PODCAST TRANSCRIPTION SESSION NO. 119-ANDY HINRICHS

Welcome to the Lend Academy podcast, Episode No. 119. This is your host, Peter Renton, Co-Founder of LendIt and Founder of Lend Academy.

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Peter Renton: Today’s podcast is sponsored by Fundrise. Fundrise investors earned over 10.8% average annualized returns during the second quarter of 2017. That’s approximately 50% higher than a typical diversified peer to peer lending portfolio. How? Fundrise is the first investment service that makes the benefits of private market real estate investing available to everyone online. You can begin with as little as $500. Go to www.fundrise.com/lendcademy to find out more.

Today on the show, I am delighted to welcome Andy Hinrichs, he is the CEO and Co-Founder of AutoGravity. Now AutoGravity is relatively new on the scene, but they have achieved a lot in a short amount of time. They have an app that takes the entire car buying experience and puts it in your mobile phone and makes it simple and quick and painless. As we all know, the car buying experience can be quite onerous and time consuming. They’ve put it all in the app so we go into some detail about how this works, how they work with dealers, how they work with lenders, the kinds of consumers that are downloading the app and where they operate and the scale they’re at today. It was a fascinating interview and I hope you enjoy the show.

Welcome to the podcast, Andy.

Andy Hinrichs: Thank you for having me, Peter.

Peter: Okay, so let’s get started. I’d like to hear a little bit of background about yourself. You don’t have an American accent, just like me, so give us a little bit of your background, where you’re from and what you’ve done in your career.

Andy: Yeah, you will probably pick up on it, I have a German accent. I came to the US as a student and that was about 20 years ago and I never left. I’ve been in the financial services industry for the past 20 years and I’ve had the good fortune of being able to work in the startup world and the corporate world. In the late 90’s, in the advent of the internet, so to speak, I was part of the founding team of giggo.com which was one of the first companies to offer online auto loans.

Ultimately, it was acquired and became part of a big finance company. I moved to Mercedes Benz Financial Services where I worked in the US, in Europe and in Asia and then at the end of 2015, I decided to leave Mercedes Benz and we started AutoGravity and AutoGravity is now in the next wave I would say of the internet evolution or revolution which is powered by the smartphone. So we are now making the auto loan, auto buying and financing experience compatible with the smartphone.

Peter: Okay, well we’re going to dig into that in some depth, but before we do that, I want to get your thoughts on…I mean, most of us here have bought a car or bought multiple cars in our lives and I can speak from my own personal experience it’s quite painful in many ways. From your perspective, being in the auto industry for a long time, what do see as the biggest pain points today when purchasing a car?

Andy: If you want to identify the pain points, you first have to look at the lifestyle of the consumer and that has drastically changed over the past ten years. You know, there are two driving forces. One is the advent of the smartphone, the smartphone is increasingly the tool of choice to manage all aspects of someone’s life and now if you couple that with the second observation which is the fact that millennials, those consumers between 18 and 35 years of age, are now the most dominant consumer group in the US and these people have not known life or lifestyle without the smartphone.

If you combine these two things, you will find that the auto buying and financing experience is largely incompatible with that lifestyle. So what AutoGravity’s key innovation is we’re bringing auto buying and car finance to the smartphone with a simple to use app that facilitates the process on your terms. So we’re essentially taking a process that on average can take three hours in the finance office at a car dealership, we’re taking it down to about seven or eight minutes.

Peter: Okay, so let’s just dig into that. Just describe what the app does exactly and how it works.

Andy: Yeah, so first of all, the app is a consumer facing experience and by being consumer facing we’re being completely brand agnostic and lender agnostic. So we made the decision, we’re going to feature all makes, all models, any car that’s for sale in the US, you will find on the AutoGravity app. And there are four simple steps to go through our process.

First, you look at the car catalogue, you pick the car that you like, we give you all kinds of details about the car. Once you decide which car you want to go for, we help you find a dealer using the geolocation off of your phone so within your vicinity we’re able to show you the dealer and we have a proprietary database that we built that has all franchise dealers throughout the US in it so this works across the entire US for all makes and models. Once you’ve selected your dealer, we allow you to use our interactive credit app to complete a full credit application right on your phone.

For instance, rather than typing in name, address and all kinds of personal details, we allow you to scan the back of your driver’s license and pre-populate all the fields that are contained on your driver’s license and within just a few fingertips, you’ve completed our interactive credit app. Once you’ve submitted the credit application, the fourth step is you will see almost instantaneously up to four binding finance commitments from the best lenders in the industry so essentially, you have your choice of what finance offer, lease or loan offer suits your needs the best.

Peter: Okay, so then, basically, what you’re saying is you’re just doing all this from home. You’re sitting at home…most people are…they might narrow it down to a couple of different makes or they’ve got something in mind. You know, I’ve been on your app and it’s very impressive. You have even these tiny little dealers in Denver that have a very small inventory and they are there on your app. So what you’re doing is you’re selecting the car, you’re selecting the dealership, you’re not going to the dealership, you’re not doing anything there, you’re getting the financing. So, basically, you walk in to the dealer, you know the car you want, you know that you’ve got financing, you just basically…you’re going in like a cash buyer, is that what you’re saying?

