Last year at LendIt 2013 we featured a number of P2P lending start-ups in our exhibit area in order to learn about the next new thing. There was one company in particular that had a great mission and a great story that we were excited to feature. This company was called Funding Community (we wrote about their launch here).
Their mission was to develop a small business P2P lending platform so that the local community could fund their local businesses. In exchange, the small businesses provided deals and discounts to their lenders, who often became their most loyal customers. We loved their local social ecosystem approach, which gets to the essence of what makes peer-to-peer lending so amazing. They made it personal and supportive.
So it came with great disappointment when we heard that Funding Community was shutting down. But the story is not over. Not only has Funding Community bought-out all outstanding loans to make their lenders whole, but also one of their co-founders, Alex Binkley, has decided to write a post-mortem to share his lessons on the successes and failures of his venture. Funding Community is showing us how to fail with class, dignity, and honor. It takes courage to publicly speak about a failure and we applaud him for that. We can all learn from his lesson.
Here are my lesson’s learned after reading this story:
1) Entrepreneurship requires creativity, flexibility, purpose, and passion, which were all demonstrated in this story.
2) Every leading company in our space including Lending Club, Prosper, Funding Circle, OnDeck, and Kabbage (to name a few) dealt with their own unique issues and have their own startup story like Funding Community. That unified struggle for success creates a common bond among the entrepreneurs and it is part of what made the industry gathering at the LendIt conference so special last year.
3) P2P small business lending is a different category than consumer lending. Finding the sweet spot requires much experience and credit modeling expertise.
4) The original idea (in this case, funding.harvard.edu) is often not the ultimate idea for the company.
5) The web helps a company scale but the company better have its systems in place to handle the load. Process improvements often dominate an early stage company’s time and attention.
6) Start-ups can get pushed into the big leagues fast. For investors and outsiders, things aren’t always what they seem (just ask the Treasury in this case). For companies, try to represent yourself honestly.
7) Lending Club and Prosper have structured amazing business models that are very difficult to replicate.
8) Picking the right co-founders is probably the most important decision in launching a new business.
We encourage you all to read Alex’s full post-mortem at his website: On Shutting Down Funding Community
Good luck to the Funding Community team with future endeavors.
[Full disclosure: Lend Academy has recently contracted Alex to help with some of Lend Academy Investments’ legal and business needs.]
Peter, with regard to item four above did you mean: https://funding.fas.harvard.edu/
After reading some of the article you reference, I see what you are talking about between funding.fas.harvard.edu and funding.harvard.edu. My mistake!
There are so many good lessons and details in Binkley’s story, that I actually printed his blog post out.
This quote hits home, “We started to get a little bit of inbound interest, but frankly most of those businesses were in rough shape. When we looked at a small business making gross revenue of $1,000 a month looking for a $10,000 loan we just could not see how our lenders were going to be repaid. Of course this was not every business we were looking at, but it was a huge percentage.”
Those in alternative business lending and merchant cash advance know very well that small businesses tend to have completely unrealistic expectations when it comes to how much they want or need. “We’re doing $60,000 a year in revenue, are not profitable, and are seeking $1,000,000 in expansion capital and will accept nothing less….” That kind of thing is commonplace!
Great post, really enjoyed reading Alex’s story.
Very good post-martem by Alex. It has good lessons for anyone interested in crowd funding platforms. After reading his narrative of different events, I feel there are a few more learnings from this experience:
1. Iterate, release often and avoid pre-mature optimization. One baby steps at a time. Trying to build up the whole platform from the get go, automate ACH, and Dwolla integration were just not needed until there was sufficient demand.
2. The two-sided marketplace depend on network effect and at least one side has to be taken by the platform operator until network effect takes place. A good example is early days of Lending Club when LC self-funded most loans to attract OPM lenders. Funding Community would have been better off focusing on one side of the market and finding ways to get established channels to bring them the other side.
3. Focus and target your efforts. Ask whether any activities you are undertaking bring you closer to achieving your “core” vision and your customers. Hurricane Sandy, LendIt, US Treasury event, and Federal Reserve were just distractions that might have made founders feel better and important but did nothing to bringing them closer to their customers or vision.
Overall, very good case study for anyone interested in starting a crowd funding platform.