Reimagining Education Financing
On this episode:
Tess Michaels, founder of Stride Funding, talks with Conor and Alex about her journey to expand the opportunities available to students for financing their education. Tess discusses the basics of income share agreements (ISA’s) and Stride Funding’s efforts to provide a differentiated service to students. We also chat about the importance of hiring a strong team as well as Tess’ experience raising capital from both traditional venture capitalists and strategic investors.
Interview Recap:
5 Quick Bites
Reading list: Books by Adam Grant
Skill or topic you’re interested in developing? Improv classes, stand-up
How do you stay up to date with the latest developments in your industry? Morning Brew, learning from peers on Slack
Favorite CEO? David Blake of Degreed, Rachel Carlson of Guild
What (other) industry would you be interested in starting a company in? Quirky consumer things
What problem does Stride seek to solve?
Traditional loans accrue interest while students are in school, resulting in burdensome costs after graduation that prevent students from starting their post grad life.
Life isn’t linear, and traditional loans don’t take that into account. With Stride, loan payments are flexible and depend on students’ current circumstances.
What is an Income Share Agreement (ISA)?
Stride offers ISAs, which are loans that are paid back at a fixed percentage of income (5-6% for Stride) over a set number of years (5 years for Stride).
Stride’s value proposition for their ISAs is that they are more flexible and shorter in duration than traditional loans.
How did Stride get started?
Tess believes in understanding your “why,” so she first visited different campuses and spoke to students to get feedback. She tried to get as close as possible to the user side to understand their perspectives.
Then, she went to the funding side and talked to impact investors who were interested. She invested in data science (which proved to be extremely useful) and won the MIT FinTech Conference which helped boost publicity.
What students do Stride target?
Original, majors/professions that have low variability in income, such as STEM and healthcare. Today, applicants come from a wide range of majors.
How does Stride make money?
There are no student fees - Stride charges fees for investors and sometimes schools.
How does financing of ISAs work?
Stride finances ISAs through institutional investors and multibillion-dollar non-profits in the education space.
What does the competitive landscape look like for Stride?
ISAs started in the US around 2016, and Stride is one of the only institutions in the industry. There’s huge growth in this sector, and big banks will probably come in the future. However, Stride has multiple competitive advantages that make them more attractive than bigger banks:
Branding
Proprietary, data-driven structure
Visibility into student earnings
Student engagement
0 delinquencies to date
How did Tess make Stride attractive to investors in the venture capital stage?
Tess talked to her Harvard Business school network and had multiple meetings and coffee chats with potential investors. She made sure to communicate: Why you? Why this idea? Is this business sustainable?
One of the biggest challenges she encountered was creating regulations for ISAs because there are no policies in place.
Fun fact: Tess founded her first startup, a software analytics company in the CSR space, in her undergrad years.
Takeaway Quote: “Being willing to step out of your comfort zone and really put yourself out there is what differentiates good vs. great startups.” (16:50)
To learn more about Tess and her work, visit https://www.stridefunding.com/ & connect with Tess at tess@stridefunding.com,
