ZestFinance raises $20 million from Thiel Capital

SAN FRANCISCO Wed Jul 31, 2013 7:31am EDT

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SAN FRANCISCO (Reuters) - ZestFinance, a company that licenses out its technology to minimize the risks in making loans, is getting a cash infusion from an entrepreneur who figured out how to make money transfers on the Internet: PayPal's Peter Thiel.

Thiel Capital is leading a $20 million investment round in ZestFinance, joined by Northgate Capital and existing investors Lightspeed Venture Partners, Matrix Partners, Kensington Capital Holdings, and Eastward Capital Partners. Thiel Capital will take a board observer seat; its founder co-founded Ebay's (EBAY.O) PayPal.

Since its last financing round in January 2012, ZestFinance has changed focus from making loans itself to licensing out its technology. The company uses sophisticated algorithms and far more data points than traditional lenders to suss out good credit risks.

"Everyone thinks underwriting was solved in the 1970s by Fair Isaac," said ZestFinance Chief Executive and co-founder Douglas Merrill, talking about the company that provides FICO credit scores. "But it wasn't."

One customer is Spotloan, a subprime lender owned by the Turtle Mountain Band of Chippewa Indians in Belcourt, North Dakota, which uses ZestFinance technology to make loans at rates it says are about half those charged by payday-loan lenders.

ZestFinance is exploring working with insurance companies, credit-card lenders, and others, said co-founder and Chief Operating Officer Shawn Budde, to help evaluate borrowers of all different income groups. Budde was previously manager of the subprime credit-card portfolio at Capital One (COF.N).

The company last raised $23 million in equity in January 2012. Including the latest round, ZestFinance will have raised a total of $55 million in equity.

(Reporting by Sarah McBride; Editing by Phil Berlowitz)

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Comments (2)
GregHitch wrote:
I guess paypal’s secret move into online adult made Peter some extra money for investing.

When will Paypal and the Board of Directors at eBay tell the world about their decision to partner with online adult companies to process their dirty transactions. As of last June Paypal decided to break their own acceptable use policies regarding prohibited activities.

e) items that promote hate, violence, racial intolerance, or the financial exploitation of a crime, (f) items that are considered obscene, (g) items that infringe or violate any copyright, trademark, right of publicity or privacy or any other proprietary right under the laws of any jurisdiction, (h) certain sexually oriented materials or services

No wonder why they decided not to tell their shareholders. I found the entire story here: paypalhassecrets.blogspot.com

I am done with Paypal. They can’t have it both ways. They will do anything for money.

Jul 31, 2013 10:00am EDT  --  Report as abuse
JerTrihouse wrote:
ZestFinance employs some experienced, heavy-hitters who will certainly turn the traditional payday loan product on its ears. They stumbled in the beginning as a direct Lender but they know how to pivot and they’ve certainly identified a small dollar loan industry ripe for change.

Aug 01, 2013 2:03pm EDT  --  Report as abuse
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