After raising $26M, Karat aims to be the creator economy's bank

Karat Financial raised $26 million from a host of celebrities and tech founders to build a banking system that serves the creator economy.

Karat 101: Karat Financial is known for its Karat Black Card, a credit card for creators with a $50,000 credit line that raised $4.6 million via a crowdfunding effort. Launched in 2019, Karat was co-founded by former Instagram product manager Eric Wei and former venture capitalist Will Kim.

“We recognize these high-net-worth creators as the successful businesses and brands of tomorrow and our goal is to be the financial system that powers them.” —Eric Wei, co-founder of Karat Financial

Funded by creators: More than 20 famous artists and creators tossed Karat cash, including actor Jared Leto, Josh Richards (25M+ on TikTok), and 3LAU (2.5M+ on Spotify) and Youtubers Graham Stephan and Carter Sharer. The $26 million combined round included $15 million in debt financing and an $11 million Series A, led by Union Square Ventures, and including GGV Capital and SignalFire.

Financing a movement: Karak is targeting the more than 50 million people in the creator economy, whose value is estimated at $100 billion. About 3.2 million creators are earning more than $100,000 per year, per Influencer Marketing Hub. And according to Signal Fire, about 46.7 million creators are monetizing their content, skills, and influence as a part-time job.

The hurdles: Despite the industry’s promise, banks are still puzzled by creators and how to lend to them. With no set monthly income and a mixture of revenue streams, creators are frequently denied access to capital to grow their businesses. Some, such as Alexandra Botez, a professional chess player streaming on Twitch, have even been denied apartments by bewildered landlords that want to see pay stubs.

Why it matters: Traditional banks may view creator businesses as hobbies, risky, or insignificant — but Karat is leveraging that shortsighted view to its advantage. By providing creators alternative financing and tools to grow their businesses, Karat is giving a boost to the broader creator economy.

“I experienced a lot of the bias first-hand and was denied a business credit card several times by banks just because the nature of my business isn’t what they are used to seeing. There are literally thousands just like me who aren’t valued or understood by legacy financial institutions,” —Alexandra Botez, founder of BotezLive on Twitch

The roadmap: Offering a credit card is just part of Karat’s vision. The company ultimately wants to build a financial ecosystem that will help creators launch products, obtain mortgages, incorporate their businesses, take loans, and even file taxes.

Unique vetting: Instead of a typical credit card application, Karat will analyze your social media following and fan engagement. To determine your acceptance, Karat will scrutinize your social media for such metrics as your subscribers, followers, engagements, sponsorship deals, mentions, and likes. It's a bit like Black Mirror's acclaimed Nosedive episode.

Karat customers: The average Karat Black Card member has an annual income of $500,000, 250,000 followers across their social media, and $50,000 in savings. Karat said it plans to widen its customer base to include more folks across the revenue spectrum. A quandary arises, however, if one of these influencers loses their popularity, which isn't uncommon in the modern world of social media.

The Karat Black Card: Karat’s card doesn’t charge fees or interest, and its cashback rewards scale with your social media following. Karat instead generates revenue off bank interchange fees. Another creator-specific perk is its instant revenue feature, which advances credit for sponsorship payments at zero cost. Its metal card also can be engraved with your logo.

VC-backed creator economy: Startups in the creator economy have raised more than $1.3 billion so far in 2021, setting a record according to a report by tech analytics firm CB Insights. Investment in creator economy companies in just 2021 tops the previous five years combined.

Are you planning to get a Karat Black Card? Already have one? Share your experience below!