Series A crunched: is living in a "damned if you do, damned if you don’t" world

By Michael Carney , written on October 16, 2013

From The News Desk

Timing, as they say, is a bitch. When raised its seed round in Q4 2012, the message from investors was prove product market fit and chase scale, worry about monetization later, according to founder Brendon McQueen. But now, with the Series A Crunch in full effect, the climate has changed markedly, so much so, that some of the same investors are telling the young company to make like Jerry McGuire and “show me the money.”

And so that’s where the company is focused today. The funny thing is, the company’s early results suggest it’s delivering as promised in the traction department. is weeks (maybe days) away from crossing the $1 billion loans under management threshold across nearly 17,000 borrowers. More impressive is that the platform is currently helping a typical US student loan borrower with $35,000 in total loans (at a 6.8 percent federal interest rate and 10 year repayment) save $1,700 over the life of their student loan, according to McQueen.

“The big headline here is that if every student loan borrower in the US was using, they'd have a combined savings of $35 billion,” McQueen says.

The core problem, in’s estimation, is that most student borrowers have loans from multiple lenders and typically have little to no understanding of the terms of these debts. With this in mind, the company doesn’t (yet) offer fancy financial engineering tools, like loan accelerators, to address this situation. Rather, it is simply offers what it believes is the best student loan-focused debt management platform available, with a focus on aggregation and transparency.

The end result is a lot like a financial "Scared Straight" program.

For example, when a borrower realizes that they are likely to pay as much in interest over the life of their loan as they are in principle, it incites new behavior, McQueen says. Similarly, when a borrower realizes that one of their loans carries twice the interest rate of another, the motivation to pay off the high-yield debt increases. works to make this reality painfully obvious.

Simply by virtue of understanding the full scope of their indebtedness, users are increasing their average monthly payment by more than 7 percent per month. While this may seem like a trivial amount on its surface, over the course of a multi-year loan with compound interest, it can make a meaningful difference.

Thus,’s push toward monetization will focus on features that support users in paying down debt more effectively, McQueen says. The company is not yet ready to reveal what these features will be, but its CEO says to expect them before the end of the year.

That’s a good thing, because is in a race agains time, and against their bank balance. The company announced its $1 million Seed round in February 2013 shortly after launching into beta, but it actually closed (and thus began spending) much of the financing several months earlier.

The company is currently looking to raise another $1 million in a $6 million capped convertible note, according to its AngelList profile. Returning investors Mohr Davidow Ventures (MDV) and NeuVC, as well as Conversion Capital and several angels have committed to participate although the company has not yet met its fundraising goal. The company’s seed round also included Rothenberg Ventures, Atom Factory, MESA+, Launchpad LA, and multiple angels.

There’s another proverbial anchor weighing down’s fundraising efforts, the recent departure of McQueen’s co-founder Steve Pomerantz, which happened at the tail end of this summer. While the pair have spoken positively about the decision in public, multiple sources close to the company tell PandoDaily that the root of the split was a disagreement in the future path of the company. It may or may not have been an amicable situation, but one thing is clear: The timing of Pomerantz’s exit couldn’t have come at a more inopportune time for either the company’s product roadmap or its fundraising efforts.

The market timing, however, would seem to be be in’s favor, as the already dire student loan crisis continues to worsen in the United States. The Department of Education (DOE) reported earlier this month that the official student loan default rate hit a 16-year high, with one in 10 borrowers whose loans went into repayment during 2011 defaulting within two years. This frightening figure marks an increase from a 9 percent two-year default rate among borrowers who began repaying in 2010. As the Atlantic recently reported, the three-year default rate looks even worse, coming in at 14.7 percent.

With federal efforts to reform education lending focusing primarily on new borrowers in recent years, the situation has only worsened. Realizing this, the Obama administration recently directed the DOE to begin focusing on existing troubled borrowers. The hope is that solutions like and competitor ReadyForZero – which offers a broader debt management solution – will play a major role in any solution. may not have timed its business model to meet the whims of the venture investment community, but it’s hard to image its product coming along at a better time. McQueen and his remaining six-person team have no intention of throwing in the towel, despite the obvious challenges. The next six months will go a long way toward dictating whether the company will be around for the long haul.

[Image via Creatas]