Apply HN – Seedu – Equity Financing for Education

[seanreddy]

Seedu is a peer-to-peer platform permitting investors to microfund various students of their choice in return for a percentage of their future earnings potential. We anticipate creating a network of investors whom are aligned with these students in order to provide both tuition assistance and mentorship effectively seeding these students' futures.

Seedu does not provide loans in the traditional sense, but rather attracts investors (friends, family, alumni, prospective employers, retail/institutional investors, etc.) to buy up students’ debt in return for equity in their career earnings for a given period of time. Typically speculative startups opt for equity funding rather than debt funding due to lack of initial funds and the freedom to experiment in their respective space – Seedu acts upon the same premise with students early on in their careers.

Seedu’s contract provides the student with:

Competitively priced alternative/supplement to student loans

Incentivized mentorship from equityholders – If you do well, they do well.

Career flexibility – Currently can’t risk leaving your job due to high monthly student loan payments.

Unemployment insurance – If you have difficulty finding employment, there is no traditional student loan payment to worry about.

Customized payment structure – Ability to modify the contract based upon financial expectation/need.

Active involvement bonuses – You will be able to reduce the net amount paid through good grades, internship acquisition, and anything else that actively boosts your future earnings potential.

Transparency – Student loans are bureaucratic and confusing. We will be focusing on simplicity and data visualization to help understand where your money is going.

We hope, with your help, we can solve the student debt crisis together.

[akg_67]

Upstart abandoned ISA idea and pivoted to traditional loan products. Has something changed, since Upstart pivoted, to make ISA attractive? What are you doing differently that your ISA offering, compared to Upstart, may succeed? You both are targeting same segment. Upstart has already tried student segment with ISA and that also recently so you will have hard time convincing people that situation is significantly different in 2 years.

What are the reasons for relative success of Fantex ISA compared to Upstart ISA? There is something uniquely different between Fantex and Upstart target market for ISA. You need to find target markets that have similar characteristics as Fantex ISA to figure out attractive target markets for your ISA.

You might want to contact Dave and Paul at Upstart to investigate their reasons to exit ISA. Also, try reaching out to Mark Cuban. IIRC, he was involved with Upstart too.

[seanreddy]

A ha! I was wondering when this question would arise. There's a lot in your question so I'll hopefully hit on everything.

The regulatory environment, as mentioned in another comment, is still the Wild West out there. Also mentioned is that it matters how you position your offering in the market and how it is structured. For example Lumni is another company that has an intermediary fund which acts as a risk pooling mechanism, thereby tying it more closely to insurance regulation than say, a direct agreement between two individuals would.

Fantex is targeting a different market altogether despite using the same vehicle to do so ("getting a piece of an athlete"). I feel it's unfair to compare the two in the same vein that a mortgage is much different than credit card debt.

While Upstart has left the market, their exiting statement claims they are still optimistic regarding the use of ISAs as a vehicle in education funding.

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In my research of those participating in the student debt market, there are a number of problems I have with existing services out there (but I won't be delving into pros and cons of every single issuer):

Pricing is typically inflexible (5-year, 10-year).

Pricing is not transparent/clear (what does the company make, what does my investor get?, can I lower it in any way?)

Lack of a microfunding structure (like LendingClub). More investors decreases individual student exposure by diversification.

Many don't truly promote/provide a good avenue for the mentorship aspect. The platform is financial services only, get your loan, and never log on again except to repay -- that is not my vision.

Many didn't have great distribution/marketing. Ask your friends if they are aware ISAs exist, I am doubtful many will know. Sure, that may be anecdotal but I assure you many do not know this type of funding is an option to be considered. I believe this to be one of the biggest hurdles in this market that no player has yet captured. One of several campaigns we would run is involving student representatives on campus for information/advertising and client acquisition.

We aim to be a truly accessible and customer centric platform that I don't think any others have yet conquered. This is certainly an undertaking to portray financial concepts to 18 year olds but I think with the proper data, visualizations, and communication pipelines, we can differentiate in this area.

Based on the quote I received from an unnamed competitor, it appears they remain uncompetitive compared to the alternative of student loans.

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Seedu aims to ameliorate these issues. I don't think it is necessarily one of them that caused previous attempts to fail, nor do I think one company is doing all of these things wrong, but rather a combination of all of them. Seedu values flexibility, transparency, and mentorship above all.

Hope this helps. Please follow up if I was unclear anywhere.

