StreetShares: Veterans funding veterans

Post-9/11 veteran Mark Rockefeller is the chief executive officer and co-founder of StreetShares, a Washington-area company described as “‘Shark Tank’ meets eBay” for business loans. Before becoming an entrepreneur, Rockefeller was an Air Force officer, an attorney and worked on a social enterprise project in Africa.

StreetShares, Rockefeller says, is a “community of veterans helping veterans.” The company helps connect entrepreneurs (about 60 percent of whom are veterans) with lenders (about 40 percent veterans) to attain loans to help their businesses grow. Applications are quickly processed and lenders place bids (for a $10,000 loan at 8 percent interest, for example). StreetShares then groups the lowest bids into a proposal for the applicant, who can accept or decline.

Rockefeller, who is a member of American Legion Post 1 in Washington and serves on the Legion’s Small Business Task Force, discussed his military experience, StreetShares and more in a recent interview.

Describe your military experience.

I was in the Air Force for nine years. Joined after college. I was commissioned through ROTC out of the University of Colorado. I was in for a couple of years doing government acquisitions work, and then went on to law school. I was a JAG lawyer for the majority of that time. I was deployed to Iraq and worked at the Central Criminal Court of Iraq, which meant that I represented the coalition in the Iraqi court system to help bring charges against terror suspects. 

How did your military experience lead you to become an entrepreneur?

No. 1, it gives you experience running a team. In the military you are given – or you set – goals. You are given some resources, budget, troops or whatever, and you go out and break that goal up into small chewable pieces and just go after it. That experience is very similar as an entrepreneur. I think the military prepares people to be entrepreneurs in a very positive way. The second thing is – in at least my case – it also created the opportunity for me to see the need we are solving.

Why is it important for veterans to have the opportunity to become entrepreneurs?

There is a tremendous history in the United States of veterans returning from foreign wars or military service and becoming entrepreneurs, like the World War II generation. There was a study out of Syracuse University that found that 49 percent of that generation came back and owned or ran a business at some point in their lives. That’s a huge number, so half of that generation became entrepreneurs, and when we think about that greatest generation, in part what made them so great was what they did when they got back. Certainly what they did on the foreign battlefields, but also what they did at home. If you fast-forward to my generation, the Iraq and Afghanistan veterans, many of us want to do what our grandparents did. We want to do what that greatest generation did. The veterans in my generation also want to become entrepreneurs, but we all separated from the military right around or shortly after the financial crisis, and so we had the same ambitions and dreams as our grandparents but the resources and opportunities were not there as much. Back in 1945, when our grandparents left the service, there were 13,000 community banks. They were on Main Street. They were connected with their communities. You could go in and get a bank loan in part based on your business and the financials, and part based on trust because they knew you. They knew who you were. We have half the number of banks now. Banks are consolidated. Banks are bigger. Banks are more removed from Main Street now. Regulatory burdens placed on banks make it actually very difficult for them to serve small businesses with small loans. There are a lot of reasons that are forcing banks out of serving small businesses well, but my generation of veterans still wants to be entrepreneurs the way our grandparents were.

How was the concept for StreetShares born?

I separated from the military in 2010. I worked in the D.C. office of a big Wall Street law firm called Milbank, Tweed, Hadley & McCloy. The main thing I did there was work on the Lehman Brothers issue. We were trying to get some investors back their money after the Lehman collapse, so it gave me a very nice front-row seat to the financial crisis and kind of what caused it. I got to see under the hood a little bit. Then I found myself with a desire to help veterans and I certainly had a connection to my fellow veterans, but also this sort of knowledge, this kind of new-found knowledge of how things worked. I wanted to create something that would bridge the gap between Wall Street money and veterans. The idea came reading some articles in 2012, and like any idea it begins with kind of a germ of an idea and then you test that idea. I consulted with a whole bunch of people, smart advisers. We kind of kicked this idea around: is this feasible? Could we do this? It benefited from a lot of shaping by those folks, my co-founders shaped it tremendously. The StreetShares idea that we have now is a collective product of a lot of big brains, bigger than mine. It began with seeing a need in my fellow veterans and then sort of having an understanding of how Wall Street worked and believing that there was a way to create something to bridge that gap.

How does StreetShares assist entrepreneurs?  

