Alternative lending startup Activehours has raised another $39 million in financing, bringing its total raise to nearly $65 million since its 2013 launch.
According to TechCrunch, this new round – led by venture capital firm Andreessen Horowitz, with participation from Matrix Partners, Ribbit Capital and March Capital Partners – comes only nine months after the Palo Alto-based startup raised $22 million.
One key feature of Activehours is that it avoids regulation because it doesn’t charge interest on the money it fronts to customers. Instead, the company asks users to pay a small voluntary fee to access their money as sort of a cash advance prior to payday. The site doesn't look into a person's credit history or even ask for a Social Security number. In fact, anyone with a checking account and a job can use the service.
For investors, giving money to Activehours can mean a guaranteed rate of return from the cash, which the company makes from the “tips” it gets from its users. And anyone on the platform can “tip” on behalf of someone else on the platform, which is done anonymously.
While the company says that tips are capped at no more than roughly 15 percent of the total amount of money advanced – and that no user will be advanced more than $100 at a time – given the duration of the loans and the payback period, these tips can wind up being as much as the interest rates charged by other payday lenders.
For example, if someone pays back the Activehours loan in two weeks after receiving $100 and paying a $10 tip, it would amount to an annual percentage rate of 260 percent, which is similar to the excessive rates charged by payday lenders.
Still, Activehours promotes itself as a way for its customers to take control of their wages.
“Until a few centuries ago, people got paid as they worked. Employers moved to paying employees every two weeks because that was more convenient for them. Now, we’ve built a way for people to take back control of their paychecks,” Ram Palaniappan, founder of Activehours, said in a statement. “With this latest investment round, we’re looking to significantly expand the team and further improve the product to continue our focus on making money work better for everyone.”