need one, like possibly getting a job or landing a contract.
Of course, Lenddo works for financial organizations because it basically provides creditors with an extensive list of who to pursue should a borrower ever default on their loans, but that’s also largely true for how credit works in North America, albeit in a less direct fashion. And Lenddo’s method of using social media activity as a kind of currency in emerging markets works best with the markets it’s approaching, since social media use is high among its population.
Lenddo joins a growing number of startups looking to provide financial services to the traditionally underserved, including cash transaction enabler PayNearMe and international remittance company BeamIt. The middle class may be shrinking in the U.S., but abroad, it’s still growing in markets like China, despite global economic woes. Lenddo and others like it will be well-positioned to profit from that growth, and investors seem to think so, too.