A once-high-flying Wharton MBA startup is grounded

A once-high-flying Wharton MBA startup is grounded

The original trio of Wharton MBA graduates who founded CommonBond. CEO David Klein (center), COO Jessup Shean and CFO Mike Taormina. Shean, now Evercore’s managing director, left a year into the company’s life, while Taormina left about three years later and is now Alluvial’s co-founder and COO.

Founded by a trio of Wharton MBA students in 2012, student loan company CommonBond is closing its doors. The startup was one of several student-founded fintech companies, including SoFi, Prodigy and Earnest, that revolutionized the student loan market.

But CommonBond struggled during the pandemic and the administration’s decision to allow student lenders a reprieve on their loan payments. An attempt to steer the company toward solar financing four months ago was not enough to sustain CommonBond.

“After an incredible 10-year journey, it is with mixed emotions that we announce that CommonBond is shutting down,” CEO and co-founder David Klein wrote in a LinkedIn post.

A PIVOT TOWARDS SOLAR FINANCING CANNOT ATTRACT FINANCING FROM INVESTORS

“The story of what has brought us to this point begins with Covid. When the pandemic hit, our student business took a hit,” he added. “Half of the refinancing market disappeared when the government stopped interest and payments for all federal students. More than two years later, that policy is still in place.”

His effort to turn CommonBond into a company that would finance solar installations for homeowners failed when it failed to attract the additional investment needed for the pivot.

“The solar business is where we were growing rapidly, hiring new installers and reshaping the way the industry served customers for the better,” explained Klein. But we were still scaling, it wasn’t profitable yet and we needed new capital. Unfortunately, we couldn’t pivot the entire business fast enough.”

IT WAS ONE OF THE FIRST MBA INITIATIVES IN THE ANNUAL LIST OF THE BEST OF POETS&QUANTS

For many of its early years, CommonBond was among the most successful MBA startups of its generation. Landed constantly on Poets&Quants‘ annual ranking of the best MBA startups. CommonBond was one of only three Wharton startups, with Warby Parker, to make the inaugural ranking in 2013. In that year, CommonBond was ranked 64th in the top 100 MBA startups after raising $4.2 million. dollars in financing. By 2016, it was in the top 20, having raised $46 million from investors.

In that year, in fact, three MBA student loan startups were in the Top 20, including Stanford’s SoFi, founded by a Stanford graduate, taking the top spot with $1.4 billion in funding, and Earnest, founded by Harvard Business School MBA graduates, ranking 10th. with $99 million raised. CommonBond ranked 19th.

Klein founded the company with his Wharton classmates Mike Taormina, now co-founder and COO of Alluvial, and Jessup Shean, now managing director of Evercore, the boutique investment bank. Klein served as CEO throughout the company’s history. Shean left as COO a year into the life of the company, while Taormina left after roughly three years as CFO of CommonBond.

COMMON BONDS FUNDED OVER $5 BILLION IN LOANS

Along with SoFi and Earnest, CommonBond significantly disrupted the student loan market, exploiting intense customer dissatisfaction with higher interest rates and poor service from the federal government and traditional banks. The fintech upstarts had a particular advantage over the feds. While the government issued student loans to anyone going to college or graduate school, refinancers were able to pluck the cherries and reap a bountiful harvest for some of the world’s most sought-after borrowers — borrowers with lots of debt but virtually no risk. . default

That initial strategy worked like a charm. Over time, CommonBond funded more than $5 billion in loans, with more than a million users and 100,000 customers served. Klein noted that the loans he undertook saved consumers more than $1 billion.

“While the result is disappointing, the impact we have had will continue and is something we will always be proud of,” he wrote. “I now turn my attention to completing the settlement. Once complete, I will think about my next steps. Until then, and with gratitude.”

CommonBond was the first and only finance company with a “1-for-1” social mission: For every loan it finances, CommonBond also funds the education of a child in need, through its partnership with Pencils of Promise. The company donated more than $2.5 million under its “Social Pledge,” according to Klein.

Klein’s LinkedIn post drew more than 200 comments, including one from a former colleague at American Express, where Klein worked before going to Wharton for his MBA. “David, I still remember the day you called me to tell me you were leaving Amex to go to grad school,” wrote Joshua Berwitz, now a senior vice president at American Express. “I have watched what you have accomplished with great admiration. I’m sure it’s a difficult time now that you’re winding down, but what you’ve built, what you’ve chosen to support and how you’ve stood up for your people these past few months says everything about you as a professional and more importantly as a person. . . No one can take any of that away from you. You will undoubtedly do other great things and positively impact many others along the way.”

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