Andy: Yeah, pretty much. Essentially, what we’re doing is from the convenience of your home, office, kitchen table or your local coffee shop, we allow you to just take a few minutes, and this is again catering to the instant gratification need that consumers have nowadays using smartphones at their whim, and we’re turning the smartphone into car buying money essentially. So by the time you contact the dealer, you know what you want, you know what you can afford and you know on what terms you will buy and finance this car.

Now for the dealer, this process is also very efficient and very favorable because by the time the consumer enters the dealership, the dealer knows that the consumer is qualified for this transaction so it creates a very efficient process for the dealer and the benefit is also AutoGravity is working with the same lenders that the dealers are already working with.

So we have in our database those lenders for a particular dealer that the dealer is working with and we’re able to allow the dealer to pick up the fulfillment process where the consumer left it off. So very seamless process, no duplicate data entry or anything of that sort and the consumer has a very seamless efficient process and so does the dealer.

Peter: Okay, so what are you sharing with the dealer? This person has gone through the…they’ve selected their dealer, they’ve selected their…they’ve applied for financing, they’ve got four offers and they’ve selected one, what do you share with the dealer?

Andy: The way the process works is first, the lender processes the credit application and qualifies you for financing and we show you a application reference number right on the app. If you take that to the dealership, the dealership can use their systems that they use to work with a particular lender, enter the application ID and pull up the file just as if the transaction had started at the dealership. So from the dealer’s perspective, there’s no difference in the actual steps to make the car roll off the lot, if you will.

Peter: Right, because for them I can imagine this is not just a warm lead, this is an extremely hot lead because they’ve indicated that one, they can afford the car, they want the car and so all the dealer has to do is basically give them the keys and obviously whatever paperwork they have for that so I can see how…let me just back up a second, do the dealers view this as really a positive thing because some of these dealers make their money from the financing side of the business. What has been the dealer response?

Andy: Well the dealers are actually embracing AutoGravity and the technology because the dealers see consumers looking at their smartphones every day and what the dealers have recognized is there is a strong demand from the consumer side, in particular with the younger generations, those people want to inform themselves on their smartphones first or else they may never end up going to the dealership.

So the dealers have been very embracing of our technology and our business model and we’re being fair to the dealers because at the end of the day, we’re not staging a race to the bottom by trying to create bare bone rates and drive the cheapest deal. What we want to achieve is the consumer to have a transparent experience and to get a fair deal and a fair deal also means a fair deal for the dealer. So our rates do include a small margin for the dealer so the dealer still has economics in the deal and at the same time, the consumer knows exactly what they’re getting themselves into.

Peter: Okay, so I’m curious about the loan application itself because you said you can just scan the driver’s license which is obviously very handy from having a data entry on a…you don’t want to do a lot of data entry on a phone, but are you sending this off through an API to these lenders or do you have their credit model inside your database? I mean, how are you able to get a lending decision, what’s the mechanics of that?

Andy: Well, we are using the underwriting models and processes of the lender so when the consumer enters a credit application. First of all, our technology enables that to be very seamless, as I mentioned before, we allow them to scan the back of the driver’s license so that contains a barcode and we read out the variables that are important to a credit application. What we do not do is store any imagery of the driver’s license, that is something that’s for compliance reasons we just don’t want to do. Once the credit application is complete, we perform a so called soft pull and we determine, based on the credit score and some other information, which are the four lenders that are most suitable to finance this particular customer and then we submit the credit app through an encrypted highly secure API to those lenders.

The lenders run it through their scoring system and their underwriting process and most of them, within seconds, deliver us a decision that we will then serve up to the customer in the form of a finance offer. So what we’re leveraging really is the core competencies of the lenders which have strong balance sheets, very favorable cost of funds, high efficiency and a lot of process know how and we’re coupling that with the core competency of AutoGravity which is a seamless digital user experience. So what we’re doing is highly secure, it’s meeting and actually increasingly exceeding the security and compliance standards of the industry so what it results in is a reliable firm offer to the consumer.

Peter: Okay, you’ve got to have a lender who has the technological know how and capability to connect with your API because otherwise, you know, as you said, the millennial, if they get a message saying, yeah, we’ll let you know in a week whether you’ve qualified. That’s obviously a very bad user experience so I imagine that…are you only working with lenders who have this sort of tech capability?

Andy: Actually, on the part of the lender it does not require a lot of technology sophistication. What we do at AutoGravity, and that’s also part of the innovation that we provide to the lenders, the lenders tell us what the plug looks like, if you will, that we need to plug our data pipe into and all the heavy lifting is done on AutoGravity’s side so we produce a data integration that is compatible with what the lender needs and the lenders already are quite familiar with certain API integrations so we either build a direct pipe to a lender, which we have done several times, or we can use existing players such as RouteOne and Dealertrack that the dealers use to submit credit applications to the lender and we are using those platforms as an alternative for the lender to just be very flexible and cater to the needs of the lender rather than demanding a lot of IT requirements and work by the lender.

Peter: Right, and so I just want to clarify something. This is all new cars, you’re not going after the used market, is that correct?

Andy: Actually, we started with new cars and we quickly found out that the users demanded used cars as well so we reprioritized and we quickly added used cars already within the first six months of our operation. So today AutoGravity is catering new car services and used car services as well.

Peter: So when you select a car, you can actually go and….can you search for inventory at dealers’ lots for a used car?

