Despite earning six-to-seven-figure-a-year incomes, many content creators are denied the capital they need to expand their businesses. The reasons vary, but most are relatively young and have limited business and credit histories, and deal with inconsistent income across platforms.
It’s a lucrative problem to crack. According to one source, hundreds of millions of people now create content full-time, and could well drive the market for digital content creation to over $180 billion by 2032.
The huge addressable market spurred Eric Wei and Will Kim, best friends who met in 2016, to found Karat Financial, which aims to help creators manage their money across payments, bank accounts, invoicing and more.
Y Combinator-backed Karat’s first product was a business credit card that provides creators higher limits based on their social and financial stats instead of FICO scores. But the company’s now looking to expand its offerings with a card that builds personal credit history.
“The bottom line is that Karat sees creators as the brands and businesses of tomorrow, but high-end creators, just like any other business, need access to capital to grow,” Kim told TechCrunch in an email interview. “Karat is here to fuel that growth, democratizing access to capital that remains outside the focus of large banks. Creators are eating the world, and Karat is in a great position to be the financial system that powers them.”
Wei, a McKinsey and Blackstone veteran who previously worked at Meta as a product manager on Instagram Live, makes the case that traditional banks don’t understand the ins and outs of the creator business. Banks usually require a steady monthly income from “conventional” revenue sources, like products and services businesses, to make loan decisions — leading them to turn down even high-earning creators.
More than two million creators make over $100,000 per year, and according to VC firm SignalFire. And over 46.7 million people have enough of an online following to monetize their content part time.
Image Credits: Karat
No business can possibly hope to predict viral trends, especially in the creative content space. But Karat makes an effort to minimize risk using an underwriting model it developed in-house, the details of which remain under wraps.
“Karat analyzes creators’ cross-platform success, looking at factors like social reach, audience engagement, mix of platforms and monetization to create a more accurate picture of their business model,” Wei said, adding that Karat plans to add some form of machine learning to the model in the future. “This enables Karat to serve creator businesses that otherwise wouldn’t have access to capital.”
Wei wouldn’t say how exactly how many creators have been approved for Karat’s credit card to date. But he did volunteer that over 1 billion users follow its clients, which include real estate agent Graham Stephan, Linguatrip co-founder Marina Mogilko and Arab-Israeli vlogger Nas Daily.
“No one is doing what Karat is doing at this level or scale that’s uniquely tailored to the creator economy,” Kim said. “Creators have already made millions of dollars in transactions using Karat business cards, benefiting from higher limits and exclusive rewards.”
Having built out the base card business, Karat is shifting its attention to the aforementioned new card — the one focused on personal credit history — in partnership with Visa. As holders of the new card make on-time payments, Karat, which won’t require a hard credit pull for the card, says it’ll report the payments to major credit bureaus — much like a typical credit card company.
The new Karat card will come with standard benefits like reimbursement for items stolen or damaged within 90 days of purchase. But it’ll also offer creator-specific rewards like access to “member experiences” at industry events such as VidCon and VidSummit.
Cardholders will also have the opportunity to upgrade to personalized bookkeeping and tax services through Karat. Or — if they prefer not to pay — the platform will provide fee-free tools for tracking business write-offs with the card.
“Our partnership with Visa is the first of its kind for this fast-growing segment, which allows creators to build a history of credit using the Karat card that they can use to secure better rates and terms for other key financial products to scale their businesses,” Wei said.
Karat has competition from startups, like Creative Juice, which underwrite creator businesses in exchange for a cut of their revenue over a certain period of time. But it’s managed to hold its own in the nascent industry, today closing a $70 million Series B funding round, a combination of debt ($30 million, led by TriplePoint Capital) and equity ($40 million, led by SignalFire).
The Series B, which had participation from Union Square Ventures, CRV, GGV, Commerce Ventures as well as actor Will Smith via Dreamers VC, Twitter co-founder Biz Stone and YouTube co-founder Steve Chen, brings Karat’s total raised to over $100 million.
“The decision to raise a combination of equity and debt financing was based on careful strategic considerations,” Kim said. “Debt financing allows Karat to access working capital and cover cardholder spend while maintaining control and flexibility, while the equity round led by SignalFire and the participation of esteemed investors brings not only financial resources but also valuable insights and networks to support the company’s trajectory.”
Wei added that the new cash will help Karat scale its existing products and continue to build tools to help creators manage money.
“Karat Financial closed the round now to keep up with the growth of the creator economy, which Goldman Sachs predicts will reach nearly half a trillion by 2027,” Wei said. “Having proved the model and expanded it under a new partnership with Visa, creators now have a smoother path to accessing the capital they need when they need it.”