HBS 2+2 Student Launches Innovative New Student Loan Start-up

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Learn about HBS 2+2 from Tess Michaels, entrepreneur and HBS 2+2 student [Show Summary]

Stride Funding is an innovative start-up that is revolutionizing student financing with income share arrangements instead of traditional student loans. Today Linda talks to Tess Michaels, founder of Stride Funding, and second-year student at Harvard Business School who joined the class of 2020 through HBS 2+2. She shares how she came up with the idea, how HBS has been instrumental in Stride’s success, and her path to HBS and 2+2.

Tess Michaels discusses what it’s like being an HBS student with a Start-up [Show Notes]

Our guest today, Tess Michaels, has done a ton. I’m going to give you a few details, and then let her fill in her story herself as well as tell us about the new student financing start-up she has founded and is running. Tess graduated from Penn with a Bachelors in Applied Science and another Bachelors from the Wharton School in Global Impact Investing and Operations Management. She has a long list of activities and offices held while there, and in addition founded Soceana, a platform to “democratize giving and promote corporate volunteerism,” which was acquired in 2018. After graduation and being accepted to Harvard’s 2+2 program she worked at Goldman Sachs as an analyst for two years and then at Vista Equity Partners as a PE Associate. She joined HBS in 2018 and immediately founded Stride Funding, which we will learn more about later in this interview.

Can you tell us a little about your background? Where you grew up? What do you like to do for fun? [2:31]

I grew up in Texas and have a big love of BBQ. I love going to comedy shows, seeing live music and movies. One of my favorite films is Good Will Hunting, a Boston classic!

Why did you decide to get two bachelors degrees at Penn? [3:12]

Growing up I was really interested in science but also in business. At Penn I had the opportunity to study biology but also operations and investing at Wharton so I decided to take advantage of it.

Why HBS 2+2? [4:01]

My junior year at Penn I met with a couple upperclassmen who had applied and told me about the benefits. I knew I had gotten a lot out of the business classes at Wharton and wanted to take the opportunity to learn from a very global peer set as well as utilize the case method, which was very different from how I had been studying. 2+2 gave me the flexibility to pursue work that built upon my skill set before going to b- school with the comfort of knowing I was going to go to HBS.

How would your initial post graduate years have been different if you hadn’t been accepted to 2+2? [4:54]

I would most likely have gone into investment banking anyway. It is a great place to grow a skill set. Having 2+2 let me decide that while I loved finance, I missed the operations piece, and knew I could focus on that once I arrived, which was nice.

Do you remember anything particularly challenging about your MBA application process? [5:50]

With 2+2 you are applying early in your career, really without formal work experience, and you have to be thoughtful about who you choose to write letters of recommendation. Luckily, I had the benefit of growing my first start up while at Penn, so had people who could speak to my abilities in that regard. The second is crafting the right story. Thinking through your career path, why business school, and where it will take you.

What do you like most about Harvard Business School? [7:00]

Number one: the people are so inspiring. 40% of the class is international. Second is the experiences – the international trips you take are led by fellow classmates from the countries you are visiting, which adds a whole new level of experience with a local’s perspective. Last, having the opportunity to grow Stride while in school has shaped my experience and made HBS similar to an accelerator – learning from professors, entrepreneurs in residence, etc.

What would you like to see improved? [8:12]

The first-year experience is really valuable to build the community with the section – you take every class with the same group of 90 students – but a lot of classes overlapped with my undergrad experience. The other thing I would say is the lack of diversity in cases – the types of protagonists don’t reflect the actual diversity in the workplace.

With all the great experience you had both from your education and work, are you actually learning anything new from the classes? [9:10]

There is not a day I regret going to HBS. The classes I am taking this year have been incredibly valuable, being taught by practitioners who have been incredibly successful in their careers. Classes are very different this year and specialized to what I need. The case method is also incredibly unique. You are learning from fellow peers who have collective experiences no individual could have themselves – from the military, Tesla, big corporations with different missions and visions, and all are invaluable to my learning experience.