Andy: Yes, so AutoGravity has just rolled out an inventory feature for Android and we will in short order do the same for our IOS app so you have the ability to look at a catalogue of cars which are, it’s the theoretical car that you’re looking at, those are the cars that are advertised by car makers and we then give you the ability to also look within your geolocation whether any surrounding dealers have matching inventory. So we’re essentially doing both, we’re giving you a catalogue of cars and we will increasingly import dealer inventory to give the ability to look at real cars with real specifications and the actual pricing.

So this speaks to our agile product development methodology, we’re a highly agile shop at AutoGravity so we’re introducing our features in a rapid sequence and we’re not trying to solve all the pain points at once by introducing…I always call it the big enchilada that solves all the problems in one giant leap. We’re taking a sequence of small baby steps, but in very rapid succession and the advantage is we know from the data on our platform which features work and which don’t work so it’s very easy to correct when you’re in an agile environment.

Peter: Right.

Andy: And so far this has proven great for us because we’re on a fantastic trajectory.

Peter: Just give us a sense of that. So when did you actually start and when did you launch the app?

Andy: We started AutoGravity in January 2016 and there were three of us. About a year and a half later, we have over 80 employees and it took us, in 2016, less than six months to introduce the first public beta version of our app so in June of 2016, we first launched the AutoGravity app and from there we quickly ramped up the feature set, the lender network and the geographic coverage.

Today, AutoGravity is available in 49 of the 50 US states and we’re ramping up download volumes quickly. We saw an instant adoption once we first released the app, we had about a thousand downloads in its first month and this month we will have over 100,000 downloads just for the month of August of 2017.

Peter: Wow, so what’s the total then, it must be over half a million by now, is it?

Andy: Yeah, we’ve exceeded 600,000 downloads, you know, and this is a little more than a year now in market and the volumes are growing rapidly and these numbers are materializing without any substantial marketing on our part.

Peter: So it’s word of mouth. Someone buys a car and they’re having a conversation with their friends and they say oh, you’ve got to get this app, this app is awesome…is that how it’s spreading?

Andy: Yes and also the user community is just ready for this type of experience. You know, everybody lives on their smartphone increasingly and now AutoGravity’s car buying and financing is available through that device. We are an innovation leader in this space and we are lucky to have this rapid adoption.

Peter: Yeah, that’s for sure. So then who are the typical…I mean, you talked about the millennials, where on the credit spectrum do you work? Obviously, someone goes and downloads an app, anyone can download an app, my 10-year old can download an app, but where are you focusing on as far as the credit spectrum of the car buyers?

Andy: You know, AutoGravity wants to cater to all users and all consumers, regardless of where they are in the credit spectrum and this is why we have a diverse roster of lenders on the platform that are specialized in various segments. This, again, is part of the technology that we’ve created from scratch. We’ve built a so-called lender matching engine that determines which lender is right for a particular customer and then we only send the credit app to up to four lenders that meet the criteria.

So we’re making this very efficient for the lender, but also creating a positive experience for the consumer because, you know, if somebody is not within a certain lender’s credit box then we’re not wasting their time for unnecessary declines. The ultimate goal for AutoGravity is that we can get four offers, four approvals, into the hand of virtually every consumer out there.

Peter: Is that true today or that’s your trajectory?

Andy: It’s partially true today and it’s also our trajectory, you know, it speaks to the agile development. At this point, we are working with about a dozen lenders in the US and we have another dozen in the pipeline and we need about 25 lenders for a mature platform. So today I would say we’re halfway there, but we will continue to improve the platform and the lender coverage, as we speak.

Peter: Okay, so if a lender is listening to this interview, how does the process work? How long does it take to actually integrate a new lender?

Andy: For AutoGravity, this is a very seamless, very quick process. Once the lender has identified the development resources and it takes maybe two or three IT developers for a maximum of a week to develop this, it’s a very fast and seamless process. So our experience has been we’ve integrated a lender in as little as three weeks from the handshake to go live, that included building the integration and testing and everything, but then other lenders have more complex internal processes for approvals and project prioritization and it may take up to a year. So we’ve seen everything from three weeks to a year, but from AutoGravity’s side is once we’re engaged with the lender’s developers it’s a matter of a few weeks.

Peter: So then who do you view as your competition then? I must admit my wife bought a car last year and we did it all on a desktop because I didn’t really see anything that was really that good. I mean, are there people doing just what you are doing or is there anybody doing what you’re doing? What’s the mobile kind of environment like?

Andy: Well, in the automotive industry there’s a lot of talk about the digital retail process and finance process, but what we have found is there is a lot of conversation, a lot of discussion about the topic and AutoGravity is clearly the frontrunner in implementing and executing that strategy. I may sound like a broken record, but one of the advantages we have is the agile methodology.

Rather than trying to solve for every conceivable problem in the digital car retailing experience, we pursue it step by step. We take the most painful points first, solve them and then we build based on the data that we see on the platform, so today, I would say while there are more and more entrants in this space, from startups as well as the existing car makers and their captive finance companies, AutoGravity has at least a two year head start in front of all of them.

Peter: We haven’t talked about your business model yet, I’m curious to know how you make money. I presume it’s through the lenders, is it also the car dealers, I mean, what are your sources of income?

