This week, I spoke to Emon Motamedi who is the founder of Florian. Florian offers undergraduate students income share agreements (ISA), a relatively new type of funding for students. If you aren’t familiar, an ISA is a contractual agreement in which a student receives education funding in exchange for an agreed-upon percentage of post-graduation income over a set number of years. Florian sets itself apart because they raise capital from alumni of their target universities and have established a robust alumni mentorship and career services program for the students that help them land their first job.
In our conversation, Emon talks about:
Here is my conversation with Emon Motamedi, founder of Florian:
Let’s start at the beginning. Can you give me a quick overview of how Florian started?
Emon Motamedi: We actually started in the nursing space. The original concept for Florian was let's build an online nursing school that leverages income share agreements because there is a huge shortage of nurses in the US. The two reasons we identified behind this shortage were, one, a lot of folks who consider going into nursing, it’s their second degree, they're going to graduate school and the prospect of taking on additional debt to go into that profession is very burdensome. Second, there's a huge capacity constraint on the university side of things which limits the amount of students that are able to get into these programs. We basically said, hey, is there an opportunity for us to create an online nursing program where we have the majority of education online and we also leverage the income share model so that students, instead of paying upfront or taking out a loan, instead pay back a percentage of their income once they graduate and find a great job. That was the original conception of Florian. And we went through a number of different iterations. First, we tried to build the nursing school from scratch, but we quickly found that you need a few years of operating experience and history to become an accredited institution and we wanted to move more quickly than that. We looked at buying an existing nursing program from a university, but you had to buy the whole university to keep the accreditation for the nursing program, and we weren’t trying to be the deans of an entire school.
Running a whole nursing program is a lot different than today’s model. Tell me about when you decided to go directly to students?
EM: So we had landed on partnering with existing nursing programs, potentially helping them bring the nursing program online if it wasn't already, but mainly using the income share agreement as a way for them to increase their enrollment numbers because it's such a more flexible form of funding. On top of that, we’d also provide career services to help the students land great jobs after graduation. We pitched a bunch of nursing programs and we were having a lot of great conversations, but we were finding that schools have a long contract review process. It was looking to be nine to 12 months before we could actually start operating at one of these institutions. So that's when we started thinking, hey, is there an opportunity to go directly to the student rather than working with the school? Can we go to the student and offer up this form of student friendly funding as well as the career services to help them get ahead?
On the income share agreements side, Purdue University were the ones that spearheaded the model. Five years ago, they started a small experiment where they offered students the opportunity to pay back a small percentage of their income for a fixed number of years instead of taking on loans. That program became very popular with the students. Another dynamic we had seen in the market that really informed what Florian is today is SoFi. SoFi was originally started by Stanford MBA students for Stanford MBA students. They leveraged the power of Stanford alumni to raise a pool of funds to offer MBA students more competitive interest rates than the federal government. In return for helping out students, the Stanford alumni get a small, pretty low risk return. SoFi then scaled that alumni funding model to a number of additional universities before transitioning to institutional capital.
So we were looking at what SoFi and Purdue were doing and thought maybe there's an opportunity to use the same alumni fundraising model and go directly to nursing students. Unfortunately, nursing salaries on average don’t get as high as say, salaries of Stanford MBA graduates pursuing finance or tech, and as a result it is hard for nursing alumni to meaningfully invest in a fund. So we took a look at other academic programs and decided let's start at the undergraduate level and given we went to UC Berkeley, we know that school, let's start there.
Let’s talk about your go to market strategy. It looks like you started with individual universities?
EM: Yes, we started at UC Berkeley around September of 2019. We are now at four schools: Berkeley, UCLA, University of Michigan and the University of Texas at Austin.
What have you learned from your go to market strategy and the need to acquire two types of customers for your model to work?
EM: For the students, we set up a website with a landing page articulating the benefits of Florian. On the alumni side, we decided to create a fund, rather than raise money off of the company's balance sheet. Raising balance sheet equity capital dilutes yourself and is much more risky. As a result of this decision, we went through a time intensive and cost intensive process to create the fund. We hired a team of lawyers to make sure we dotted all our I’s and crossed all of our T’s. That’s one of my learnings, I wish for the pilot, we had just raised balance sheet capital, because it would have been so much quicker and we wouldn’t have had to deal with the whole fund infrastructure of setting a fund up.
Also, with a fund there are regulations that prohibit you from marketing it. So we couldn't put up a big website talking about the investment opportunity and why alumni should invest with us. Instead, it was a much more manual process. We sent some cold emails, but the majority of it actually was through alumni connections and the Berkley network.
