Lending Start-Up CommonBond Raises $100 Million, With Pandit as Investor

Vikram S. Pandit has been on the sidelines of the banking industry since resigning as chief executive of Citigroup last October. But with a new investment, Mr. Pandit is betting an upstart lender will be able to compete with the giants of Wall Street.

Mr. Pandit is among the investors in a round of financing raised by CommonBond, a Brooklyn-based start-up that lends to M.B.A. students and refinances existing debt. The financing, including equity and debt, totals more than $100 million, the company said.

Though Mr. Pandit has kept a low profile since his sudden departure from the helm of one of the nation’s biggest banks, the CommonBond deal is his second publicly disclosed investment this year. In May, Mr. Pandit and a business partner bought a 3 percent stake in the Indian financial services firm JM Financial.

The two investments fit under a broader thesis that the business of providing credit is changing, as traditional banks pull back. Mr. Pandit plans to make more investments along these lines, according to a person familiar with his thinking who spoke on condition of anonymity.

In addition to Mr. Pandit, the investors in CommonBond’s financing round include Thomas L. Kalaris, a former head of wealth management at Barclays, and Thomas H. Glocer, a former chief executive of Thomson Reuters. The equity financing was led by Tribeca Venture Partners and included the Social+Capital Partnership.

“Finance is changing in fundamental ways,” David Klein, the chief executive and co-founder of CommonBond, said in an interview. “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.

Unlike a traditional lender, CommonBond collects money from individual investors, including alumni of graduate programs who want to support other students, and channels it into loans. The company promises lower rates than those offered by the federal government.

In this regard, CommonBond is among a group of start-ups aiming to connect individual investors to borrowers. Another is Lending Club, where John J. Mack, formerly chairman of Morgan Stanley, is one of the directors.

But CommonBond bills itself as more than just a lending company. With students and alumni of a range of schools using its platform, it aims to foster a community, and it has organized galas and other events to encourage networking.

In addition, the company has a social mission, inspired by the eye wear company Warby Parker and the shoemaker Toms Shoes. For every degree that is fully financed on the platform, CommonBond promises to finance the education of one student for a year at the African School for Excellence in South Africa.

CommonBond grew out of Mr. Klein’s own experience with debt, when he was a business student at the Wharton School at the University of Pennsylvania. Trying to get a loan, he found that “banks were providing fixed rates that frankly were just too high.”

So he and two other Wharton students, Michael Taormina and Jessup Shean, started CommonBond as a loan program at Wharton in the fall of 2012. At that point, the company raised $2.5 million to disburse to students as loans and $1 million in seed financing.

With the latest financing round, CommonBond plans to grow nationally and expand into law, medical and engineering graduate programs. It also has plans to branch into undergraduate programs next year.

CommonBond offers graduates of M.B.A. programs a fixed rate of 5.99 percent when they consolidate their undergraduate and graduate debt and opt for automatic debits from their bank accounts. Current students pay a fixed rate of 6.24 percent.

Of the interest paid by borrowers, CommonBond takes a fee and passes the remainder on to investors, who can expect returns of 4 to 6 percent, according to Mr. Klein. The company partners with the Bank of Lake Mills to originate the loans and uses Cology as its loan servicer.

By the end of this year, Mr. Klein said, the company expects to have as much as $100 million on its platform for lending. He added that the company, which focuses on a statistically less risky segment of borrowers, has recorded no defaults to date.

As for Mr. Pandit, Mr. Klein said he was introduced to the former Citigroup chief executive through an adviser.

“He is super sharp, and he is super quick,” Mr. Klein said. “We probably fit an hour-and-a-half conversation into 20 minutes. After that conversation, he was in.”