|16 September, 2019

Some startups truly make the world a better place

Entrepreneurs often start companies to solve problems they have experienced, which are not necessarily related to financial struggles

Students attend the University of California, Berkeley's electrical engineering and computer sciences career fair in Berkeley, California, U.S., September 5, 2018.

Students attend the University of California, Berkeley's electrical engineering and computer sciences career fair in Berkeley, California, U.S., September 5, 2018.

Reuters/Ann Saphir

SAN FRANCISCO - Silicon Valley startups love to talk of making the world a better place. But the technology hub’s denizens are increasingly under fire due to the power and missteps of firms like Facebook. A new crop of ventures aims to help people directly by solving real-world financial problems like connecting students at non-elite colleges to job leads or helping teachers buy homes. The trick will be making money, too.

Facebook, Alphabet’s Google, Amazon and Apple are under antitrust and privacy scrutiny from U.S. regulators. Social networks are also accused of allowing the spread of messages encouraging hate and violence. Only half of Americans now say technology companies have a positive effect on the United States, down from 71% in 2015, according to a 2019 Pew Research Center study.

Entrepreneurs often start companies to solve problems they have experienced, which are not necessarily related to financial struggles. One example is Facebook boss Mark Zuckerberg, who attended the private Phillips Exeter Academy. He created his social network in his Harvard dorm room as an online student directory.

MEANING WHAT THEY SAY

Some companies born in the last five years have more ambitious missions. Garrett Lord and his friends, who were software engineering students at Michigan Technological University in Houghton, a town of 8,000 people, found themselves shut out of jobs at big tech companies because the firms weren’t recruiting at his school.

It led them to form Handshake in 2013. The company is focused on connecting college career centers and employers to students at non-elite universities, including historically black colleges and those with big Hispanic populations. Lord says that if it was hard for a white, male software engineering major to make it, it must be even more challenging for minority students.

Handshake’s revenue model relies on selling tiers of service to employers. It now has about 14 million student and young alumni users representing more than 800 universities, who are connected to more than 400,000 employers. In August, Handshake said it was making its platform available to all students at four-year U.S. colleges.

Last year, Handshake raised $40 million from a group led by EQT Ventures. It was valued at $275 million, according to PitchBook, more than double its worth two years earlier.

Another example, Propel, helps American food-stamp recipients keep track of their aid, which helps stretch the benefits. Previously, that data was only accessible by phone. Founder Jimmy Chen’s immigrant parents struggled for years in jobs at restaurants and in sales.

Chen got a need-based scholarship to Stanford and went on to work for LinkedIn and Facebook before starting Propel in 2014. It now has about 2 million users across 50 states, about 5% of all food stamp recipients. In December, Propel raised nearly $13 million in a funding round led by Nyca Partners.

PUTTING CASH TO WORK

Landed is a company that is tackling another group that has struggled amid increasing inequality: U.S. teachers. A public-school educator in San Francisco makes an average annual salary of about $72,000. With the median price of a home hovering around $1 million, many teachers can no longer afford to live near their workplace.

Co-founder Alex Lofton’s parents – a teacher and a social worker – didn’t have the luxury of owning a home until Lofton’s grandmother died and left hers to them. After working on Barack Obama’s first presidential campaign, Lofton got an MBA at Stanford and decided he wanted to help average people build wealth.

His startup enables teachers to buy homes by putting up part of the down payment – essentially contributing equity. When a user sells the home or refinances, Landed receives 25% of the investment gain or loss. Earlier this year, Landed raised $7.5 million in a Series A round led by Initialized Capital, which has also invested in Instacart and Reddit.

That’s not a big-ticket number, but Landed makes a real difference. Roberta Ortagus, a San Jose elementary school principal, looked for a home for two years but couldn’t get a loan despite good credit and a steady job. She found she was priced out even when she decided to go in with her son, also a teacher.

Ortagus eventually managed to purchase her $930,000 home in 2018. She contributed $50,000 of the down payment, while Landed put in $80,000. The move has given her granddaughter a stable home, she says, which is also near Ortagus’s school.

THE BOTTOM LINE

A big challenge for startups venturing into such arenas, though, is turning a profit. Currently, Landed mainly generates revenue through its real-estate brokerage business. So far, only a handful of homeowners have bought out its investments through refinancings. For its part, Propel generates revenue by charging businesses that market to low-income individuals, whether through coupons or job listings.

Of course, plenty of tech companies that are intended to be profitable actually aren’t – think Uber Technologies, for example. Yet perhaps unfairly, a company that’s also doing good risks being bracketed with intentional nonprofits if it can’t make money.

If backers including venture-capital giants Andreessen Horowitz and Kleiner Perkins are right, though, some of the latest startups may be able to square the circle. Chen, for one, hopes that Propel will offer a new Silicon Valley business model. At the very least, they are working to improve the industry’s image.

CONTEXT NEWS

- Startup Handshake said on Aug. 20 that it has opened access to its platform to every undergraduate student attending a four-year university in the United States. The service, which connects employers, colleges and students, had been accessible to the more than 800 schools that partner with Handshake.

- Started in 2013, Handshake focuses on providing job opportunities to U.S. students at non-elite universities, historically black colleges, Hispanic-focused schools and those located in rural areas.

(Editing by Richard Beales and Leigh Anderson)

© Reuters News 2019

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