College students
getty
Charlie Javice’s grandparents were Holocaust survivors. They taught her that your education is the only thing you can take with you at a moment’s notice. This philosophy influenced her decision to start a company to lower college costs for low- to moderate-income students and their families.
Even though her parents were middle class, back in 2010—just after the financial crisis—when Javice and her brother were ready for college, they needed financial aid to attend Wharton University. They are not alone.
According to Education Data, while 86% of college students benefit from financial aid, public programs are underutilized. Each year, over $2 billion in student grants alone are left unclaimed. In 2017, Javice launched Frank to help college students and their families prevent debt. Like other high-growth startups, it wasn’t a smooth ride.
She took the preventive medicine approach that the healthcare sector uses. The idea is that it costs less to prevent people from getting sick and, in the long run, people are healthier if you prevent them from getting sick. “Like preventive healthcare, what can you do to intervene before someone has a chronic disease?” she said. “It is critical to make the right decision [upfront] to set college students up for success.”
College debt has significant repercussions. Many graduates are forced to take unfulfilling jobs. As a result, they job hop. Their debt prevents them from saving for retirement, a down payment on a house, their kids’ college, and an unexpected expense. Rather than focusing on paying off debt, Javice is focused on preventing it.
Javice’s first approach was to develop a better credit scoring system than FICO. Lenders use borrowers’ FICO scores and other data to assess credit risk and determine whether to extend credit. “If we could change the way students with thin credit files were evaluated, millions of first-gen and low-income students would be able to access quality four-year education,” she said. Based on this premise, she raised a pre-seed round from angel investors. “The new credit score worked a lot better than FICO in terms of scoring credit.”
Even with sound legal advice, what Javice didn’t know is Frank’s business model categorized it as a credit bureau. She would need state-by-state approval on an annual basis. Staying compliant in 50 states with different rules made this model cost-prohibitive.
She had to return money to her angel and seed investors, “I had to let go of 12 people,” said Javice. “It was heartbreaking. I lost very good friends. It’s still one of the hardest things I’ve done to this day.”
Javice pivoted to a direct-to-consumer model. The company’s first product streamlined the financial aid application process, which uses the Free Application for Federal Student Aid (FAFSA) form. “It’s a form that over 90% of students need to fill out to be able to go to any version of higher education financial aid,” said Javice. This includes associate degree and community colleges, four-year private colleges, graduate programs. The form is used to apply for federal aid, including Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Teacher Education Assistance for College and Higher Education (TEACH) Grants, and Iraq and Afghanistan Service Grants. “On average, students receive about $22,000 a year from this.”
“It [the Frank form] is similar to TurboTax but for financial aid,” Javice said. It makes it easy to prepare your application and file it online. You can even get expert advice. “We will follow the family from school selection to 15 years of student loan payments,” she said in Crunchbase. Javice pitched the same investors who initially believed in her. They all invested in the new concept. Several employees came back, too.
Interestingly, for its seed round, it wasn’t female venture capitalists who funded Frank. Research suggests that having a single female venture capitalist within a firm may not be enough to win investment in a breakthrough business model created by a female founder. Often lone female VCs within a firm are marginalized, especially when presenting a female founded company. Firms with more than one women investment decision are much more likely to invest in female founders. Sometimes it may be better to have a male venture capitalist, like Javice found, as the startup’s champion.
Initially, she found these male investors among the University Pennsylvania and Wharton alumni base. She targeted those who were very involved in providing financial aid and scholarships to students. They understood the market and got her idea. She also identified angels, venture firms, and family offices involved with her target market—first-generation immigrants, low- to moderate-income students, Black and Latinx students—and involved in nontraditional ventures in the fintech space.
People who have a deep understanding of the demographic understand its purchasing power. “You don’t need to be making over $100,000 a year to be a worthwhile customer to go after,” said Javice. Later investment rounds did include female venture capitialists.
Critical to the company’s success has been hiring people from the get-go who reflect the demographics of the people Frank serves. “We’ve intentionally hired super talented, bright people from all different walks,” said Javice. This includes people of color, women, immigrants, and the first generation. By doing this at the earliest stages of the company, you don’t need to fix a problem that shouldn’t exist in the first place.
If your business model doesn’t work, how will you evolve?