Andy: From the consumer perspective, AutoGravity is a completely free tool to use and this is one of the differentiators for us that we allow the consumer to use AutoGravity without any strings attached. The interaction with AutoGravity is really on your terms and if you want to engage, you can, if you don’t, you don’t have to and we won’t hound you and treat you like a lead. We treat you like a person and are willing to engage with you on your terms.

The business model itself is financed through small origination fees that we charge to our lenders and small fees that we charge to the car dealers, but only in the event a finance contract gets booked and a car gets sold. So the performance risk is entirely on AutoGravity and it goes back to our philosophy, we want to make sure our partners have a good experience, the consumer has a good experience and we get a small fee if a transaction successfully materializes.

Peter: I was in your office a couple of months ago now and you gave this great demonstration of your product and you also talked about a white label program. Can you give us a little bit of a flavor about that?

Andy: Yes, absolutely. Maybe before I jump into the white label, we recently moved into a new office though. You have a standing invitation to come and see us again.

Peter: Will do.

Andy: We moved into a state of the art high tech facility that really speaks to the growth of the company and allows for the future growth that we have planned so please come back.

Peter: Okay, it was a little tight when I was there, I noticed, there wasn’t much spare space around.

Andy: Yes, exactly. We’ve outgrown the one room office that we had early on and we now operate out of 40,000 square feet in a high tech campus here in Irvine, but you asked about the private label app.

Now the way we built the technology, and this is a cloud-based back end system with flexible front ends that are hooked up to our proprietary back end. So one, we have the AutoGravity experience which is brand agnostic, multi-brand, multi-lender and shows you the whole catalogue of everything that’s available. Now early on, we were approached by the largest Mercedes Benz and largest Audi dealer in the country, Fletcher Jones Motorcars, and they came to AutoGravity and said, you know what, we like what you’re doing and we want to partner with you. So we’ve created a version of the AutoGravity technology for the Fletcher Jones group called FJ Drive and this is a private label app that is tailored to the business rules of that particular dealer group.

For instance, we’re only showing the cars that they sell, we’re only showing the lenders that they work with and we’ve tailored the look and feel of the app to their brand guidelines. Most recently, we announced a partnership with Volkswagen Credit and there we’ve also released an app called VW Credit which, essentially, does the same thing as the other private label app. It’s completely tailored to the business rules of Volkswagen Credit, it has the brand appearance of Volkswagen Credit, but the technology is powered by AutoGravity.

Peter: Okay, so like the Fletcher Jones, FJ Drive, is that an app on the app store that someone downloads that is basically powered by you guys?

Andy: So FJ Drive powered by AutoGravity is available for download in the Apple App Store and in the Google Play Store and the same for VW Credit. That app is available for Apple and Android as well and I would encourage you and your listeners to give it a try.

Peter: Okay, and I will be putting a link in the show notes to the AutoGravity website and the apps. So we’re almost out of time, but I want to ask you, you recently closed a new round of equity funding. Can you tell us a little bit about that, how was that process and the investors that are backing you.

Andy: Yes, the seed investment for AutoGravity came from Mercedes Benz and the Daimler Group and most recently, the Volkswagen Group joined the roster of investors in AutoGravity. The Volkswagen Group recognized the potential of the AutoGravity technology and our team and is very excited to work with us also as an equity partner so Volkswagen, most recently, joined with a substantial investment in AutoGravity.

Peter: Okay, that’s great. Final question then, like where are you taking this? Do you want to be the only source that anyone, that the entire car buying public, everyone goes to AutoGravity, is that where you’re taking it? What is your vision for AutoGravity?

Andy: Well, our vision clearly is to continue to simplify the car buying and financing experience and for us there is no doubt that car buying and financing will be digital in the future. So we will provide the cutting edge technology that makes that possible and we will continue to pursue our agile roadmap and extend and expand the feature set to make sure that you can really go through the entire car buying and financing experience and at the end of the day the only decision that you have to make is whether the dealer will come and deliver the car to you or you will go to the dealership to take possession of the car. That is our goal and we’re working tirelessly towards that.

Peter: Right, I would actually argue it’s not just going…the car buying experience isn’t just going digital, it’s going mobile and that is exactly what you’re doing. I mean, people want to do this on their phone and I think you’re very well positioned. Anyway, it’s been fascinating hearing about AutoGravity, Andy, I really appreciate you coming on the show today.

Andy: Thank you very much for having me, appreciate it.

Peter: Okay, see you.

Andy: Bye.

Peter: Bye.

I don’t think anyone would argue that the car buying experience, in particular the car financing experience, is something that needs to be disrupted; it should have been disrupted long ago, but the reality is the typical customer today buying a car has to spend two to three hours at the dealership after they have decided on the car they want. That is ridiculous, it’s crazy and companies like AutoGravity are working to change that. Clearly, they have a wide open field in front of them, some company is going to be the industry standard where everybody goes to buy their car and to get their financing and clearly, they’ve got a great shot at being that standard.

Anyway on that note, I will sign off. I very much appreciate your listening and I will catch you next time. Bye.

Today’s podcast was sponsored by Fundrise. Fundrise is the first private market real estate investment platform available to everyone, that is, accredited and non-accredited investors. I’ve been investing myself since 2015 and we had the CEO of Fundrise, Ben Miller, on the podcast back in Episode 110. You can begin with as little as $500. Go to www.fundrise.com/lendacademy to find out more.

