As more media companies roll out video streaming services, Grow Credit Inc. launched a new idea: build your credit by using a Mastercard to pay for Netflix and Hulu subscriptions.
Customers can apply for an interest-free Mastercard from Grow Credit, connect it to a bank account and pay for these subscriptions with the card. Grow Credit reports their monthly payments to Equifax, Experian and TransUnion, the major credit reporting agencies, and indicates that payment history can improve their credit scores.
The Santa Monica, Calif.-based startup has caught the attention of executives at United States of Americawhich uses credit scores to determine whether to offer someone an insurance policy and what premiums to charge.
READ ALSO : USAA claimed that Truist Bank took its deposit technology remotely. They reached an agreement.
The San Antonio-based insurance and financial services company recently led a $10 million Series A funding round for Grow Credit, which said the investment would help it “accelerate its mission to achieve “USAA may enter into an operational contract with Grow Credit.
“We know that many, many military men and women benefit from Grow Credit’s ability to help you go from, say, a 600 (credit score) to 650 or improve your score without necessarily going out and getting a $5,000 extra loan for something,” said Nathan McKinley, vice president and head of corporate development at USAA. “We are very excited about this opportunity.”
The Grow Credit deal was led by USAA business development departmenta team of 15 people – among the company’s approximately 37,000 employees – that invests in emerging companies.
Since launching the division in 2009, USAA has invested $331 million in 39 startups and returned more than $1 billion to the company, some of which was redeployed in other investments, said McKinley. Its adjusted internal rate of return – a metric used to measure investment performance – is 41%.
Buy, build or become a partner?
The company focuses on four categories: financial technology, or fintech; insurance technology, or insurtech; security, data and artificial intelligence; and business infrastructure. It typically invests in Series A through C funding rounds, and tends to stay away from funding rounds under $1 million due to the costs incurred in hiring an external advisor and performing due diligence, a McKinley said.
In some cases, USAA invests in a company because buying part or all of it is faster and less expensive than developing the service or technology that company offers in-house, McKinley said.
“There’s always this type of build or buy or alliance equation that you look at,” he said. “Do I buy it?” Do I build it? Do I just associate with someone else?
READ ALSO : USAA wants to track your conduct. Will your price go down?
That’s what happened with Noblr Inc., a San Francisco-based property and casualty insurance provider that offers usage-based auto insurance. United States of America bought the business for an undisclosed amount in 2021.
“We were looking to get into this space and we did this math exercise: How much would it cost us to build what they already have and how long would it take?” » said McKinley. “We evaluated that internally, and then we looked at the price of Noblr, and we were like, ‘OK, wait a second. We can provide this to our members more quickly if we purchase it. So we decided to buy it.
The company’s development team reviews about 1,000 leads — or potential investments — each year and invests in three to five companies per year, McKinley said. Its current venture capital portfolio is valued at over $600 million and has co-invested with groups such as In-Q-Telthe venture capital arm of the CIA.
USAA has invested money in Instant sheetwhich uses photos and user-contributed information to generate immediate repair estimates and resolve complaints faster; Hosta AIwhich uses artificial intelligence to analyze user photos and create property assessments; ID.mewhich verifies the identity and establishes the eligibility of USAA members; TrueCar Inc.which provides data on new and used car prices; Lumotive Inc., a developer of optical semiconductors; And Coinbasea digital currency exchange office.
Part of USAA’s “secret sauce” is the company’s ability to execute operational agreements with companies, McKinley said. USAA has such contracts in place, either to test or fully implement the technology, with about half of the companies in which it has invested.
“Instead of, say, trying to make everything in-house, it’s almost, to some extent, a slight outsourcing of innovation,” McKinley said. “You won’t have a monopoly on all the good ideas.”
READ ALSO : USAA offers tips for reducing insurance costs for teen drivers. Here’s what you need to know.
USAA also invests in external venture capital funds, including a fund managed by Fraser McCombs Capital. The company, founded by BJ “Red” McCombs and Chase Fraser, invests in transportation technology companies.
USAA fully divested its investments in 14 companies and partially divested its investments in two companies, including TrueCar. Changes to USAA’s co-branded car buying website with TrueCar have been prosecuted contributed by TrueCar shareholders and USAA terminated their service and car buying relationship with TrueCar in 2020. USAA still owns 7.9 million TrueCar shares.
Along with venture capital operations, intellectual property commercialization is part of USAA’s corporate development department. With some of its investments, USAA is trading its intellectual property for equity, McKinley said. USAA has more than 3,000 active or pending patents, including patents for technologies that allow customers to deposit checks using their smartphones and tablets.
The company has sued some of its banking competitors to charge them for using this remote deposit technology. Juries awarded him a total of $302.8 million in two lawsuits against Wells Fargo and $218.5 million in a lawsuit against PNC, although an appeals panel later said some of the patents were invalid, Law360 reported. It also recently entered into a deal with Truist Bank, and terms of the deal were not disclosed.
USAA declined to say how many banks have authorized the technology.
Investment Patience
McKinley’s interest in investing began when he was young, and he said it has been a passion of his ever since.
“We didn’t grow up with much, and I was fascinated by compound interest from a young age,” he said.
He worked at a country store and Burger King restaurant and saved $5,500, which he used to buy several hundred shares of stock in a small company when he was 18. But he said he didn’t hold the shares long enough to cash out when the value of his investment peaked.
“That’s when I started to realize, you know what, maybe you need to be a little more patient from an investing standpoint,” McKinley said. “It was painful, but it was a great life lesson in patience.”
READ ALSO : USAA requires more employees to return to the office – and more at least four days a week
When he joined USAA 17 years ago, he first worked at USAA Federal Savings Bank and became involved in home equity lending and credit card operations. He then focused on the company’s military affiliate operations, which provide branded products and services to military organizations, before becoming head of corporate development in 2015.
The lesson of patience proved applicable with USAA’s investment in Coinbase.
McKinley said he was approached six times about selling the company’s stock, but turned down the offers because he and his team saw potential. Coinbase went public in 2021 via a direct stock listing, in which shares are listed on an exchange but no new shares are issued or sold. This resulted in a “very good return” for USAA, McKinley said.
“It was another example of how you can take money quickly and it would look great, or you can be patient and take very large amounts of money,” he said.
He said his children also like to invest.
“The key is to start early, save a few dollars, be disciplined and get a decent rate of return,” McKinley said.