Did you arrive at HBS knowing you wanted to start a business? [10:48]

I did. I loved my time at Goldman, but missed operations. I knew that HBS would be a great launch pad to start something new. I spent a great deal of time thinking through problems I was very passionate about, real pain points. By the time I got to HBS I had been working on Stride for a few months.

Tell me about Stride Funding What is it? How does it work? [11:39]

The ideation process was very raw at first. I started by asking anyone and everyone, “If you could solve any one problem, what would it be?” There was a recurring theme – the cost of education has just become so high, which has made the decision to go to grad school that much harder. When I was talking to HBS peers I heard that even more. I did field research and was ready to go with the right business model and the right problem when I arrived.

Stride Funding is a student financing company. We offer a different kind of model based on income sharing. Traditional loans accrue interest while in school, and then you are paying a lot when you are making the least right out of school. During down times in your career (laid off, maternity leave, etc) you are paying hefty interest payments, so how do we align cost and value of education? Schools expect students to pay it all up front, and it is up to students to make sure the cost is worth it.

What we have is an income share agreement – we help grad students get funding and in return we take a fixed percentage of that student’s income over five years. This allows more flexibility. You are paying the lowest amount when you are making the lowest amount, and if you are laid off you pay nothing. We do well if the student does well, so we have also built a community – recruiters, resume services, and a peer-to-peer network. Funding is step one, but we are here for you throughout your career. We essentially are investors – students are the start-ups and we nurture them, and we have the incentive to do so.

From a cost perspective we are about the same price as a traditional loan but with none of the downside, and the upside of community built in with no additional costs. We want students to never worry about whether they can afford the education, and to know we are invested in them.

How have the Harvard Incubator Lab and HBS’ other entrepreneurial resources played a role in the founding and success of Stride Funding? Getting funding? [17:45]

I have been able to meet professors with incredible networks who have given me great guidance, and I’ve been able to learn from their careers. Jeff Buskin is my advisor and introduced me to investors. Second is the ability to ideate with others who keep you accountable for what you say you will achieve. We have weekly meetings with entrepreneurs in residence, and having peers in similar boats is really amazing. The last thing is the ability to be on campus with the target segment, so it is really “for students by students,” seeing those pain points every day. Being in Boston is incredible with the number of students and schools.

How do you manage the demands of b-school and running a business? [20:19]

It is a lot. You sacrifice a lot of sleep. The primary things are my classes are really well aligned with the start up. They are completely relevant to Stride – focused on selling, real value proposition, and brand value. Second is having an amazing team to work with. I could not have picked a better group. We are in constant communication, and I could depend on them for my life. We are having a retreat in Dallas in January. We keep each other accountable and energized about why we joined Stride in the first place. This is my number one priority, and I find ways to make it work.

Plans for the future? How do you see yourself growing Stride Funding? Could it work for other funding needs? (mortgages for example – lending for assets that appreciate?) [22:19]

There are a lot of different growth sectors we think about. The student loan market is such a huge industry – we hear about it in the news every single day. We already have our work cut out for us in fulfilling that demand. We probably will expand to undergrad later. Our second product is prepping to launch, which is a refinance option, and will be available in 2020. It is essentially converting all traditional loans into one income share agreement that is much more manageable. Beyond that we are looking at pain points in other areas.

What would you have liked me to ask you? [24:57]

Maybe what a good team looks like. So much of this business is built from the team, so I want to give a shout out to an incredible group of people. My partner in crime, Patrick Connor, has been in the lending space for 25 years and worked at companies like SoFi and the big banks. He makes sure underwriting is fair. We have an amazing group of students at Harvard College – they bring so much energy and passion to the cause. Hiring the right people should first be mission-focused. People need to not just have great skills but understand the pain points and prioritize them. Our mission is, “Fund your Future, Hit your Stride.” It is about being there for every part of a student’s journey, which is why community is so important. We aim to ensure students are able to really be successful and are their partner every step of the way. We anticipate the relationship continuing, building on things like the peer to peer network.