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Students vs Startups Ep: 20 How is Innovation Applied to the World of Student Loans?

Students vs Startups Ep: 20 How is Innovation Applied to the World of Student Loans?


Featuring Mpower Financing

Welcome to Episode 20 of Students vs. Startups. This week, moderator John Gilroy talks with the founder of  Mpower FinancingManu Smadja. After struggling to pay for grad school as an international student, Manu felt that there had to be a better way for his fellow international peers to pay for their education. Mpower Financing was his answer, listen below to hear his story.

[audio src="https://easternfoundry.files.wordpress.com/2017/04/students_vs_startups_podcast_episode_20-final.mp3"][/audio]

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John : Welcome to students vs startups showdown on the Potomac. My name is John Gilroy, I'll be your moderator today. Well, that's my fake radio voice, Manu, what'd you think? Did you like that one?

Manu Smadja: Yeah that's pretty solid.

John : Yeah I gotta work on this fake radio voice a little bit. I've been told not to do so I'm not gonna do it anymore in this podcast. This is a podcast where we have students on one side of the table and we have a startup on the other. We have a 26 minute conversation and everyone learns, we have all kinds of fun here. If you've listened to podcasts before you know what we're all about. We're based in the Eastern Foundry which is in Rosslyn, Virgina across from Washington D.C. We're in one of the conference rooms, we have three graduate students from Georgetown University and a local startup and we have a nice, fun conversation.

Our students to my left are Michael Lamos, Greg Forman and Kevin Uffelman. Michael, could you tell us about your background, please.

Michael Lamos: Sure, my name is Michael, I am a mechanical aerospace engineer from Catholic University, I'm in the George Hunt program, working on my masters in my final semester and looking forward to talking with Manu about his new business.

John : Wow, any claims to fame, Michael, that you want to brag about in here?

Michael Lamos: No. I play the piano.

John : Oh. An engineer plays the piano, that's a good an engineer who plays the piano. I'd brag about that a lot.

Michael Lamos: I don't know.

John : Greg, your background please.

Greg Forman: So I'm finance by education. I do government acquisitions now currently, graduated from the University of South Carolina and currently seeking my master in systems engineering management to try and segue into the systems engineering field.

John : Well, real good. And Kevin, your background please?

Kevin Uffelman: History major. I do project management strategy for federal customers and the systems engineering management program as well and as noted in other podcasts, so walking in May but finishing up over the summer.

John : That's good, I like the long walk. All three students are candidates for a master of imgresprofessional studies in systems engineering management from the school of continuing studies at Georgetown University and a lot of similarities with our guest. Our guest is Manu Smadja and he is the CEO of a company called MPOWER financing. Manu, how are you?

Manu Smadja: I am doing good today, John.

John : So, you went to a fancy school, university of Virginia and you couldn't graduate, had to go there twice and graduate twice. Tell us about your background, please.

Manu Smadja: That's funny. Yes, I guess I love my time in Charlottesville and I didn't wanna leave. I really felt like I had to go into a doctorate now, get myself off to Texas of all places. But actually my background and that of my company are pretty tied up. MPOWER firm is really a personal story. So 15 to 20 years ago, I was an international student from France, came over to UVA of all places, I studied Computer Sciences and cognitive science undergrad, loved my time there, continued for graduate school.

The one hiccup is, while I was doing well academically, I struggled financially through school. Ended up taking a bunch of odd jobs, I was a grader, tutor for math, physics, computer science, French, I was even an indoor soccer referee at some point which is sort of like refereeing cage fighting.

John : Indoor soccer, yeah, they bounce off the walls.

Manu Smadja: And I eventually pulled through with the help of my family but I felt, why aren't banks lending to international students? Ten years passed by, I worked at capital one, I worked at VistaPrint, I worked at McKinsey and Company in financial services and financial inclusion and my little sister came over to the US, same story all over again. Banks are still not lending, ten years have passed by, status quo.


IMG_8657 Manu Smadja, CEO and Co-Founder at MPower Financing


And then about four years ago, as I was working for Mackenzie and Company in West Africa, so I was in Nigeria working on mobile money access, I got an email from a current student at UVA, so my alma mater, and the student said the following. He said, I'm $500 short on my rent this month, I'm going to get evicted and I'm thinking about dropping out of school. And that just blew my mind because here I was on the what felt like the other end of the planet in Nigeria and two hours away from my home in D.C., not too far from Georgetown University, actually, there is a kid who is about to drop out of school.

