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Exclusive: Embedded lending company LoanStar raises $28M led by Sageview

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Jan 30, 2024
Illustration of construction workers analyzing a house on top of a stack of money.

Illustration: Trent Joaquin/Axios

LoanStar Technologies, an embedded lending tech company, raised $28 million in growth equity led by Sageview Capital, it tells Axios exclusively.

Why it matters: As valuations return to earth and profitability (again) rises to prominence, private equity firms are expected to play a more active role in this post mega-round world.

Details: LoanStar (profitable in 2022 and breakeven last year) raised $20 million from Sageview Capital, and another $8 million came from investors including Launch Credit Union (via CUSO Holding Co.), TruMark Financial Credit Union and Ben Franklin Technology Partners.

How it works: A B2B2C business, LoanStar pitches itself as a way for banks and credit unions to reach new customers at the point of sale, through merchants.

  • It then makes a percentage for originating each loan.
  • "At the genesis of LoanStar, we set out to solve a pretty esoteric banking problem: How do we get the consumers to the products where it makes sense?" says CEO Andrew Turner, a former SVP of product management at FIS.
  • Most of LoanStar's business — 85% of the loans it helps originate — comes from transactions in the home improvement market. The loans average about $45,000.

Meanwhile, a white-label product, LoanStar also pitches its ability to help craft lending products that fit each bank's risk profile and demand. It does so in part by matching lenders to merchants with the appropriate customer demographic.

  • The new capital is expected to help increase LoanStar's home equity line of credit business and help it expand into RV loans.
  • It already operates in the dental and green loan spaces.

Of note: Though LoanStar's product has similarities to buy-now-pay-later, Turner also says it differentiates itself from others within the sector. Notably, it does not charge the merchant.

  • Instead, it pitches itself as an alternative to card payments, which typically charge merchants a percentage fee.
  • LoanStar also does not take balance sheet risk, with banks directly making the loans, so it's not exposed to the securitization market.

By the numbers: LoanStar came in just below $10 million in revenue last year, up from $6.5 million the year prior.

The big picture: U.S. middle-market funds have held up better than their larger peers in the recent dealmaking slowdown, raising 59.4% of total funds in 2023 — up from 41.5% the year prior, per Pitchbook.

  • "During bubbles, it's very hard for people like us to invest. There are lot of business models that I don't think will stand the test of time," says Sageview founding partner Scott Stuart. "Now that the market has corrected and things are back to a more normal state ... it's definitely more interesting."
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