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The Right Way: LendFriend Replaces Old-School Loans with a Helping Hand

By: Daryl Bernstein / Thursday, October 11, 2012

Our new series “The Right Way” profiles RightSignature power users, revealing their success secrets and the technology tools they use every day.

LendFriend marries the social web with the crowdfunding explosion, functioning as a platform for friends to lend money to friends online. RightSignature’s Steve Stormoen caught up with Geno Moscetti, CEO and co-founder of LendFriend, to learn more about LendFriend and the broader vision it espouses for the rest of the Financial Services industry.

What’s the story behind LendFriend? Where did the idea come from?

Geno Moscetti: My CTO and co-founder, Dave Kuchar, and I have been friends since we first met in college. After university we took different paths. Dave left his PhD to build his first company, which he bootstrapped and funded with credit cards and his savings. By the time his startup grew to a profitable lifestyle business, he had accumulated a lot of debt, and all the banks turned him down for a debt consolidation loan because of his previously erratic income.

Meanwhile, I was a management consultant for financial services firms and had cash sitting in a savings account. I believed in what he was doing and had additional information than a traditional bank would use to assess risk. So I offered to lend him the money at an interest rate that was greater than I was earning with savings account, but less than what he was paying to credit cards. To formalize it and make sure it didn’t affect our relationship, we turned to existing services online, but found them all lacking. We designed and created LendFriend to meet our own specific needs, and we realized that there are many people out there in similar situations as us.

You mentioned that you wanted to use an online service so as to not affect your friendship. How does LendFriend as a platform deal with that relationship aspect?

GM: Fundamentally, we believe in compartmentalization—that is, being able to mentally separate different feelings or ideas and not let them bleed together. If we can compartmentalize money as an emotional response factor separate from that friendship, we think we’ve done our job. We designed LendFriend to help with that. For example, our slider to select interest rates, or our simplification of your standard legal documentation—it makes it easy for someone to repay the loan, and easier for the lender to give it as well. We think that, if we have a tool that lets our users compartmentalize those feelings, compartmentalize those thoughts about everything that might go wrong, that a personal relationship is longer an inhibitor to lending money. Rather, making an investment in a friend can be a way to empower a relationship.

Again, it comes back to the fact that, like our core user base, Dave and I had known each other for awhile. And, like most people of our generation, I’m always looking for a tool to outsource my efforts. I keep a tasklist on my iPhone, set up periodic email reminders to go to gym, etcetera etcetera. So whenever I can find a tool to outsource mental effort, I go for that. With lending money, we want LendFriend to be the platform to take care of the messy parts. Using LendFriend, I’d never have to ask Dave for a repayment because the system takes care of it. When I give him that initial investment, he’d never have to question whether that money was gift or loan because that aspect is included every step of the way.

The social internet is soaring, crowdfunding is on the rise, and it’s a difficult time for many people to get bank loans. Is this the perfect storm for LendFriend? Tell us about your successes as a business and how you’ve achieved them.

GM: There are several macroeconomic trends that make it an opportune time to be a FinTech company. We've been blessed with the initial traction from our users and have a great team of advisors (Thomas Korte, ex-Google, Gokul Rajaram, Facebook, and Philip Mikal, Klarna) who have seen many of the obstacles we'll encounter in the upcoming years. But like most founders, I see my best days ahead and am really excited to see how 2012 is going to turn out.

Last year we were part of the Fall 2011 AngelPad, and that’s where some of our advisors came from. Next we had our demo day, and we successfully raised a round of seed funding. From there, it was a matter of hiring the right team, growing the product, and developing our vision of financial services as well.

How do you use RightSignature, and which other online tools you use the most?

GM: We looked at a couple of services to make it simple for our users to sign their promissory notes between each other and banking agreements with LendFriend. RightSignature had the best API and the simplest integration, so it was an easy choice.

We are a small and nimble team so we use Astrid to manage our tasks, Google Docs and Hall.com to manage our communications, and the standard tools for product development—GitHub, Sublime Text, Adobe Creative Suite, and so on. For productivity, we like Dropbox, Evernote, and LastPass—actually, I can't recommend this last product highly enough.

What does your vision for the future look like? Tell us where we’ll all be in 5 years, both for LendFriend and the tech and business world at large.

GM: We moved from a generation of mass commercialization (think: Mad Men) to mass customization (think tailored information consumption: Twitter, Facebook, and Google). Speaking from the perspective of an individual in a developed nation, what I perceive is going to occur is a fully customized experience of everything—financial services, health care, entertainment, education, etc. All customized explicitly for the individual, based on the vast amount of data that we will self-supply which will be combined with other non-traditional predictive indicators.

We design LendFriend with a similar perspective. In Financial Services, we’re starting to see new bits and pieces of products tailored specifically for each individual. Take credit, for example. For 3/4ths of Americans, credit works great—you and I can apply for a credit card, get approved, and receive it in a week. We fit within the profile that most traditional lenders are looking for: they go down their list and all the boxes can be checked. For everyone else, though, the current model does not work—they can’t get credit at all. And the credit they can get is prohibitively expensive. I believe there's going to be  more and more innovative startups disrupting entrenched players at the margins and the progressively moving upstream. We're seeing a lot of this in FinTech already. At LendFriend, we're currently building our next product which provides credit to the underbanked. Five years from now, our dent in the universe focuses on fundamentally reducing the friction for people to receive access to sustainable capital.


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