And kept me up at night and kept me up enough that you know, I sort of had a calling to do something about it. I felt ... you know, why haven't banks tackled this issue? And then I felt, well I have a background in consumer finance and I've worked with some of the big banks around the world and they have seen different ways of approaching risk in lending. Why am I not doing anything about it. And that was it. That was the beginning of MPOWER.

John : That is a great story, a round of applause just for that story here, wow I loved it. That is great. So I ask everyone this question, so Manu, what business problems does your company solve then?

Manu Smadja: So we help high promise international students get access to an education and complete their education.

John : Great, great.

Manu Smadja: So get to school and stay in school.

John : Michael, jump in.

Michael Lamos: Sure, so great segue because one of the first things that I thought about when I was reading this prompt and learning about MPOWER was ... so when you say, high promise students, right, and obviously you are going and you are lending to provide education. How do you aid, like differentiate a high promise student and how do you hedge the risk, high promising doesn't necessarily mean that their financial risk is low. So I am just kind of curious, what's your ideology of that?

Manu Smadja: Sure, so to kind of paraphrase what you are saying is how do we define high promise and then, even when we do find high promise, how do we know that that correlates with a good ability to repay or willingness to repay. And absolutely, what we found when we looked at tons of data from the government, from the private sector, prepared the data that we accumulated as well as that there is quite a bit of correlation between students and top programs, top universities and their ability to repay and the fact that they do repay. So ivy leagues have some of the lowest levels of defaults in the US and actually, when you look at top universities or even the second tier universities, people repay at a higher rate.

The people who don't repay are typically the ones who get coaxed into one of the proprietary programs, you know the online education payers and then there is some great online education payers but there is some that really just lure students that might be misguided and then can never pay back their loans.

John : Well, Kevin, you're going to a prestigious school here. You have a question for our entrepreneur?

Kevin Uffelman: Yeah, so you know, following on where you were going with that, you mentioned ivy league, top tier schools, what is that line that you draw between top tier and the remainder of schools that kind of creates that dash line. Would you say, well the risk exceeds what we're willing to move forward with with these students?


IMG_8623 Kevin Uffelman


Manu Smadja: So the first thing I'd say is that line moves over time as we accumulate more data, as we understand the space better and better. So we started with 87 schools across the US, we're now working with 223, we're expanding nationwide and then what we're also finding creative ways to work with schools that may not even be in that 223 so that we can work with their students or at least a subset of their students. So that's the way we approach that.

And then what we look at typically for a school is the return on investment. And you know, people ask us, do you exclude certain majors, do you exclude certain degrees and the answer is no, what we find is that there is dozens of perimeters that matter in terms of your future potential to repay a loan or to afford a loan and so you could be an art history major but you could be trying to work for Christie's after you graduate, it's an auction house, you could be taking coding classes on the side and interning at google. So all of this matters to us and when we look students it's more than a fico score or the lack of a fico score in some cases and it's really a 360 degree profile.

John : So Greg, the company here is a lot of MPOWER, MPOWER Financing. Do you have a question for Manu, please.

Greg Forman: Yeah, so there's an interesting quandary which is that the people that are most likely to repay seem to be more, you say they are kind of like ivy-league top schools and these schools tend to offer pretty good student financing options already. So do you find that you are competing with the subsidies that they provide or is it kind of ... are you supporting that or is there a competitive environment?


IMG_8605 Greg Forman


Manu Smadja: It's a great point. We come on top of a lot of these things, we come on top of scholarships or teaching assistantships or research assistantships. Our first school may be ... oddly enough it was Harvard, that was the pilot school that we worked with about two years ago now, and since then I guess we expand it to 200 plus schools and we found that even at Harvard there were students who needed our product. And they might come with a full ride but sometimes the full ride doesn't cover health insurance which for international students is hefty, it doesn't cover living expenses, meals and so on and so what we find is that we really fill a very needed gap which is, sometimes it can be as low as ten or twenty thousand dollars but that's the difference between getting a two year Harvard education and not being able to come over to the US to complete that.

