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David comes to Gradifi having helped shape the Boston innovation and technology scene for over a decade. His most recent roles were as Entrepreneur-in-Residence at Harvard Business School (HBS) and Director of the Babson Summer Venture Program, and he has played hands-on roles at six companies, all of which were acquired or IPO’d. David holds a BS with Distinction in Computer Science from Cornell University and an MBA from Harvard Business School.
Lindsay Gearheart: I’d love to start off hearing about your background and how you found your way to Gradifi.
David Chang: My quick background is that I have been with five Boston-based startups that are in the technology field in both consumer and B2B. After 15 years of startup land, I ended up spending a little bit of time off working closely with educational institutions. In the last three years, I’ve been an entrepreneur-in-residence at Harvard Business School as well as running the Babson summer venture program.
Through that process, I got to see firsthand what challenges graduates were going through when they go to school, whether they launch a business or start working at a company. The student debt issue was loud and clear so different from anything I’d seen in the past, so when the opportunity to join Gradifi came about at the tail end of last year, I pretty much jumped at it. It’s was a big societal problem, there’s actually a huge market opportunity behind it, the team had great experiences, and then personally, it was at the confluence of fintech (which I’ve done before), software (which is my background), education (which is what I had been working on), and then this mix of big company/small company from the acquisitions I’ve gone through. I could not do anything else.
LG: At the HubWeek 2019 Fall Festival, you spoke on the topic of achieving financial wellness, something that Gradifi is trying to do through their mission. Can you talk about how you define achieving financial wellness, and how Gradifi goes about solving that issue?
DC: One of the biggest challenges that people have today in the workforce is student debt. One of the surprising things for me is that although many people think of it as a millennial problem, it extends to multiple demographics. There are almost just as many people above 40 with student debt in this country as under 30 years of age.
As a result, the biggest challenge that most employees have in terms of other life goals is student debt. It affects seven out of 10 people graduating college today, and it impacts their ability to do all these other things, whether it’s: buy a house, get married, or save up for retirement. Any of those things comes second after you pay off your loans. So when we think about financial wellness, it’s our employer partners that we work with that have shown us loud and clear that if you can help address the student debt challenge, it helps employees achieve other life goals. So when we think about financial wellness, it’s connecting the pain side of things with the goal side of things.
LG: As someone who achieved an MBA and has worked closely with students, and also someone who is tackling student debt, what advice would you have for someone who isn’t sure whether continued education is the right next step for them? Any advice about going to school immediately versus taking time to work first?
DC: In my particular case, I ended up working seven years after college before going back to get a business degree, and my driver was mainly that I always thought I would go back at some point, so even as an undergraduate, I focused mainly on the tech side of things and purposely pushed out the business side of things. I know plenty of other college graduates who had interests in multiple things when they were going through school, and they focused in part on business. For them, they wouldn’t get as much out of going back to business school.
For me, it was a conscious gap that I had that I wanted to go back. The driver wasn’t so much changing industries, it was more that it was interesting to see building one side of the business (building up the product, the software) and then being able to get a better training around building the business itself, and building businesses requires a whole different set of skills. So going back to school to get an MBA was part of the plan. I think if you are a career-changer, and even if you want a fresh start and you’re looking at potentially doing something different functionally, going back to school is a fantastic time to reset.
I think had I not gone back and had that two year period where I wasn’t working, I would’ve likely been in that same track — which is fine, I loved my job before. But when you go to school, you open your eyes to all these other things you could potentially do, and suddenly you’re like “You know what? There’s things I hadn’t considered before that are really interesting.” So going back to school for that purpose, it’s more than just an ROI calculation. In my case, no regrets doing so, even though it took many years to get back to the income that I was at before. Maybe not the most intelligent decision to make from a cost standpoint, but it was the right decision for me.
LG: As an angel investor, you’ve invested in over 40 companies and mentored numerous entrepreneurs at Babson and Harvard Business School. Why is this important to you?
DC: I guess it’s more of a passion that I have that I didn’t actually discover until after I went back to business school. I had worked in a really large company for seven years, going to school thinking I was going to go back to working for a really large company. The two years that I spent at business school was a time to meet a lot of people and do other things. After that experience, I ended up working at these really small companies that were doing something pretty special and different, and in doing so you get exposed to so many other parts of the whole ecosystem. For me, the ability to go from a 7,000 person company to now 30 people, suddenly doing that much more, it was such a big driver.
I consider myself more of an accidental entrepreneur, unlike some of these students that come to Babson that had started their first business when they were 14. Then they come to school, and they absolutely want to start their next business while they’re there, and the next business after that. Being an entrepreneur wasn’t so much of a driver for me, but when I was exposed to some of these market problems, I thought, “You know, I think we can solve that.” Pretty soon, you get to this spot where you feel passionate about a particular problem and when you want to solve it, you get a group of like-minded people and you pull together and do this thing.
Part of the reason why I’ve been active as an angel investor over the last couple of years is that you meet people who are solving problems in a different way, and they’re chipping away at problems in the market. Some are in healthcare, some are in technology, others are developing the next new media thing. For all of that, being involved in the early stages is an area where I feel that I can not only stay engaged, being able to contribute and help, but also get smarter about what’s happening in industry. For me, being an angel investor is as much for the return as it is for getting really smart in an industry or staying really plugged in and then contributing functionally in terms of what I’ve done before. It’s been a fun process.
I’m finding that that’s very much the case for most angel investors. There’s a handful of angel investors that will treat it like a complete job. They’re professional, they invest like a VC does in the early stages, just happen to use their own money rather than an institution’s money. They have a certain lens and that is the financial return lens. You’ll find that most angel investors aren’t actually in that category. One end of the spectrum is they do it for pure financial return, the other end of the spectrum is that they have enough wealth that they’re philanthropists, solving societal problems.
