There’s nothing unusual about someone going into business school with an idea and coming out to start a successful venture. This happens so frequently that a news source such as Poets&Quants can put together a feature list of the 100 most successful of these startups. And there are hundreds and hundreds more that haven’t made the list. It’s not uncommon, either, for an MBA or MS in management candidate to come up with an idea while studying for the degree, and to develop it and launch it even before graduation.
But when it’s business school itself that provides the idea and the initial market for a massively successful startup, that’s different. You could even call it meta.
For two Stanford Graduate School of Business students, the idea started with a big problem that plagues a majority of B-school students: student loans come with very high interest rates. For many student loans, this is understandable: default rates can be high, and banks have to take measures to cover default losses. And let’s face it: an 18-year-old sociology major at Fouryearvacation College may not be the greatest prospect for timely repayment.
When Dan Macklin and Mike Cagney were studying at Stanford’s Graduate School of Business, federal Stafford loans carried a 6.8% interest rate, and federal Direct PLUS loans had a 7.9% rate. A GSB MBA student would pay the same rate as the sociology major who spent more time drinking than attending class. But while the national default rate on student loans was close to 9%, MBAs defaulted at a rate of only about half of 1%.
DRAGGED DOWN BY THE MASSES NO MORE
An injustice? For sure. But to Macklin and Cagney, it was an opportunity – one that would bring them tremendous financial success, and this year has made them the current second-most successful MBA startup in America.
Strictly speaking, the two Stanford founders of SoFi aren’t MBAs, but rather graduates of the GSB’s MS in management program, a variant of an MBA, and were Sloan Fellows at Stanford when they came up with the idea for the “social finance” company and turned it into what would become a startup that has now lent $1.75 billion in MBA loans and student loan refinancing, as well as mortgage and personal loans.
On Jan. 30, SoFi announced $200 million in Round D funding, with another $35 million coming in after the announcement, that pushed SoFi to $399 million. Funds came from International Venture Partners, Wellington Management, Third Point Ventures, and SharesPost Investment Management.
SoFi’s funding puts it at No. 2 in Poets&Quants‘ 2015 Top MBA Startups list. Comparing SoFi’s current funding to the amount it had when it placed 6th on Poets&Quants’ 2013 MBA startups list reveals a stunning, five-fold growth from $77 million.