CommonBond Raises $100 Million

Posted Sep 4, 2013

CommonBond is a Brooklyn based startup that offers loans to MBA students and can help refinance existing debt.  CommonBond has raised a round of funding, which includes Vikram Pandit as an investor.  Pandit is known for resigning as chief executive of Citigroup last October.  Pandit has been keeping a low profile since he departed from Citigroup.

The investment in CommonBond is Pandit’s second publicly disclosed investment this year.  This past May, Pandit and a business partner bought a 3% stake in Indian financial company JM Financial.  Both of Pandit’s investments involves providing credit to people as the traditional banks pull back.  Pandit will make more investments based on this model.

Other investors in CommonBond’s financing include Thomas Kalaris (former wealth management head at Barclays) and Thomas Glocer (former CEO of Thomson Reuters).  The equity financing was led by Tribeca Venture Partners.  The Social+Capital Partnership also participated in this round.

?Finance is changing in fundamental ways,? stated CommonBond chief executive officer and co-founder David Klein in an interview with The New York Times. ?Not to be overly dramatic, but I think we?re going through an evolution in finance right now that we haven?t seen since 1500s Venice,? when modern systems of credit were developed.

CommonBond raises money from individual investors, including graduate program alumni that want to support other students.  CommonBond promises lower rates than what is offered by the federal government.

Klein came up with the idea for CommonBond due to his own experiences with debt when he was a business student at Wharton School at the University of Pennsylvania. As he was trying to get a loan, he learned that banks were providing fixed rates that were high.  This is when he decided to work with two other Wharton students Michael Taormina and Jessup Shean to launch CommonBond as a loan program at Wharton in the fall of 2012.  The company raised $2.5 million to distribute between students as loans and another $1 million in seed funding.

CommonBond is offering MBA graduates a fixed rate of 5.99% when they consolidate their undergraduate and graduate debt.  They will also have to opt for automatic debits from their bank accounts.  Many students are paying a fixed rate of 6.24% with their federal loans based on averages.  Out of the interest that is paid by the borrowers, CommonBond will take a fee and pass the remainder to investors.  The investors see a return of around 4-6%, according to Klein.  CommonBond also has a partnership in place with the Bank of Lake Mills for the loan origination and Cology as the loan servicer.

Towards the end of the year, Klein is expecting to hit $100 million on their platform for lending.  CommonBond is focusing on statistically less risky segment of borrowers.  The company has not seen any defaults so far.