Let's talk about network effects
The other day, I was sent an article about regulation of peer-to-peer lending platforms, and I found myself surprised by a fact I thought was worth sharing: peer-to-peer lending is among the fastest growing segments in the financial services space. The global P2P lending market is projected to grow to from $26.1 billion in 2015 to $897.85 billion by 2024.
This market is huge — even if it never reaches the nearly $900 trillion its projected to reach. When there’s this big of a market, there’s going to be some competition, which is why it’s so important to think not just about our wedge, but how we’ll grow once we’re in.
As you might know already, our wedge into the market is offering consumer ISAs to students backed by investors who can both make a positive social impact and earn a return when they succeed. By offering ISAs, we’re able to offer more favorable financing options to students than traditional student loans offer, and our unique marketplace approach allows our investors on our platform to increase their potential upside through mentorship and referrals—something no other peer-to-peer lending platform can do.
But, launching new products and features isn’t the best way to build a long-lasting moat, and it doesn’t yield the most valuable or sustainable results you need to scale.
If you’ve spent enough time on VC or Startup Twitter, you’ve probably seen the terms “network effect” or “flywheel effect” thrown around. Maybe you even dived into a thread talking about what they are or why they’re important.
In case you haven’t, here’s the gist: A flywheel effect is a positive feedback loop that builds momentum, increasing the payoff of incremental effort. Basically, it’s “when good things you do lead to more good things ‘just happening’.”
For Uber, it starts with more geographic coverage saturation. From there, they have less driver downtime, lower prices, more demand, more drivers, faster pickups, more demand, and so on…
For Avenify, it starts with better outcomes for students. If we can address the issues with student loans that lead to dropping out and defaulting, we win. Our thesis is that ISAs are the key to this.
ISAs are accessible, meaning students don't have to drop out if they don't have a high-enough credit score or can't find a co-signer. ISAs are income-based and payments are designed to always be affordable.
Better outcomes means more investors who can earn an attractive return. More investors means improved outcomes facilitated through job referrals, mentorship, etc. This is the exciting part, and something no other major player in the consumer ISA market can offer, which is a network of hundreds—soon to be thousands—of investors on the platform that can interact directly with students, whether it's to help them find jobs, prepare for interviews, or provide mentorship. Imagine a student financing company that was actually invested in student success.
More investors on board also means more students funded, and more students funded means more data. Today, we use pull in thousands of data points to help us estimate a student's future earning potential and set unique terms for them. With proprietary data on outcomes and performance for students on our platform, we can improve our underwriting model, leading to higher-quality terms for our students, more accurate projections for our investors, and more opportunities to expand into additional verticals or markets.
Essentially, building a strong flywheel effect means our product (and company) can iterate and improve exponentially, with little more than a strong push to get things going.
Over the next 12 months, we’re ramping up marketing efforts for both students and investors. Our cost of student acquisition is incredibly low already, but if we can drive more organic growth through referrals and word of mouth, we can scale much more efficiently here. As for investors, we’re cooking up some new strategies made possible by Marketplace (coming soon), like featured student profiles, but we’re always open to more ideas on ways we can reach more investors.
In addition to increased marketing efforts, the capital we will raise on Republic will help us launch additional products for investors and refine Avenify’s user experience, validate product-market fit, and kick off what we hope to be an effective flywheel.
If you’ve already invested, thank you for your support! If you haven’t invested, or are considering increasing your investment, we highly encourage you to do so!
Investing in our crowdfunding campaign is a great way to play an active role in helping us build the future of financing. Plus, we have some awesome new perks we’re adding… More on that soon 😉