ChangeEd is a company from Chicago, IL, that wants to solve the student loan debt problem by creating a service that will use borrower's spare change to pay off their debt.
ChangeEd provides an app as a front-end to their service that borrowers can use to link the service to their loan servicer and bank accounts. When the borrower makes a purchase with their debit card, the service withdraws an amount of money equal to the next full dollar and keeps it in an FDIC insured account they maintain until reaching $100 where a payment can be made to the loan servicer.
The app has seen 9,000 downloads since launch and 1,000 user accounts created. $20,000 in student loan payments have been made since launching earlier in the year with $100,000 in payments projected by the end of the year. Users can check their status on their loans and their repayments through a series of reports available through the app.
The entrepreneur claims to have relationships with 90% of the student loan servicing companies and plans to reach more borrowers by reaching out to school alumni organizations.
In terms of revenues, the company charges a $1 per month membership fee and, as of the filming of the episode, has 800 members. Thus, the company is currently bringing in $800 per month of gross revenue or just less than $10,000 per year ($9,600). The entrepreneur stated that "with a company at our stage, valuation is more of an art than a science", explaining the strange $1,666,000 valuation he had assigned the business given the current revenues. Part of this was no doubt due the to $50,000 that had been raised in a friends & family round.
This deal aired on Episode 9.20.
Making A Deal
Mark was interested in the micro-transaction nature of the product and the servicing of student loans and agreed to give the entrepreneur the $250,000 of capital being asked for but in exchange for 25% of the company rather than the original 15% being offered. This represented a bite of $666,667 from the original value but did have the effect of bringing it down to a nice even $1,000,000.
The entrepreneur took the opportunity and brought Mark Cuban on as an investor.
In episode three of Season Eleven, ChangeEd was featured in an update with Prep Expert at a Las Vegas convention with investor Mark Cuban. They stated that before appearing on Shark Tank, they had only 800 users. Since their appearance they were now at 30,000 users with over $1,000,000,000 assets under management.
- This functions similarly to how Acorns or bundil from Season Ten operate except that it is targeted specifically at student loans rather than savings (as in Acorn's case) or investing in crypto-currencies (as in bundil's case).
- Their statement that they had only 800 users in the update but 1,000 accounts during the pitch is a nice reminder of how companies try to "juke the stats" when pitching investors. Both statements might very well be true. They very well may have had 1,000 account. However, the fact that they only had about 800 (active) users would have been a more true number as to how successful the service actually was. But since 1,000 is greater than 800, guess which number they went with...