John : Michael, please.

Michael Lamos: So, I mean coming from an engineering school, there are lots of international students. So from my limited experience with these international students, all great people, you know Saudi Arabia, Argentina, Vietnam, so it seems as though like many of them were brought over with a subsidy from their respective governments to go and have their tuition paid for, right. So, that being said, as a competitor, how does that kind of shape your model as well to deal with. So now you have, maybe schools with large endowments, you have the competitors about their governments, you have the community colleges at low cost and then maybe you just have your traditional US student loan person but you know, whatever, your Stafford loan rate. I would like to learn more about kind of the shaping of that strategy into your prospective lenders (or borrowers).

Manu Smadja: So essentially, where do we place ourselves compared to home country government subsidies to scholarships etc. What we find is it's maybe surprisingly a huge market.

"So 36 billion dollars is the amount that international students spend in one year here in the US on school and school related expenses."- Manu Smadja, CEO and Co-Founder at MPOWER Financing

Two thirds of that, so 24 billion dollars of that is self-funded. Self-funded meaning families, home country loans, the uncle guaranteeing something at home, you know putting the house as collateral and so on. The other 12 billion dollars that the government money, that's the scholarship, that's the teaching assistantships and so forth but that 24 billion dollars is hard to come up with.

And when we look at where it comes from, what shape it takes, often times it's borderline of shark loan in the home country. There's students paying 14 to 20 percent interest, it's a five-year term, very very tough on cash flow, especially when you're a student. It's in rupees or reals or rubles or in these, it seems like r is the favorite letter for foreign currencies and the student might get it, so say you're admitted in March or April, you have to take that money in rupees on your account, hold it for six months or so just to prove you have the funding.

During that period of time, not only are you paying interest on that loan but on top of that, something might be changing for your currency. So six months later you are all happy you had the money. Well, guess what, the currency went down ten percent and now you have a shortage and you can't even go to school anymore.

So those are some of the issues we tackle. We offer them a US denominated loan, we offer them layers of support so they can get through the visa process without having a whole bunch of money they don't need on their account yet. We disperse the funds directly to the University and rather than send an appraiser to the middle of their country to figure out if their land or their parent's house is enough collateral for the loan, we make it based on their future potential.

John : So Manu, if people are listening and want to visit your website, where should they go please?

Manu Smadja: They should go to www.MPOWERfinancing, that's MPOWER, like the word, the verb eMPOWERing but we dropped the e to make it more hip, so MPOWERfinancing.com

John : Great. The founding sponsor for student startups is the Radiant Group. If you enjoy solving problems and like to work with bright people, the Radiant Group is the place for you. Contact Al DiLeonardo or Abe Usher at theradiantgroup.com. We are hosted by Eastern Foundry, a community of government contractors who are bringing innovative solutions to the government marketplace. For more information go to eastern-foundry.com and we'll be right back.

Welcome back to students vs startups showdown up Potomac, there is the fake radio voice, I gotta get away from that fake. No one likes a fake radio voice. Anyway, this is student vs startups, you know what it is, we got a table and a meeting room over at the Eastern Foundry, we got a startup on one side, we got three students on the other and you know our students, we have Michael, we have Greg and we have Kevin and I'm doing the magic selection, Greg, jump on in, ask Manu a question, please.

Greg Forman: Manu, so, I'm actually interested to know, do you service international students that are only coming to the United States to go to school in the United States or, if John Gilroy wanted to go to Germany and learn about brewing beer, would you finance him?


IMG_8599 Greg Forman


John : Yeah, good idea.

Manu Smadja: So, we'd finance John any day if he asked. I guess the longer answer is, right now, we are very focused on international students coming to the US to top US schools. We help these students as soon as they get admitted, so they typically apply from their home country but we also help students when they are already in school here. So they might have a loan in their home country or they might have a scholarship and then comes the last semester, the last year and they need additional funding. That's a significant portion of the students we help.

Now, there's a lot of other markets where we could really make a difference, Canada is a huge market, it's about 8 billion dollars so about a quarter the size of the US one, so a meaningful one. The UK, Australia are other markets where there is a lot of international students and again, the ticket price, the price of tuition and attendance is high and that's an area where we can really help students get to and through their education.