PODCAST TRANSCRIPTION SESSION NO. 118-MISHA ESIPOV

Welcome to the Lend Academy podcast, Episode No. 118. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt.

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Today’s podcast is sponsored by Fundrise. Fundrise investors earned over 10.8% average annualized returns during the 2nd quarter of 2017, that’s approximately 50% higher than a typical diversified peer to peer lending portfolio. How? Fundrise is the first investment service that makes the benefits of private market real estate investing available to everyone online. You can begin with as little as $500. Go to www.fundrise.com/lendacademy to find out more.

Peter Renton: Today on the show, I’m delighted to welcome Misha Esipov, he is the CEO and Co-Founder of Nova Credit. Now you might have heard of Nova Credit because they were the winner of the 2017 PitchIt at LendIt contest. They won both the Judges’ Award and the Audience Choice Award so they were obviously very popular at LendIt back in March.

So I wanted to get Misha on the show, he has got a fascinating company and it’s something that I truly believe in the mission of what they’re doing so I wanted to get him on the show, talk about how he’s able to do something which is create an international credit bureau. It’s never been done before so I wanted to dig into that, talk about the challenges in really logistically pulling all that together, talk about the kind of lenders and customers that he’s working with today and what his visions are for the future. It really was a fascinating interview and I hope you enjoy the show.

Welcome to the podcast, Misha!

Misha Esipov: Great to be here, Peter.

Peter: Okay, so let’s get started and give the listeners a little bit of background about yourself. We’d like to hear a little bit about your immigrant story and also about what you’ve done in your career.

Misha: Sure, happy to give you a little bit of light into that. So my background, originally from Russia, immigrated to the States almost 30 years ago with my parents, we were part of this post Soviet Union academic drain of people to the States and came here, went through school in the States, and then studied math in undergrad, started my career in New York. I was there at Goldman Sachs for a few years and then at Apollo, the private equity fund, before running away from the institutional private equity investing world to go to graduate school at Stanford really just to reflect and figure out what was next in my journey and then figuring out how I wanted to further develop myself and my career.

Maybe a little bit more on the immigrant story, I mean, as an immigrant yourself, Peter, you likely can relate to some of the challenges of moving to a brand new country, many times a new language, new culture, no economic safety net, your education isn’t necessarily understood or respected, your skills aren’t necessarily directly transferrable and on top of that, the financial services industry shuts you out. I hope to cast some more light on that, that’s specifically the problem that we’re addressing.

Peter: Right, so let’s just go into that like what was the…because obviously you came over as a child, you didn’t have to try and get a credit card three months after you landed. Where did the idea for Nova Credit come from?

Misha: We were working on a variety of entrepreneurship courses at Stanford Business and Engineering Schools and we were very focused on learning more about student lending and student lending experiences. We were doing a dozen or two dozen interviews every week with graduate students from around the country. If you look at the demographics of any major graduate school, half of the student body is international and a 100% of that half will complain about this problem, how they can’t get a credit card, they can’t get a student loan, they can’t get a cellphone plan without putting down a deposit, they can’t get an apartment rental without six months of deposit or getting a US co-signer, they can’t get an auto loan, they can’t get their utilities turned on. It started to become increasingly clear that there was a systemic problem here that just didn’t add up.

Peter: Right, right, so then…to me it’s one thing to recognize the problem and another thing to actually create a business because clearly, this is not a simple problem you’re trying to solve. There’s a reason that here we are in 2017 and this is still a problem until you guys have come along primarily hasn’t been solved. So tell us exactly what Nova Credit does and how did you go about starting? I imagine the challenges about where do we even begin would have been pretty tough so tell us a little bit about that.

Misha: Yeah, so the immediate solution and one that there are two companies out in the marketplace that try to solve is by actually providing a financial product to this demographic. So launching credit cards for immigrants or launching student loans for immigrants or auto loans that are tailored for immigrants or co-signing products on apartments for immigrants; all of those services can take some risk, they’re great businesses, they’re backed by some exceptional entrepreneurs, but they are very siloed and they really focus on one or two financial products or verticals and we really thought there has to be a better way, there has to be a way to democratize access to financial services to immigrants and returning Americans from day one.

We really started by learning a lot about the international consumer reporting space, it was a relatively new industry for us and I think in part a combination of stubbornness and naive optimism we sort of continued to pursue it and get more and more informed about the fact that this bureau system that exists in the US between Experian, Equifax, TransUnion and a number of smaller players exists in a very similar format around the world.

Bureaus now exist in nearly 200 countries. There are very few exceptions for major economies that do not have established credit infrastructure. The reporting standards are relatively similar around the world, this is very well structured data that is being used by thousands of lending institutions in those local markets. In many cases, these are US companies that have local subsidiaries that are putting billions of dollars in balance sheet at risk on the basis of this type of information.

And so the thought was well what if we actually pull all of it together and link up these large, discreet and growing databases into one holistic system and that effectively is what Nova has created. We are a single endpoint that allows companies, lenders, landlords, telcos, name the use case that has a credit component to it and we allow them through one endpoint access into consumer credit information from all around the world.

Peter: And you call that your Credit Passport, right, is that the product that you’re talking about there?

Misha: Yeah, so the Credit Passport you can think of today as an international credit report so just as easily as, Peter, when you came to the US and got a stamp from the customs officer or the passport control on your Australian passport, people should be able to come to the US and immediately gain access to financial services. So it’s their financial identity that travels with them wherever they go.