We had this thesis that acquiring the alumni would be much harder than acquiring the students. We also wanted to avoid the situation where we have a bunch of student demand and not enough capital to fulfill that demand. This meant we mainly focused on the alumni to begin with and thankfully, the alumni side of things was much easier than expected. Early on we got in touch with a few alumni who were really inspired by our model and wanted to support students, so we were able to raise the capital for the pilot pretty quickly and then turn our attention to the student side of things. But, it turned out the student side was more difficult.
The very first day we went on campus at Berkeley we were passing out flyers and we were making announcements in some different campus orgs, but we quickly found out two things. One: the income share agreement concept was very new to students and hard for them to wrap their heads around in a 30 second or two minute touch point. Two: for most students, their parents are in charge of their financial aid. So we iterated on different campus approaches to get the word out for a few weeks and then COVID hit.
Wow, that sounds like it was bad timing. You were struggling to connect with students and then all of a sudden, the students were sent home. Did that make it even harder?
EM: We were forced to transition into the digital space and that was the right transition for us. We realized the most effective form of outreach is when a student reaches out to another student about Florian. So we brought on a team of interns from Berkley and they were really helpful in spreading the word across the student network. What’s funny is that it took us probably three or four months to get our first one hundred applicants at Berkeley. But once we had gotten that playbook down and felt confident in our acquisition strategy, at our next school, UCLA, it only took maybe three weeks to get one hundred applicants.
I think it’s really beneficial to spend a lot of time on your distribution strategy. It's one of those things that you always hear talked about, but it’s so easy to fall into the mindset, “if we build it, they will come.” The reality is you should be spending just as much time thinking through the distribution as you do actually building and conceiving of the product itself.
Yes, I totally agree with the importance of having a good distribution strategy. Let’s talk about how Florian has evolved over the past year. You now have a career services part of the business that serves students from around the country. How did that come about?
EM: What’s really nice about an income share agreement is that we’re completely aligned to the outcome of the students. If the students do better, we do better. Early on we realized we had an opportunity to meaningfully invest in the careers of these students and help them get ahead. So as we were finding alumni to be investors we also began to put together a community of over one hundred alumni to be mentors to the students. In our funding program, every student had a dedicated alumni mentor. We also had different workshops, panels with alumni, and office hours for students. This large number of touch points offered students a lot of support on their journey and they told their friends about it. A result, we began to hear from students who weren’t in our program, but said to us, “I really value what you're doing, these career services seem amazing, but I don’t really need the funding. Can I get access to this program?”
We had always wanted to experiment with a dedicated career services offering just to see if it also had legs along with the funding business. A month or two ago we finally got some cycles free to focus on launching our first career services offering. It’s an eight week program to help students quickly land a job or internship before the summer. We have 50 students going through it right now. We're about halfway through and the feedback has been really positive. We have a few other programs that we’re going to be launching soon to continue to support students. We are excited about these new offerings because we see ourselves as helping students both avoid loans and get ahead in their careers, so we want to put an emphasis on both parts of that mission.
Are the programs focused on a specific type of career or industry?
EM: The first program was completely background agnostic. We have students pursuing financial careers, tech, and healthcare. However, we actually soft launched a new one yesterday, which is a product management program. We'll probably explore a few more vertical-specific ones, assuming that this product management program goes well.
What's your acquisition strategy for these programs?
EM: It's pretty much the same way as our funding model. We leverage students at these different schools to spread the word through various school organizations or their social networks.
It seems like these courses are a great way to figure out what schools to expand to next. Is that true?
EM: Yes, it's been a positive externality that we didn't expect. When we think about which school to expand to for the funding side of the business there are five criteria. The first three are associated with the need and the demand for an alternative to a loan. So is the total size of school, percent of students taking on loans, and what’s the average dollar amount per student per loan. These three help us understand how big the need is. The other two criteria are outcomes focused. The first is the average starting salary for graduates and the second is the percentage of students pursuing careers in business and technology. We look at business and tech because the vast majority of our alumni mentorship and career services are focused on those.
As we've marketed the career services program at new schools we’ve seen students sign up and then also notice on our website that we offer student-friendly funding and they submit a request for funding too. We've gotten a lot of funding inbound as a result of marketing the career services program more broadly than the four schools that we're offering funding at now. I think that to some degree the inbound interest will help inform us as we expand the funding side of the business.
A lot of entrepreneurs struggle in that first year as they try to find product market fit and the buzz from the launch has worn off. How did you manage to stay motivated and focused after the excitement of the initial launch?
EM: As you know, starting a company is very hard. My roommate and I were working on ideas together for the first few months, but he had to step away for family reasons. As a result, I unintentionally ended up being a solo founder, which makes it especially tough because starting a company is an emotional roller coaster, but it's all just in your head as you have no one to truly share it with. For me there were a few things that have been helpful to keep me motivated and focused. The first, is our mission of helping students. We hear from students all the time that the products we are offering are truly impacting their lives, and that makes the struggle worth it.