John : So Kevin, did you know that Manu has written an article by the title of "Three things I wish I'd known as a first time entrepreneur", what a coincidence, huh?

Kevin Uffelman: I have heard that. So what is the number two thing?

John : Ah, trick question.

Manu Smadja: That's funny. So the number two thing is around values. So I got very lucky when choosing my co-founder, Mike, and our core values really are a belief around how to treat people, how to work with one another, trust, what mattered in relationships matched very closely but I never realized it would be such a marriage. I mean I joke with my wife that I learned a lot about marriage by just working with Mike which is a little weird but I really think that's true. I never realized how intimate that co-founder relationship gets and from a values and belief standpoint.

"The way you treat other people, the way you hire, the way you fire, the people you choose to work as partners or as investors, all of that comes out." Manu Smadja, CEO and Co-Founder of Mpower Financing

 It comes out on a Saturday night, angry on the phone at 10 pm or early in the morning during the week, right during all the conversations you have when you crash on each other's couches, that's when these things come out. But I think you grow a lot from it and I wish I'd known that, I think I would have very much still chosen Mike but I feel like I got lucky with Mike, he was my friend from business school I went to MSAT sat through business school. We got along well there and so on. I could have not been lucky. So that's my guidance for entrepreneurs, choose your co-founder or cofounders the same way your choose your husband or wife.

John : You know, we talked about this in the classroom, the struggles and challenges of ownership. Some people say if you don't own 51%, you own nothing. Many observations here, any questions, Michael, for this ownership question we have?

Michael Lamos: Yeah, so I guess, I'm kind of curious about your relationship with ... Mike you said? And ... not me of course but ... But just your ownership, your state, your responsibilities, your duties, your visions, your cohesiveness, just would you mind talking about that a little bit more?


IMG_8636 Michael Lamos


John : Good question.

Manu Smadja: Sure. So the ownership ... Mike and I started together, he was the first phone call I made once I decided to leave Mackenzie and focus on this full time. I came from a fairly cookie cutter background, McKinsey, Capital One, other corporations. Mike was a serial entrepreneur and MPOWER financing was his 13th startup, so he was a natural call for me. He gives me that mental flexibility in the relationship so that I keep things focused, he keeps things flexible so we're like ying and yang.


We split fifty fifty and I think that was very important to us, one in terms of like we're both in it full time to the same level and two it also created a balance for decisions, right. It created that government structure that we'll need down the line.

So that's essentially how we structured things initially.

John : Greg, jump in there.

Greg Forman: Yes, so I'm actually interested in who would you consider MPOWER's direct competitors?

"So the real competitors, there's no established US company that finances international students today." Manu Smajda, CEO and Co-Founder of Mpower Financing

The real competitors, the real alternatives are either financing in the home country, so state bank of country xyz which, again, will lend a very unattractive rate, will typically require co-signers, the home as collateral, a very high arduous process and will eventually give you a loan in rupees or reals or rubles. So those are typically the competitors, the worst competitor is the student who is unable to come, who is not even able to get a loan in her or his home country and either never makes it to the US or, equally bad, has to drop out halfway through. And that's the competitor we try to beat out of the market.

Because we think there's nothing worse than wasting your mind, it's a horrible loss for the student and her or his development. It's a horrible loss for the US. We need that talent in this country, we need the next founders of TESLA or Microsoft and so we're trying to get these students over here and either become leaders in the US or leaders back in their home country.

John : Manu, downtown today I saw a woman with a baseball hat on. She said, a beautiful mind. Moving, I thought ... a beautiful mind is wasted if they can't come to fruition. Kevin?

Kevin Uffelman: Yes, so you mentioned that you're competing effectively locally in these other countries. How do you reach these students before they come here so they know that they have options?

Manu Smadja: So thank you to Georgetown and all the other universities we work closely with, we are often listed as a lender, a preferred lender in some cases, on the website and so the very second thing the stud ... the first thing the student does, when they get the admission letter is jump around and dance typically in their home, the excitement of being enrolled in the program. The second thing is they worry about money and they then go to the university resources, you know, are there loans I have access to in the US, and that's where they find us.