Peter: Right, and that would have been wonderful to have when I arrived here in 1991, I’m a big proponent because I feel the pain that your customers or the people you’re working with. It is amazing, you go from being the equivalent of a 800 FICO in your homeland to the equivalent of a 400 FICO in the place that you’ve moved to so it’s kind of crazy. So I just want to dig in a little bit to the Credit Passport. Firstly, let’s talk about what are the countries you are working with and just break down how you’re able to get this data because I imagine this data…they don’t just give it away, it’s not easy to get so explain how you’ve done that.

Misha: So the countries we have online today, we’re up and running in India, Mexico, Canada, the UK, Australia and we’re launching in the next few months China, Korea, Brazil, Germany and then a number of other major economies that send immigrants to the US. The way we’ve really thought about how we prioritize integration is the combination of technical and data availability and immigrant volume flows into the US because our primary focus is to help immigrants coming into the US or returning Americans that come back here.

To your question about how do we pull this off. When we first started, again, there is certainly a level of naive optimism in asking for something from these international bureaus that had never been done and the way we’ve pulled if off is a combination of regulatory work to understand local laws and how to navigate them to enable this information exchange to occur, business development work to motivate these largely privately held bureaus to want to work with us to allow them to better serve their citizens, working with their regulators to the extent necessary to bring comfort to such information exchange happening which is ultimately within the spirit of this entire industry that supports consumer access and control over their own information. A consumer ultimately owns their file and a consumer should have a right to access and distribute that file at their own desire.

Finally, there’s an incredibly complex technical element to collecting all the identification fields, integrating with various systems all around the world in real-time, authenticating consumers in real-time and then actually collecting this information, parsing it, mapping it into a global dictionary and providing additional scoring on top of that and then packaging all of that really neatly into a format that a US lending institution or property manager can digest.

Peter: Right, so I want to just use just an example, obviously Australia is the country I know best, I mean, I’m curious, the leading credit bureau in Australia as I’m sure you know, is Veda. They were acquired by Equifax not that long ago, so I’m curious, why doesn’t Equifax do this or do they do this? If you’re going and like you’re an Australian immigrant, you’ve just arrived in the US, you go and apply for a credit card and the bank that you’re applying to pulls an Equifax report, they should know that you are from Australia and you have this big file in Australia, but it seems like they don’t. What is going on there that companies like Equifax haven’t done this?

Misha: It’s a great question and one that certainly puzzled us from the beginning because it is an obvious problem and the irony, as you’re raising, is that the big three bureaus are multinational. Each one has a presence in 10 to 15 countries, but I think that also presents a limitation that the solution that they can develop within their own systems is confined to their own footprint. So Equifax, as an example, does not exist in Mexico, their presence in Asia is relatively light, Experian doesn’t exist in Mexico or Canada; TransUnion doesn’t exist in Europe.

So their ability to build a solution would only really address 20% of the problem; it wouldn’t actually develop a complete solution. The only company well positioned to complete this, you know, what is a relatively herculean effort of bringing together these global systems is one that is independent and one that can work with all three bureaus hand in hand and that’s the role we play, similar to acting like the Switzerland of the consumer reporting space.

Peter: Right, so companies like Equifax haven’t done it simply because this wasn’t a big enough problem for them, the market didn’t…because they’re not everywhere. They feel like there is just no point in developing the complex systems that would be needed to pull it off, I presume, is that what you found?

Misha: Yeah, I think it’s a combination of a product that they can develop is a partial solution and the addressable market from the partial solution they can create doesn’t justify the cost that it would take them to develop something like what we have developed.

Peter: Right, right, okay. So you’ve got Mexico and India, for example, obviously two very different countries; how difficult has it been to standardize all the data so people know that they’re pulling credit data that is apples to apples?

Misha: It’s a meaningful amount of work, I mean, our company is 70% engineering and that’s because there’s a lot of technical infrastructure that has to be built out and that is all being done out here in San Francisco by really an incredible team of engineers from around the country. The work involves first, understanding, breaking down and parsing the information that we received, understanding the definitions behind the information that we receive and then mapping it into a global format, but at it’s core the information that we are receiving is very well structured and that makes this effort possible. We’ve spent a lot of time up front talking to industry experts, understanding how do the global data definitions need to look so that we can truly develop a global format and that’s precisely what we’ve done.

Peter: So are you working then just with credit data or are there other kinds of alternative data that is part of this or is it just purely just credit data?

Misha: So the focus today is on traditional credit data, whether you want to refer to us as alt data is really subject to interpretation. Our product offering is traditional credit data that’s been repackaged in a format and made available through a new distribution channel.

Maybe to add one point on that one, Peter, there is a vision to add additional indicators into our Credit Passport so pulling in and supplementing the bureau information that we’re receiving from India with additional information from India or additional information about this consumer in the US. That’s something that we certainly can continue to add into this underlying Credit Passport because the goal is to present a global representation of this consumer and their financial identity.

Peter: Right, so then I’m curious about…you’re obviously focused on the US for the consumption of this data, so what is your business model? Is your business model very similar to the big three bureaus where the companies will pay to get these credit reports? What is your business model exactly?

