Investing in people
To Pave, Matthew Rissler is a prospect.
In a traditional investment deal, the company the 21-year-old Lebanon County resident is developing would be the focus. But for Pave, the point of the investment is Rissler himself.
"A career is a very, very long journey," said Carlo Salerno, currently head of growth at Pave. He has a Penn State doctorate in higher education, with a concentration in economics, and has years of experience as an education finance consultant. He joined Pave because "there needs to be a better way to help people succeed outside the current system."
Pave is a relationship-based hybrid largely modeled on investing but also borrowing from the worlds of philanthropy and mentoring. In return for aid, prospects agree to send backers a percentage of their income for a set period — for example, 3 percent for 10 years — that excludes time spent as a full-time student.
"The money that's raised through Pave is not a loan, and it's not money to be repaid," Salerno said. "If I fundraise $50,000 and I agree to share some small fraction of my income, say 3 percent, I'm never obligated to pay my backers back $50,000."
That means the backers' return, whether a loss on the investment or a substantial gain, is directly related to the
success of a prospect's career. It's a nice alignment of motivation, Salerno said, and provides incentive for backers to open doors, provide mentoring or even offer employment to their prospects.
From the prospect's side, Rissler said, he recognizes that if his company becomes successful, he could end up paying slightly more for the funds than he would have under a traditional loan program. But, he said, if things don't go as planned, Pave's terms would be much safer than the alternative, and he also likes the idea of having influential people on his team.
Rissler also noted that, before he heard about Pave, he was looking into Kickstarter to raise funds for his company. However, he thinks the next step in his career should be a master of professional studies degree in engineering management, probably from Penn State, and Kickstarter is limited to creative projects, specifically excluding "fund my life" uses such as tuition.
Pave doesn't have a set agreement on amount, percentage and time, instead allowing prospects and backers to reach their own agreements. Pave's part of the bargain is a 3 percent fee at initial funding and a 1.5 percent servicing fee on payments to backers.
That variability stands in contrast with the set interest rate on federal student loans, Salerno said, and in that he sees the possibility of market pressure influencing education decisions. Backers may be willing to accept lower percentages of income from prospects going into high-demand and high-income occupations but agree only for higher percentages of income from prospects planning to essay into saturated or low-income fields.
"It really helps us think about the balance between what labor markets want and what people have in terms of preferences," he said. "Maybe there should be some skin in the game for me to go into a field where I'm not going to earn as much money."
As for the type of people who might be interested in becoming a Pave backer, Salerno thinks the concept will appeal both to those who are philanthropically motivated in regards to money and experience, as well as to some who see it merely as an investment opportunity.
And, he said, "Institutions themselves probably could have a very strong vested interest in a platform like this."
Jon Stuckey is director of development at Messiah College, which has about 200 named scholarships. He sees two strong motivators in people who back those scholarships: A desire to "pay it back," either in gratitude or obligation for what they themselves have been given, and — because Messiah is a Christian institution — a desire to share their faith.
Whatever the motivation, Stuckey said, donors often choose to direct the scholarships toward the subjects they majored in, and they gain immense satisfaction from seeing how the scholarship is affecting the student's life. Donors can't choose the recipients of tax-deductible scholarships, he said, but they can be part of the interview process if they wish and attend an annual dinner for sponsors and recipients. Some even stay in touch with students after graduation.
"That's really a highlight for the benefactor," Stuckey said of the personal contact.
Dick Charles, who had a career in development at three colleges and universities before becoming managing principal at The Franklin Consulting Group, knows the kind of people who are interested in contributing to education. Pave, he said, sounds much like being a patron of an artist or investing in a venture capital entrepreneur.
"It could be an exciting new way of financing education," Charles said, noting that it would give donors more influence in the selection process than with scholarships awarded by colleges and universities.
However, he said, he'd need more information on Pave to assess it properly, including its structure and the tax implications of the investment and paybacks.
"I don't want to say that we're out to change the world," Salerno said, "but I think what we're doing is a step to getting people to rethink the current system."
Based in New York, Pave began operations in December. It was co-founded by Fcancer Project founders Sal Lahoud and Oren Bass and by Justin Mitchell, who formerly managed Facebook's photo and video engineering team.
Pave screens applications and currently requires that regular backers be accredited investors, with a net worth (individual or with spouse) exceeding $1 million — excluding primary residence — or income exceeding $200,000 individually or $300,000 as a couple for the past two years, with reasonable expectation of the same in the current year. The minimum regular investment on a prospect is $500.
However, investments under $500 can be made by anyone, accredited or not, on the condition that the resulting payments go not to the backers but instead be reinvested on Pave.
"We are working to make financial returns available to the broader public but do not currently have a timeline for this," Pave's website says.
How it works
• Prospects that meet Pave's requirements list how much funding they're looking for, what they plan to do with it and other facts about themselves.
• Backers who meet Pave's requirements select prospects and negotiate an agreement, then provide a one-time payment and, if they wish, ongoing mentoring.
• Once they complete their studies, prospects give backers a percentage of their income for a set period, as negotiated.
An Eagle Scout from a homeschooling family of 15, Matthew Rissler transferred from Harrisburg Area Community College to Harrisburg University of Science & Technology. He has completed the requirements for his bachelor's degree in nanotechnology from HU and will graduate this spring.
During his time at HU, Rissler started working with an inventor and secured $10,000 in grants for his work on the INCAnaut Challenge, with which he was able to present projects at Penn State, NASA headquarters and the USA Science and Engineering Festival.
Rissler has a provisional patent on a subsequent project and established a company called Dynamic Arc System to develop a construction toy system and modular robot system. He also is making a program that would help model and simulate the objects, in tandem with actually building the models and prototypes.
Pave heard about Rissler through HU's network and recruited him as one of its pilot prospects.