Crowdfunding platforms across the web invite supporters to pledge money to all kinds of projects and businesses, but Pave, a New York startup launching Wednesday, wants its backers to invest in people.
As student debt climbs and new crowdinvestment models proliferate, Pave’s founders say their site enables students and other young people launching careers to connect with more established professionals willing to provide money and mentorship. In return for their investment, backers receive a cut of the student’s future earnings over a predetermined period of time.
“It’s an online funding community where young prospects get to follow careers of passion supported by teams of backers they can meet on the site, who want to put time, money and resources to good use,” said co-founder and CEO Sal Lahoud.
Lahoud said he first started thinking about the model after a friend came to him asking to borrow money to jumpstart a career in design. At first, he said, he thought it would be an uncomfortable arrangement because if things went badly he’d feel bad asking for repayment and if things went well he’d feel as though he should share in the success. But when he proposed an investment model, the friend supported the idea.
Soon after, Lahoud, who previously worked at Goldman Sachs and in other business roles in media and tech, looked into building an online funding community around that kind of relationship. He quickly found two co-founders who shared his interest: Oren Bass, Pave’s chief operating officer, and Justin Mitchell, the company’s CTO and a former Facebooker.
Since the beginning of the year, the company has raised $5 million in seed funding from private investors and said it has created a new kind of legally-binding financial agreement for participants on its site. On Monday, it is launching a pilot program that includes 8 “prospects” and 22 “backers.”
Through Pave, prospects can establish a profile by providing verifiable information, such as their college major and GPA, as well as evidence of their talent or work, such as portfolios. They list the amount they want to raise (from $3,000 to $50,000, but the company says the average is $20,000 to $30,000) and share the story of what they want to pursue and why. For example, one of the pilot’s prospects interested in pursuing film turned to the site to raise $50,000 to produce a script as well as give her some flexibility in building her career. The funding came from six backers, one of which is a film industry veteran who can also provide creative feedback and professional advice.
Once backers (who can search the site by industry and affiliation) identify the prospects they want to support, the different parties negotiate the terms of the agreement with help from the site’s algorithms, which can calculate a prospect’s projected future income. According to the company, under most arrangements, prospects owe their backers 3 to 7 percent of their earnings over 10 years.
Given the rise of crowdfunding platforms, it’s not surprising to see such a model target education and career-building. As my colleague Ryan Kim recently wrote, Kickstarter-like startups are pushing into all kinds of fields – from medicine and science to music and gaming. And, in education, USEED and Smartn.me are two sites that enable students to raise money for specific projects.
But Pave is interesting in that it’s not project-centered and backers don’t just garner goodwill or small in-kind returns, they get a real cut of a prospect’s future earnings. And that increases the risk for parties on both sides.
To protect backers, Pave says it does a credit check on all prospects and shares that credit history with backers. And once a prospect starts earning an income and filing tax returns, backers are owed the agreed upon share and an unpaid amount is treated like any other payment claim.
Pave also acknowledges that the site offers a different kind of risk profile to prospects and students. While students might owe more to backers if they succeed than they might to a traditional lender, ideally, they also receive more mentorship and ongoing career support. And, if they don’t succeed or earn a lower salary, they don’t owe a lender a lump sum that’s disproportionate to their earnings.
It seems like there could still be room for prospects to ask for money to pursue one path and turn to a different field or for backers to invest money but provide little ongoing support in other material ways, but Lahoud said the platform’s design, community and contract are structured to discourage bad actors. It’s not an arrangement for everyone, but it’s a compelling model that could make more capital accessible to more people.
Image by zimmytws via Shutterstock.