Misha: It’s very similar so from the perspective of our customers, you know, they go to Experian, Equifax, TransUnion for the traditional US data and they go to us for international data. We are a consumer reporting agency subject to the Fair Credit Reporting Act, we’re regulated by the CFPB, we act and feel similar to traditional consumer reporting agencies and the business model is therefore one of selling credit reports for every report that we generate.

Peter: So does that mean that people are going to report back to you like they report back to the bureaus because that’s how the bureaus obviously get their data, people send it back to them. Is that the same thing that’s happening with you guys?

Misha: It is, yes, so the traditional bureau model is one where bureaus present certain discounts to customers who report back to them. So we have a similar process where the price is X if you want this report, if you also choose to share back with us there are real benefits for doing so and in addition to price being one benefit, but other benefits is that a number of customers are concerned with what’s called flight risk. So, you know, people come to this country and underwriters are worried that they could then leave and walk away on their obligations.

Statistically, that’s a very, very low probability event, but underwriters are still very drawn to it and are always looking for solutions. One of the areas where we can help there and this is also what motivates data sharing with us is in certain countries we can actually report the events back to the foreign bureau.

Peter: Right, that’s what you need, that’s what you need. I had a person, an associate that I knew, a fellow Australian in the 90’s, who was an entrepreneur, set up his business, it failed and he just went home. He said “I never intend to come back to America again” and he just basically left all of his debts unpaid and obviously it’s a flight risk. That’s what you need. If he knew that his data was going to be reported to the Australian bureaus, there’s no way he would have done that and I don’t think he would have done that in that same way so that’s really I see is a huge piece of the puzzle for you guys.

Misha: Yeah, so ideologically, we believe in promoting a transparent credit system. Bad actors should be penalized as they move from country A to B and good actors should be rewarded and that’s ultimately the ecosystem that Nova helps support.

Peter: Right, right. So I want to talk about who your customers are because obviously you think of like a Lending Club or a Prosper, or any of those guys. Obviously there’s a certain percentage of them that are going to be immigrants that are applying, but then I know there are other lenders who work, like Oportun obviously, that we’ve had on the show before. They work with a very large percentage of immigrants for their platform so are you focused on platforms that focus on immigrants or are you focused on just general lenders?

Misha: So it depends on the verticals. Today, Nova operates in two primary verticals. I mentioned there are a number of use cases where credit information is needed and as a credit bureau we are ultimately product agnostic. We’re happy to support decisions across financial services and telecom and utilities, etc. So our two verticals that we focus on are lending and the second is property management.

Within lending obviously there are so many different subsets. We started with some fintech customers, most of whom are focused specifically on helping serve recent immigrants and internationals, but we’ve also started working with a few general fintechs that see this opportunity as a growth market where they’re already receiving hundreds or thousands of applications from this demographic and what they do is they go through the regular flow.

They will go ping one of their bureaus or whoever their data provider is, they’ll try to receive a US file, they will find zero, or very thin information and they’ll default to rejecting the person not because they’re bad, not because the bureaus are bad, but because this information has never existed. So by working with us they are able to address a large and growing market that has very high credit characteristics.

Peter: Right, so you envisage a world…obviously the more countries you get online…the countries you mentioned earlier, obviously are most of the major countries that would contain the immigrant population, particularly those that are seeking credit or property. Obviously what you want to have is they pull from a regular bureau, see it’s a thin file/no file and then they pull from you guys and they suddenly get all this rich information. I presume that is the holy grail for you guys, right, where there’s your regular bureaus, whether you use TransUnion or whatever, they are similar in this country, so you use a domestic bureau, you use the international bureau and that’s sort of what you do for all the thin file customers. I mean, is that what you are working towards?

Misha: Yeah, we want to be the data provider for this demographic. We are effectively, the only provider that exists today as we’ve spent some time talking already this is a very difficult puzzle to solve that requires global coordination and a lot of heavy technical build-out, but what we want every financial institution in the country to be able to do is to pull credit information on any consumer. So if you’re a US consumer, your best source of information will be one of the US bureaus; if you don’t have a US file but you have international information about you then you should be able to access that information through Nova.

Peter: Right, okay, so you know, as I mentioned in the introduction you guys won the PitchIt contest earlier this year in New York at LendIt. I actually went back and watched your pitch again just yesterday in preparation for this call and I’m curious about…we’re almost six months removed, it’s hard to believe we’re six months removed from LendIt USA 2017, tell us about the progress you’ve made in the last six months.

Misha: It’s crazy how fast time flies. I mean, we are incredibly busy, it’s the nature of the stage that we’re in and having found product market fit and continuing to build the business that we’re building. Our team is at capacity, I think the progress in the last few months has really focused on continuing to add international lenders and add customers and further build out and improve our product.

So, you know, you and I were last in China, China is a huge market for us for many reasons and one that we’re very focused on having a solution for the millions of Chinese immigrants who come to the US. So the supply side of our equation has been really an area of focus, I think on the customer side we’ve really built out the property management vertical in the last six months so we’ve had some really exciting customers on boarded who are noteworthy and scalable and really can act like incredible reference-able customers for us.

Now on the product side, we’ve made huge investments in information security and compliance to be able to work with the types of institutions that ultimately are in the most need for this solution as well as further building out the flexibility and the ease of on boarding and integrating our solution.

Peter: Right, so can you give us a sense of…I didn’t actually ask you when you founded Nova. Can tell us that and when you got your first paying customer on board and then maybe tell us a little bit about the scale you’re at, maybe the size of your team. Just tell us a little bit about sort of that journey into viability, shall we say.

