Lenddo has built a microlending service that uses social networks and endorsements to determine creditworthiness
A Q&A with Lenddo co-founder and CEO Jeff Stewart. The New York City–based company was founded in January of 2011 and raised an $8 million Series A round in mid-May. Investors include Accel Partners, Blumberg Capital, Omidyar Network, iNovia Capital and Metamorphic Ventures.
SUB: Please describe what Lenddo is, and the value proposition you bring to the lending process.
Stewart: Lenddo is the first service to use online social networks and endorsements to calculate creditworthiness. Lenddo has developed a proprietary algorithm which produces a credit score based on individuals’ engagement with social networks—such as Facebook, Twitter, and LinkedIn—and are lending capital based on this credit score. Our borrowers are members of our online community which is primarily comprised of the new middle class in emerging markets around the world, many of whom are currently left out or underserved by the traditional financial system. In certain respects, we are bringing microfinance lending techniques, which draw upon community reputation and peer enforcement, into the digital era. Our innovative and technology-centric method of analyzing borrowers’ online reputations and social networks effectively replaces the need for a formal credit score and allows us to efficiently reach these previously under-banked consumers.
SUB: Who are your target users?
Stewart: We seek to reach members of the new and growing ‘wired’ middle class in emerging markets. While Lenddo’s platform is free to join for anyone, our core base tends to be professionals in their twenties and thirties.
SUB: Who do you consider to be your competition?
Stewart: Lenddo is truly filling a gap that exists in the market in these countries—commercial banks haven’t really invested in understanding how to lend to our ‘digitally native’ customer base and microfinance lenders target the ‘bottom of the pyramid’ as opposed to the middle class demographic we seek to empower. So, our competition in the emerging markets is a fragmented group of specialty lenders and neighborhood moneylenders who charge excessively high rates and don’t have our focus on financial empowerment.
SUB: What differentiates Lenddo from the competition?
Stewart: Lenddo is the only company to combine three key innovations to serve our customers. First, we focus exclusively on emerging markets so we understand how to adapt our products and services to an incredibly diverse and relatively new customer base. Second, we’re using a cutting-edge algorithm to make better underwriting decisions and more efficiently service our customers—allowing us to reach customers that banks have typically turned away because they didn’t know how to understand them well enough. Finally, we’re pioneering the online replication of the crowd-sourced reputation and enforcement mechanics that are the cornerstone of the microfinance industry—but we bring it 100 percent online and service the wired middle class.
SUB: When was the company founded and what were the first steps you took in establishing it?
Stewart: Lenddo was founded in January 2011. Our first step was to begin to pull together an amazing team of engineers, developers and data scientists. Attracting top technical talent was and continues to be priority one, two and three.
SUB: What was the inspiration behind the idea for Lenddo? Was there an ‘aha’ moment, or was the idea more gradual in developing?
Stewart: We witnessed the problem firsthand, and that was the key driver of our desire to empower the emerging market middle class. My business partner and I were already heavily involved in building technology businesses in the emerging markets. On numerous occasions we experienced employees coming to us and asking for loans for really important things like their parents’ hospital bills or their sister’s school fees. We knew them well—and how smart, educated and hardworking they were—and couldn’t believe that they had no other options than to come to us for loans. As we looked for a solution, we became fascinated with the success of microfinance, which uses the power of the community to understand potential borrowers. After significant research and interviews with many microfinance experts, there was a recognition that those same techniques could be brought online using online social networks like Facebook, Twitter, Google and LinkedIn. Being tech guys with a number of successful ventures under our belts, we realized we were in a unique position to put the pieces together and do something important that had never been done before. We founded the company a few months later.
SUB: What have the most significant obstacles been so far to building the company?
Stewart: Lenddo’s mission is to economically empower the middle class in developing countries around the world. The biggest challenge is overall complexity—the very way society interacts with the Internet is changing at every day, due to factors like massive adoption of mobile phones and social media. To best help our members we need to be ahead of these trends. Furthermore, Lenddo operates over great distances in many jurisdictions. This is not a business for first time entrepreneurs. There are inherent challenges both in navigating the legal and regulatory landscape as well as in maintaining a seamless amount of communication between Lenddo colleagues in each of these places. We make communications with our team and our members a top priority—so far it really seems to be working.
SUB: You recently raised $8 million in Series A funding. What are your plans for the funds?
Stewart: We will use the money to expand the engineering team, to do more R&D and algorithm development, and to expand into more territories.
SUB: Do you plan to raise more outside funding in the near future?
Stewart: Yes. We expect to raise additional capital, and we would expect to do that before going public. We plan to impact millions of lives, thus timing on when to raise additional funds will be driven by our capacity to turn investment into technology that benefits our members. Right now $8 million is the right amount of investment.
SUB: What are your goals for Lenddo over the next year or so?
Stewart: To serve more members, refine our algorithm and prove we can replicate the success in the Philippines in more countries starting first in Colombia, where we are off to a good start.
Lenddo – www.lenddo.com