Why CommonBond is in Brooklyn and why they might stay: CEO David Klein

Following the recent $100 million round of investment for alumni-backed college scholarship startup CommonBond, CEO David Klein has been on the move a lot. Fortunately, at the right place, Brooklyn’s subway puts Klein right in front of institutional investors and moneyed backers that he needs to change paying for college.

That’s what brought him here, but the talent might be what keeps him. Technically Brooklyn recently talked to Klein about CommonBond, how being a social enterprise can help their bottom line and why his goals are in the billions.

What do you think of the startup scene in New York and, more specifically, Brooklyn? Why did you locate in the borough?

We came to Brooklyn out of thinking, ‘let’s optimize our cost-structure.’ We thought that in moving to Brooklyn we could get more space and better space than moving to Manhattan. That was a lead indicator in Manhattan: price. So space was first.

It was important for us, given the financial nature of our company to be pretty accessible to Manhattan, especially downtown and Midtown. The subway stops here let us get quickly to anywhere we need to be. Third, we were pretty excited to join the Brooklyn tech startup scene. The Brooklyn Tech Triangle is coming of age. It was exciting to be part of that growing community.

How does tech factor into Common Bond’s business?

Our online application process is all online. Everything we do is for the target market we serve, the millennial generation. These are 100 percent digital natives.
We are also bringing a human component to what we do. That’s a lot of the reason why we do real world events. We believe the human connection has been lost in business.

Do you have tech on the back end that helps you make good picks for borrowers?

Yes. We have an underwriting algorithm. It is proprietary, to us. We’d like to take it to the next level. When I say take it to the next level, I mean: to what extent can we leverage publicly available information, really scrape social media to predict future return. That’s a significant blue ocean.

What we’re looking to do is bring on board a data scientist. We’ve talked to the Chief Statistician at Wharton about our work, and we’re looking at ways to apply that public social data to our risk assessment.

Does CommonBond consider itself a social enterprise? Do you put yourself in that category?

Yes, our company fits at the intersection of three things: social enterprise, education and finance. What we are at our core is a platform that connects a community of borrowers with our community of lenders.

The educational component is that we are starting with student lending at first. Certainly, at the beginning education, is personal. And the idea for CommonBond comes from a personal pain point of mine and my cofounder, Mike [Taormina].

The social impact component has to do with a “one-to-one model” Inspired by Tom’s Shoes and Warby Parker. When we first started the company it was important to Mike and I to have a social component to our work. We philosophically believe that businesses should do better with impact communities either home or abroad.

How is Brooklyn helpful for startups?

The first thing that pops in my mind when I think about Brooklyn is its strong talent pool. We interview lots of people. We are interviewing very talented people who are interviewing with us because they want to be in Brooklyn. They want a shorter commute. They want to walk to work. It’s becoming one of the driving factors that’s leading us to think that Brooklyn might just be the place to stay. Brooklyn has a good pool of talent.

We wrote about how CommonBond has given itself a longer to-do list for each borrower than other lenders have. How do you make that work? 

I appreciated what you wrote about us and it was good to see a piece with a point of view. The issue you raised, it’s a question we ask ourselves all the time: it might be great that CommonBond is doing these other things, but is it sustainable?

That is precisely what we are looking to prove. We are looking to shift the culture of borrowing. We think that for too long what lending has become is a faceless process with zero human touch. We think that borrowers should expect much more from their lenders.

We think it’s important for lenders to treat borrowers like human beings. We think we are trying to raise the bar for the entire lending industry. What we mean by that is joining a community that helps improve someone’s professional career and success.

It’s a self-fulfilling and virtuous cycle, when you think about. You see pre-payment improve and default go down. And you are helping to create a value add for your borrowers by helping them make connection. For example, we had one of our borrowers attend one of our events recently. He was looking for work and he met someone that opened the door for his next job for him. It’s helping our borrowers make those kind of connections that help us to realize real value for our investors.

CommonBond just got a very big investment. What will that mean for your work?

Our capital strategy is three phase. When we had our first $2.5 million, we raised that from Wharton alums. For Series B, we went with institutional investment. We’re running both individual, alumni and institutional investors. Individual is important for building the community, while institutional helps us scale.

We will continue to raise capital from individuals and from institutions over the next six to 12 months. We will earmark over $100 million to directly fund students over that six to twelve month period.

We expect to bring on over $500 million the year after that, then over a billion after that. Our model requires us to really scale up to make it work.