Misha: Yeah, it’s been quite the ride. (Peter laughs) The idea formation really took off a couple of years ago now in 2015 where the problem statement became very clear and it took us over a year to go from what we thought would be the solution to first revenue.

A little bit about our history, we came out of the Stanford graduate program in 2015, immediately enrolled in Y Combinator, went through that program and subsequently raised our financing, grew our team and a few months later, early part of this year, we turned on our first set of customers. That’s really been an exciting validation point in that the systems work, the information can be accessed instantly, as easily as you access traditional US information and it’s scalable, it’s something that is working. Every day I wake up and we have credit requests coming in overnight and that’s really an exciting stage of the business to be in.

Peter: For sure, for sure. Who has backed you? Obviously, you went through Y Combinator…I know you haven’t raised tens of millions of dollars otherwise you wouldn’t have been eligible to do PitchIt so can you tell us any sense about like who’s backing you and your fundraising kind of strategy?

Misha: Yeah, so we’re backed by a number of incredible investors from East Coast, West Coast and internationally. To name a few, First Round Capital who is really a seed stage focused fund out here [in the Bay Area] has been an incredible partner to us; Index Ventures, as you may know, is one of the leading investors in Europe and here as well, have been fantastic. We also have a few fintech specialized funds including Nyca and Core as investors as well as an incredible group of angels from all parts of the financial services sector. You know, fintech, traditional finance, US, international and we’re incredibly fortunate to be backed by such a broad and passionate group of people who believe in the mission of what we’re after. It’s certainly a big and ambitious vision and one that we always need the help and support of people from around the world to pull off.

Peter: Most definitely. So then tell us what lies ahead for you guys, what’s on your roadmap for the next 6 to 12 months?

Misha: It’s continuing to scale. Adding additional countries is a huge effort, there are 200 plus countries out there and we want to figure out a way to help as many of them as we can. There are immigrants coming from every one of those countries to the US, particularly countries where there are huge refugee crises going on at the moment. We are very focused on figuring out ways to develop solutions there as well. So the focus for the next 6 to 12 months is further build out the supply side so our data vendors, continuing to build out the products and the ease of integration and continuing to add more depth into how far we’ve penetrated into the lending and property management verticals.

Peter: Right.

Misha: There’s a very clear direction for our business because the problem is very clear.

Peter: Sure.

Misha: And the solution that we are taking is one that we have conviction around continuing to pursue.

Peter: Right, so we’re almost out of time, but I just want to ask one more question because it strikes me as you’re talking…I mean, you’re obviously an international company and you’re focusing right now on the American consumer. Clearly, there’s the same problem that happens in Canada, I know in Australia, the UK, throughout Europe…is your focus going to be just on the US or do you feel like long term you can really be a truly international company where it goes the other way. You have all this information and you can be in 20 countries around the world doing the same thing that you’re doing here in the US.

Misha: It’s a great question. We were international before we were national.

Peter: (laughs) Right.

Misha: By virtue of our business model, we’ve had to build international relationships before we had a product because it is through those international relationships that we have developed a product. By virtue of our size, we’ve had to really focus on the US to start and it is the largest immigrant market in the world, but it’s a matter of time before we launch in the UK, Australia, in London, in the Middle East, in Japan, in markets that receive millions or hundreds of thousands of immigrants, expats or returning citizens. As the global gateway for information or consumer credit information exchange, we have a duty to help and support immigrants in those markets. We’re moving as fast as we can to further unlock those gateways in a manner that’s scalable and regulatory compliant.

Peter: Okay, well, I wish you all the best, Misha, it’s really been fascinating hearing about your company and good luck to you.

Misha: The pleasure is mine, Peter, really appreciate you taking the time and please do stay in touch.

Peter: Okay, sounds good. See you later.

Misha: Bye.

Peter: Bye.

As I touched on briefly on the show, this is something that is personal for me. I first came to this country in 1991 and I came from Australia, obviously I had no credit footprint here whatsoever, tried to apply for a credit card, got rejected, tried to apply for a store, like a store credit card, got rejected. Luckily, I did have an American Express card which was in Australian dollars that I would spend in American dollars, pay it off in Australian dollars. That helped me get by, but it took me, I think it was eight or nine months, to actually get a $500 credit limit card. It shouldn’t have been that hard.

You could be a billionaire in Australia, you come over here and you try to apply for a credit card and you’re probably going to get rejected if you have no credit footprint in this country. That’s insane in 2017 so I fully support the mission that Nova Credit is undertaking. It should have been solved a decade or two ago, it hasn’t so I feel like Nova Credit is doing a great job in solving what is a problem. It’s a huge issue. If you’re an American, you don’t feel it, but if you’re an immigrant here it’s a huge issue and one that’s very frustrating when you keep getting rejected. I wish them all the best, as I said, and I think they have a mission that is truly honorable and one that I see that will really improve the lives of many, many people.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s podcast was sponsored by Fundrise. Fundrise is the first private market real estate investment platform available to everyone, that is, accredited and non-accredited investors. I’ve been investing myself since 2015 and we had the CEO of Fundrise, Ben Miller, on the podcast back in Episode 110. You can begin with as little as $500. Go to www.fundrise.com/lendacademy to find out more.