A veteran who owns a small business goes to StreetShares.com and applies for a funding request or loan request. These are all loans, not equity, and we underwrite them on the front end, so we do our due diligence to make sure they are a good fit. Then we post them on the platform. Every loan that has posted to the platform has been funded. On the platform are all kinds of investors – some of them big institutions, some managed funds that people invest in, wealthy individuals who are investing, other individual investors – bid to back part of this loan. So if someone needs a $50,000 loan, they would post that loan request on StreetShares. Their profile would have some information about their business and their financials, and maybe a pitch. Then investors look at that loan request and can name how much of that loan they want to back. They don’t have to back the whole thing. They can back just a small part of it and the interest rate they require to back that loan. Somebody might ask for a $50,000 loan and you would say, “I will fund $100 of that, but only if the rate is 10 percent, 8 percent or whatever.” It is a bit like an eBay auction. All these people are bidding to back this loan. We combine all the lowest bids, the least expensive interest-rate bids, into one loan. The borrower gets the blended rate of all the lowest bids, so we in essence take a single loan request and break it up into a bunch of tiny loans and people bid to fund those little loans and we combine all the lowest bids into one big loan. We at StreetShares issue that loan to the borrower so they don’t have to mess with all these people on the Internet, and then as they make their payments our platform splits that money and gives it to each investor based on the rate they bid. The borrowers love it because they get the lowest possible private loan rate because folks are competing to lend to them, and investors love it because they know exactly what they are going to get because they set the rate on their own returns.  

If I am an entrepreneur, what should I have accomplished before I visit the site?

The requirements are very, very simple. Your business has to have been around for one year, have $25,000 in revenues and a decent owner FICO score. It doesn’t have to be great, but decent. Those are much more flexible requirements than the bank. Banks typically won’t touch you until two or three years, a couple hundred thousand dollars in revenue, and FICO scores 680 and above.

So what’s in it for the investors?

In essence, we found that when the investor is a veteran and the borrower is a veteran, the investors are actually bidding lower because they trust those people more. Lending is all about trust. I trust that you are going to do right and pay me back if I am investing in you. When you match people by shared affinity, you can tap into that trust and use that to decrease the cost of lending, so the rate the borrower pays goes down because we are using their trust to make the loan less risky to the borrower and investor.

Of the businesses that have used StreetShares, is there a particular success story that means a lot to you?

Combat Flip Flops is a company founded by a couple of Army Rangers. The CEO is a guy named Matt Griffith. Matt’s company manufactures flip-flops, sarongs and all kinds of apparel and accessories, but they do it in dangerous places. It began with this idea when they were in Afghanistan. There was a factory that was affected by the conflict and those workers were put out of work. After Matt left the military he went back there and they had these local women make flip-flops, and they sell them here in the United States on the Internet. Matt couldn’t get a traditional loan from a bank because they manufacture in Afghanistan, Colombia and these kinds of dangerous places, so there were insurance issues. Our investors here at StreetShares loved Matt’s idea and so they funded him. With that he built up some inventory and got his big break in the media. So a veteran-owned company helping another veteran-owned company succeeded. It’s an example of veterans turning to each other when institutions aren’t there to help.

How has The American Legion played a role in StreetShares?

The Legion has been extremely helpful. The veterans in my office, like me, are all Legionnaires. We are at Post 1 here in D.C. Fellow members of the Legion’s Small Business Task Force were actually some of the very first people to even learn about StreetShares. The Legion actually passed a resolution at the national convention last summer in Charlotte in support of what we are doing: peer-to-peer lending for veterans. The Legion very smartly saw that there’s this population of veterans who need this service. They were kind of on the cutting edge of this thing, actually very sort of leap-forward cutting edge to see this kind of new way of financing happening and publicly supporting it with a resolution. The Legion has been fabulous to us.

On your website you have bios of yourself and other employees, and the last thing in each of them is their favorite Main Street. Why?  

The idea of StreetShares is to be about Main Street funding. As the banks have gotten bigger and sort of put some distance between themselves and Main Street, there is a need to kind of bridge that gap and in a sense that’s what we are doing. We are sort of bringing back the George Bailey days of banking, when you knew the party with whom you were getting money. You knew your banker. We are doing that online because when an investor invests in a business it’s fully transparent. They know who each other is. The investor can see the business’ social media profile, pictures or whatever they want to share. We are creating this little funding community that is focused on the American Main Street. We have a very diverse team from all different places in the country, and we thought that it would be very interesting to see what folks’ favorite Main Street was because we are here to serve the American Main Street.

You picked Breckenridge, Colo. Why? 

I am from Colorado. I spent a lot of time skiing and climbing in those mountains, and Breckenridge is just a quaint little town with Victorian architecture. I have spent many, many hours in my young life on Main Street there in Breckenridge. There is a good pizza joint there that I love and some shops. It’s a great area.

What would you like Legionnaires to know about StreetShares?  

I would like them to realize that we are trying to build a funding community here and we would like them to get involved. This is a unique community of veterans helping veterans in a very tangible way. I think the mission of The American Legion is about patriotism, it’s about faith, it’s about military service and those are the same values that we share here. Those are values that seem increasingly rare, I think, in our current culture. I think they are certainly rare in banking. We have tried to create something where like-minded people can come together and fund each other. We trust each other as veterans, as Legionnaires, and there’s a way to then take that trust and allow folks to make good investment returns off it and help folks get their businesses funded. We have created that marketplace and I think I would ask that my fellow Legionnaires spread the word that we exist. That’s the biggest challenge right now, is educating the world that we are here.  

Henry Howard is deputy director of media and communications for The American Legion.