The second is to just take it one day at a time. It’s very easy to think, “I want all the success to come at once. I need X, Y and Z thing to happen so that I feel validated.” But really success is built one day at a time. So just by focusing on what you need to get done that day and not having this existentially broad vantage point and worrying you aren’t accomplishing enough. By the same token it’s important to know that at the end of the road, success isn't going to be the thing that brings you happiness. Success is fleeting and it's much more important to enjoy the journey and find beauty, happiness, and fulfillment in that journey.
It's definitely been an arc in terms of building the mental fortitude and the mental infrastructure to stay motivated and keep working day in and day out. But I think eventually, if you're building that muscle, it starts to become a habit. When I think back to the first few weeks, to your point, when you're launching, it's very exciting and it really was an emotional roller coaster. Whereas now, it's much more steady day to day. When great things happen, I try to enjoy the highs, but not get too excited about them. When lows happen, I remind myself that lows are inevitable and we’re going to get through this. I just need to put my head down and solve the problem at hand.
I love that as a way of staying motivated. Related to this, another solo founder told me that they struggled with making decisions and then sticking with them. Have you struggled with decision paralysis as a solo founder?
EM: I don't really feel decision paralysis. I think there are a few things about decision making that are interesting as a solo founder. One is it all comes back to you. You don't really have anyone else to discuss the decision with who knows it as in-depth as you. So when you're making a decision, you need to triple check yourself. Sometimes I’ll get really excited about an idea, but I'll wake up the next day and can’t believe I conceived of such a dumb idea. What was I thinking the day before? So, I’ve found it really helpful to sleep on the decision and do some work around the decision to make sure that it's the right path forward before committing to it. The other thing I've found helpful is to document my decisions. This means if I ever want to go back and re-evaluate a decision, I can go and read my original justification and review the data points I had at the time. That process has helped me become a better decision maker over time.
But, I actually think one of the beauties of being a solo founder and having a lean team is that once we build up conviction around a decision, it's very, very easy for us to go and put that decision into action. We can move extremely quickly. For example, we had been debating what the next career services program should be and we did some work to evaluate what the best course would be. Once we landed on the product management course, it probably only took us a week to get that program up and ready to start accepting applications. Making the right decision is important, but in reality you are going to learn so much by launching something and iterating. Even if you only have 70 percent conviction that it’s the right thing. Very few decisions are irreversible, so I usually try to bias towards action. Let's put it out there, see what happens, and we can always course correct if needed.
I love the bias towards action, and at the same time documenting your decisions and assumptions so you can always go back to learn from your decision making. Looking ahead, where do you expect the business to be a year from now?
EM: So we now have a ton of demand on the student side for income share agreement funding and the challenge will be how do we continuously raise enough capital to meet that demand. At a certain point, we might have to do what SoFi did and turn to institutional sources of capital. But what we’ve been finding is that the income share agreement model is a new space and institutions haven’t quite wrapped their heads around this type of investing. So one piece of the next year will be figuring out how to raise a really meaningful amount of capital from institutional investors. Or are we too early on that side of things and is it going to be a ground and tackle game with alumni for the near- to mid-term.
On the career services side, we’ll continue to launch programs and evaluate how they are doing. If they continue to do well then we may continue to spend more and more time on that side of the business. There are really interesting synergies between the two businesses and we’ll be exploring those over the next year so that the two can work really well together. In terms of school presence, we would love to expand to another 10 or 20, or even more schools across the country. So we’ll be putting in the infrastructure to be able to achieve that.
Last question, is there anything I didn't ask you about that you'd want to share with folks or something you learned from the past year?
EM: When going down the startup journey, it's really important to have a sense of the opportunity cost of that journey, a sense of the other opportunities you might be giving up so that you have a lot of conviction that this is the right path for you. For me, I had always known that I wanted to start a company. I looked at a lot of scenarios and asked myself if I would have regrets if I didn’t start my own company. Actually, before I started Florian, there were two companies that I had received offers for and I had considered taking, but in the end I turned them down to found Florian. Both ended up exiting at close to a billion dollars. When those exits happened, I didn't feel too much regret around not pursuing those opportunities and it solidified to me that I'm going down the right path. The point though is that there are so many other opportunities out there, and you want to make sure you’re okay with the opportunity costs of pursuing entrepreneurship so that if those moments happen to you, you’re not living in regret.
Building a startup is stressful. It's lonely. It's high risk. It’s also one of those things that has become a sort of new checkbox that people feel like they need to check off to validate themselves. The question I would ask you is, do you actually need to start a company or is this something that you just feel like you’re supposed to do? If it’s the former, I will be cheering you on, and let me know if I can ever be helpful.
Where can people go to learn more about you and your business?