Editor’s note: VentureBeat has started a new series called “Startup Spotlight.” Every week, we’ll sift through the scores of companies applying to be promoted in this series and profile the best one. Companies can sign up at the Entrepreneur Corner, which is currently sponsored by Microsoft. (Of course, we’re still interested in covering startup news and innovation in our day-to-day coverage.) Today, we continue the series with People Capital, below.
Just like the others, its lenders are accredited investors (with liquidity between $100,000 and $150,000 and assets totaling more than $1 million). But there are several key differences. As student loans, the money cannot be discharged in a bankruptcy. Also, investors can decide what percentage of their money goes to which students. For example, they can specify whether they want it to be available for students at a particular school, maybe only students from Arkansas, or those who choose to be history majors. The company buys into small pieces of every loan granted.
People Capital has devised its own algorithm to decide which students should receive loans (as opposed to the standard FICO score used for traditional student aid). It calculates a Human Capital Score for each prospective recipient based on the likelihood of them being able to pay the money back. Interestingly, the algorithm takes factors like career goals, tier of school and major into account. As co-founder Al Alper pointed out to VentureWire, an economics major at an Ivy League school — while seeming like an ideal candidate — may be a poor choice because he or she will probably incur more post-graduate debt and earn less in a subsequent career.
This Human Capital Score has generated a lot of attention for the site because it essentially puts a value on the students it helps. To calculate the figure, students submit their transcripts, test scores, high school and college names. The algorithm applies trend data to predict first the range of careers the student might have, and then what he or she will likely earn. This doesn’t seem like the most reliable of systems, considering how frequently college-aged individuals change their minds. But the company argues that the science is at least precise enough to measure risk — and it will continue to get better as it collects hard data on who actually repays their loans.
The only service to do anything like this before was MyRichUncle.com, a site that assessed student credit risk based on majors, GPAs and the like. It’s now defunct, not exactly boding well for People Capital. Then again, it didn’t have the peer-to-peer bent. With the number of students borrowing from private lenders on the rise (from 5 percent to 14 percent in the last four years), the company may find itself well positioned. The economic downturn, too, may buoy the service, as more students are needing to turn to financial aid.
Earlier this month, People Capital raised $500,000 led by Serious Change Fund, bringing the total of its second round of financing to $2 million. The other $1.5 million came from Radcliff Group. Still in its early stages, the startup plans to have its site set up in time to match students and lenders for this upcoming fall. Since January, it has offered its Human Capital calculator to students interested in predicting their future earning potentials.