Student loan lender CommonBond is winding down after 10 years and $100M+ of venture capital investment, CEO David Klein announced in a LinkedIn post. CommonBond is one of the early pioneers of the student loan refinancing marketplace lender. They were the No. 2 player in the low-rate student loan refinancing market back in mid-2010, only trailing behind SoFi in terms of the market share.
According to the CEO, they have funded $5B+ in loans and helped customers save $1B+ in interest. But their student loan business took a big hit. Half of the Refinance market went away as the government paused interest and payments for all federal student holders. CommonBond decided to pivot to solar financing earlier this year in response to the student loan policy. The solar financing business is growing well but they are not able to secure new capital to keep scaling their business to profitability. In other words, they are running out of money and are forced to shut down. I believe CommonBond is killed by a series of unfortunate events that are beyond their control. If COVID hadn’t happened, they would have been a decently successful fintech company at the very least.
This is an unfortunate but common outcome for many startups. Most startups fail. But the past 3 years have been especially tumultuous. In 2020, there’s sudden COVID freeze and a good number of startups ran out of business. In 2021, there’s actually too much money sloshing around due to stock market rally and many tech IPOs. Many startups raised large amounts of money at very high valuations. In 2022, things started to crack and in the past three months, there are really not a lot of deals going on. AFAIK, most venture capitalists were taking August off and many GPs are not calling capital for the rest of the year. For companies that raised a lot of money in 2021 and spent most of the raised money, they are due for a rude awakening. At the moment, startups need amazing progress to raise a new round and if they do secure a round, they are raising at a deep discount compared to the valuations we were seeing last year.
As for what happened to companies who couldn’t raise a new round, I believe most of them will try hard to stay alive by cutting costs. Some of them will manage to survive and may eventually thrive. But most of them will close down or be sold for scraps. Startups are not for the faint of the heart. I have tremendous respect for founders who commit their full lives to build companies. We only get to know which founders are truly committed during the tough times. A hard environment makes people more resourceful and more focused. I am optimistic that a good number of founders will make it work and I look forward to seeing great companies being created out of this deep funding freeze.