But almost everyone else is in between. Let’s say the majority of angel investors, more than 75% or 80%, fall into this middle category (where I think I am). In this category, you get involved either with a company in the early days, because you know the founders or you used to work with them before, and your driver is more to get smart, engage in the particular industry, and keep sharp, or you have some specific expertise. An example might be: two founders, they’re super technical, but they don’t know anything about the industry or how to address the problem — but that might be an industry where you spent 7 or 10 years. In that case, you can help them navigate that industry. You have the contacts they don’t have and advice that they absolutely need. It’s a great way to involve your head and wallet at the same time.
LG: Why do you think Boston in particular has emerged as such a hotspot for startups? I believe you grew up in New York, and you’ve been on the East Coast for a while, but why Boston specifically?
DC: For me, there’s no bigger convert to a city than someone who’s chosen to live here. After the first couple years of giving up your sports affiliations, and of course, the Boston/New York thing is always a challenge… Moving up here, thinking that New England was this great place to spend two years, I absolutely fell in love with it.
Twenty years later, five startups later, almost everything I do now is in the early-stage world where I think one of the big draws in Boston is that every single year you have 250,000+ students that are coming through the university system. I have a particular perspective on this because I’ve worked so closely with the students at HBS and Babson over the last few years. But aside from just those two schools, you have so many other smart people that are just coming here, and there’s a whole level of energy, and that is an amazing asset to have.
I think in the Boston area, having that density of smart people is just one main ingredient. Capital is the second main ingredient, and there’s a lot of capital around here. Then you have these institutions that are killer companies in these different verticals where it makes a ton of sense to start a company. We often think of life sciences and healthcare as these massive industries, with world-class, world-leading companies here, plus there’s all these other micro-clusters where you’ve got the smartest people here. It’s a special combination. You take someone who’s really smart in an industry, get a little capital, some raw talent, mix it together, and there’s no surprise when you start to see things explode in these industries. Whether it’s robotics, travel tech, edtech, fintech. It makes Boston a really compelling place to build a company.
LG: We saw that just before HubWeek’s Fall Festival you were in D.C. on Capitol Hill. Could you talk about what you were doing there?
DC: One of the big things that’s happened in our industry is that student debt is not treated the way that tuition reimbursement is. If you are an employee working for a company and you are able to take a class and the company pays for part of that class, the benefit that accrues to you as an employee is tax-deductible up until $5,250. That has a certain benefit to you. The difference is if you had racked up student debt prior to joining that company, if that company then provides you with this benefit where they’ll pay down some of that loan, the amount that you receive is actually a taxable benefit. There’s a mismatch in the tax code. The fact that you incur the debt before to educate yourself versus educating yourself while you’re at the job is tax-wise treated differently.
So I was down there with a coalition of a handful of others to essentially lobby for the equal treatment of student debt and to update the tax code in such a way to make it an event that is not taxed. You as an employee should be able to leverage, whether it’s tuition reimbursement or payment of debt from the past, in equal ways.
It was an interesting time to be in D.C. The legislation that we’re working on has a ton of bipartisan, bicameral support. We have a tremendous backing. And the interesting thing is while we were down there, it was the day of the impeachment inquiry, so we didn’t know what to expect. But we still had our 20 plus meetings with folks in the Senate and House, so business continued, and we’re reasonably optimistic that this legislation makes sense and we’re hoping that it passes soon.
LG: As you’re coming up on a year at Gradifi, what have you learned as a first time CEO?
DC: I’ve learned a few things. One has been around the space. Even though I spent a lot of time in education, fintech and software, the specific market problem that we’re working on (student debt) is just really different. So I’ve learned a ton around how the industry works, how employers view this, what the tax codes are, how to go to market, and how to engage with employees.
The other bit of learning that I’ve had as a first-time CEO is that many of the challenges that happen at a small company are the same ones that happen at big companies, but the scale is really different. The decision-making and the magnitude of your impact is absolutely felt right in front of you. So for me, a big learning was how to navigate the waters when making decisions. Every one of those decisions ripples through, and you get to see almost immediately the impact of your decisions. If anything, it really helps you make your decisions more crisply because you’re always getting that feedback.
Unlike a larger company where there’s more of a lead time between making a decision, getting it into market, then getting feedback, the lead time here is almost instantaneous. Whether it’s a pitch where you’re trying out a new feature, or rolling out something to an employee, if they like it, you do more of it, if it doesn’t work well, then you quickly adjust. That iteration, that speed to market, was something that was a learning. It was probably a refresher on some of the lessons I learned back at TripAdvisor. I was at TripAdvisor 15 years ago, and at the time the company was really small. I had joined from a larger company where we were launching new software every year. Then to move to this super-fast moving company where we were launching every week, that was a mindshift for me, but you do it because you can learn that much quicker. When you do this iterative process for getting something to market, it’s amazing how you can do 52 iterations as opposed to one iteration, and you see how much better it is at 52 instead of the first.
It was maybe a little bit of a cultural shock for me. The concept of doing something that fast, testing in the market, and even sometimes knowingly introducing things that are not fully fleshed out to get market feedback was such a foreign concept when I was coming from a world of B2B software where we were selling major enterprise deployments to big companies in telecommunications and healthcare. And of course, you’re going to take a year to develop something and point releases where you’re doing little software updates every quarter. Now, jumping into a place where you start on Monday and every employee is expected to have something live on the site by Thursday, I was shocked about that. I thought, “Oh my god, I happened to join the one week of the year where we release,” and the CEO says, “No, we do this every week, every Thursday.” That was some learning, going from B2B to B2C.
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