[gpsgay]

Love this! Hope it works out, and if there is anything i can help with i'll be happy to do so. Also, if you aren't already doing it, do think about this not only for the US but as a global project.. Its needed worldwide. I would suggest promoting this as social enterprise. I am sure you'll find lots of support.

[seanreddy]

Thanks for the support!

We plan to focus on the US to start as this is a very regulatory-intensive problem. Different countries come with an entirely new set of regulatory hurdles. With that being said, we are open to the idea well down the line.

We wholeheartedly believe this is a product for social good and very much intend to reflect that in our brand.

[arijon]

I think it is a cool idea...however this does not solve the student debt crisis. This looks to me like swapping one type of debt for the other. Unless I am misunderstanding your offering. I would reconsider the last statement..."We hope, with your help, we can solve the student debt crisis together."

[mrborgen]

I like this idea. If properly executed, it'll give people a whole new type of liquidity. I see the App Academy's model (free bootcamp, but takes recruitment fee from companies who hire their graduates) as a very early prototype for this kind of model.

[seanreddy]

Good point.

There are several bootcamps that operate under this model already as you mentioned. Another that comes to mind is Grace Hopper Academy.

We believe, as you pointed out, the liquidity aspect for the student will allow for freedom unforeseen with a traditional student loan.

This type of financing may be suboptimal for someone with a very rigidly defined career path (e.g. an accountant), but could serve to be instrumental for anyone with higher variance in their career (entrepreneur, first X employee of a startup, etc.).

[caffeinewriter]

What kind of research have you done into the regulation surrounding peer to peer lending?

[seanreddy]

Great question. Our small team has put in extensive research and continues daily.

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First off, I'd like to point out that these contracts, referred to as "Income Share Agreements", lay in a gray area that may not be considered “lending” at all as it truly isn’t a loan. In the regulatory gray area, there are several possibilities in which it can be classified:

1) Similar to a Corporate Stock Issuance

2) Similar to a Joint Venture

3) Similar to Insurance

4) A traditional loan

5) A new vehicle entirely

Each of these has different implications for how the product will be positioned so this is a difficult question to answer in short. Vanderbilt has published good resource to look at for a broad overview if you are interested in taking a look yourself:

https://www.vanderbiltlawreview.org/wp-content/uploads/sites...

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The regulatory environment surrounding these contracts is truthfully uncertain right now although there have been proposals that have been attempted in recent past (see: "investing in student success act of 2015" - https://www.congress.gov/bill/114th-congress/senate-bill/218...). Additionally, similar programs for income based repayment are in test for Oregon state schools as per the "Pay It Forward" tuition plan.

While there is absolutely regulatory uncertainty, we are able to use these existing frameworks to give us an insight into what regulators are looking for going forward. Truthfully, the lack of strict regulation can be seen as a positive as it allows us the freedom to carve the path so long as we stay within certain guidelines.

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Realistically with such a complex product we are aware that we will need to seek professional legal advice eventually. With that being said, feel free to reach out with specific questions as there is simply too much to cover here.

[dputtick]

How do you initially plan to structure your loans/agreements (interest rate, term, etc) - and what adjustments will you consider making from those numbers to acquire users?

[seanreddy]

Initially we are beginning with quinquennial term lengths with a fairly conservative price structure. However, our model is being designed with the end-state in mind.

In our end-state, we intend to have full flexibility on any lever possible.

For example, say you have the option of covering your education in return for 5% of your income for 20 years. This may be equivalent to 10% over 10 years, or 20% over 5 years (please note these are purely for illustrative purposes and not discounted/run through our pricing model).

You will have the option of having a sliding scale for income sharing %, term, etc. It should look near-continuous rather than discrete. Sliding one parameter will certainly drag the others but we will provide recommendations based on what the user's financial needs are.

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We have an exceptionally data-heavy focus. As for adjustments, this model will take inputs (e.g. GPA) such that when a student does well in class, they can "refinance" to perhaps take off a basis point or two depending on the model output which could be significant over the course of repayment (a la "Get an A in Organic Chemistry and save $120 on average over the course of your repayment period."). This can also apply to when a student acquires an internship or their first job which gives an idea of starting salary. More data will allow us to more accurately predict their future earnings potential. Realistically, these adjustments can apply to anything with a statistically significant impact on a student's future earnings potential.

We believe this will allow for students to feel a sense of control over their education financing.