In addition, thanks this time to Georgetown's students, about ten to 15 percent of the students we fund come from word of mouth. It's Georgetown's students going to our website and sharing our link through a Facebook widget or twitter or email and telling their friends about us. By the way, when they do that, they get a $100 referral fee

John : Oh, that's the “phrase that pays.”  Michael, you got a question, please?

Michael Lamos: So, I'm gonna play devil's advocate here for a second. So as an enterprise, from a political environment perspective, what would you maybe do, such as things with immigration or potentially maybe in a less harsh term, like an education for everybody type mindset, like what type of strategies ... I think the United States is probably far from being able to do that at this point, but from a strategic perspective, if something like that would happen, right, we're now, you know, I'm gonna say for like a Bernie Sanders type ideology, what type of decisions or analysis or really mitigation, technique or implementation that you would do to keep you guys alive if that were the thing here in the United States?

Manu Smadja: So we think we are a step in that direction. We think that by making decisions around schools more focused on the economic output you get from it, you actually make education more affordable. I think we give transparency in the market to ROI so we turn on the investment for the education and we don't want students to make a decision around their education or their future entirely based on the economics of a degree but we think that that should weigh in. And that's all the truer if you're a student who, back in the day like me, came from a fairly modest background, you have to be aware of the reality that it is an investment of your time, of your money and you need to be very realistic about how much time you're going to invest in this and what the outcome is.


IMG_8642 Manu Smadja, CEO and Co-Founder of Mpower Financing


So we think we would have worked really well under a Bernie administration, under a Clinton administration, we're doing okay under a Trump administration and we are eager to see what happens around Visas etc., I think that focusing Visas on a point system where you reward higher skill to work first, could actually help more international students come and stay here.

As a start up, I think we have the advantage of being very nimble or DC based, so we're right next to the regulators, we spoke with the CFPB in the past, we have regulators who are investors in the company, I think unlike some of the education mammoths that have been in the space for decades, we have the ability to take advantage of new opportunities and to support new initiatives that are done by the government to broaden access to education.

John : Manu, I know you're not a native speaker of English but CFPB, wanna define that for our listeners, please?

Manu Smadja: Sure, sorry. The Consumer Financial Protection Bureau.

John : So at your website, you talk about helping students build their credit history. How is that done?

Manu Smadja: So what's very different for us is that 36 days after we disperse the loan to the university, the student starts making small payments in school and that's very meaningful for the demographic we help. Because typically the reason why they couldn't get a loan in the first place, they don't have a FICO score, they don't have a financial history in the US so reporting those smaller payments to TransUnion and to the credit bureaus is actually a huge lift, it gives them access to credit cards down the line, it allows them to rent a car, it allows them to get access to an apartment rental, so it's crucial. Well, crucial not just to help them get into school but to help them to get into the US financial system.

Greg: So, speaking of financial opportunities, how did you guys get started with financing. Who was your backer or did you start off with savings or, you know, beg, borrow and steal?

Manu Smadja: So we bootstrapped the first year all right which goes to show, doing a start-up is a sort of privilege and that you have to have some savings and you have to have a strong group of supporters. So the first year we had no salary, then we raised some money from friends and family and again, we are very thankful to that group and hopefully we'll make them a lot of money over the years. And then after that, we did a seed round and then the seed round village capital was the first institutional money, 1776 was also an investor, Baltimore Angels was another investor, so a lot of the local folks in the D.C. area really helped us out. RTR International also out of Baltimore and then we did a Series  A where Zephyr Peacock came in, Fresco, University Ventures and Chilango Ventures and Varig more recently, so groups in Latin America and what we find now is that we have a global investment story where we have investors in India, investors in Mexico, investors in the US, investors in the UK and part of our global strategy is kind of leverage that and establish more and more presence abroad.

John : So Manu, if people listen and just want to go to your website, where should they go please.

Manu Smadja: Www.m, the letter m, mpowerfinancing.com

John : Oh that's great. Michael, is there time for my fake radio voice?

Michael Lamos: Yeah, why not.

John : We're running out of time here. If you liked the podcast, give us a review on itunes. I would like to thank our founding sponsor-, the Radiant Group, our host Eastern Foundry, signing off from high atop a non-descript building in lovely downtown Rosslyn, Virginia, I am John Gilroy and thanks for listening to Students versus Startups, showdown at the Potomac.