Karus, a financial technology startup focused on artificial intelligence will launch its operation in Boise, the company told BoiseDev.
The startup is led by CEO Aaron Travis, and backed by Boise-based venture capital firm StageDotO.
“We are using machine learning to create efficiency in the credit markets,” Travis said. “We’re going to be helpful to lenders and originators in making them more efficient. We are helping make larger financial investors more successful.”
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Decreasing risk in car loan investing
Though what Karus hopes to bring to market is complex, its first product essentially looks to improve the data available for figuring out how much risk is involved in individual car loans. The traditional measure that many lenders look at – the credit score – is near an all-time high.
But those high scores don’t mean loans are still without risk, Travis said.
“We don’t know how to lend now,” he explained. But Karus hopes to help bring more information using machine learning to the table to score risk on a loan-by-loan basis.
“We are predicting prepayments, the timing of those prepayments, defaults, and recovery rates,” he said of Karus’ first product for auto loans.
Investors could look at a pool of car loans – in Travis’ example, 10,000 of them bundled together. In deciding whether or not to invest in a group, the technology hopes to provide granular data beyond an average credit score.
“There is a big need for AI to do data analysis for investments,” Mike Self with StageDotO said of the opportunity. “Because yields are so low, different institutional investors are starting to do more opaque investments – like buying tranches of used car loans that are getting packaged together and resold.”
“Karus will take a bottoms-up approach. It’s actually scoring through machine learning (each loan). I’m going to have a default, prepayment, and recovery rate. I will do that for every single one of 10,000 loans. That will give a bottoms-up to a score or price for that pool, rather than top-down.”
“They have this unique model that allows innovators like Karus to navigate the early stages of launching which can be precarious,’ Travis said of StageDotO. “We are building our front end and collecting data. They understand what we are doing and where we need to go – not just to be successful but equally as important as being focused on what milestones we need to hit to get our next round of funding.”
Boise vs. The Bay
Before the pandemic, Karus considered locating in the San Francisco area. Instead, it will launch in Boise.
“The data science team was going to move from Ohio to San Francisco,” Self said about the pre-COVID plan. “We had them to Boise a couple of times. It just worked. We see all the benefits of founding the company here – so two of the co-founders will commute to Boise and spend half their time there to start.”
Not that long ago, San Francisco was the place to be for this type of company, Travis said. But that quickly changed in 2020.
“I’ve done a bunch of startups, and it’s always been a bit of a positive to be in the Bay Area and recruit there,” Travis said. “That has really flipped. One of our data scientists – he played golf at Stanford for four years. Loves the Bay… but has no interest in coming back here. The fact that we were going to have a Boise headquarters was a real positive for him.”
In Boise, Karus enters a space with several other startups in the financial technology space, including Clearwater Analytics, Intuit, and the recently-acquired Kount.
“The positive for Boise was that there were so many people doing so many exciting things. We’re excited to have a presence there.”
Boise’s growing fin-tech space
“You don’t get those exits without talent,” he said. “Entrepreneurs can grow a company and get an exit and be in Boise, Idaho. Exits help. For the fin-tech space, we are on the map with those transactions. You look out five years from now there’s no reason we can’t be even more.”
Travis thinks it’s a good environment to join.
“When big acquisitions happen – it’s a big thing for the investors and founders. I hope that Karus gets bought out (someday),” Travis said. “We do know the next stage is that people who like early-stage building of a company start to leave. As these companies graduate and go on with other corporate partners – there’s a whole ecosystem of employees, investors, and advisors that are in that ecosystem.”