Samir Bakhru:

Welcome to The Future Fountain, a podcast series dedicated to conversations about the tech ecosystem, brought to you by Orrick and NYU Future Labs. I’m Samir Bakhru and today we are thrilled to have as our guest David Helene, founder and CEO of Edquity. Edquity is the first emergency aid technology for today’s college students, whose mission is to address economic injustices by using higher education as a means to narrow equity gaps, accumulate wealth and facilitate social mobility. David, thank you for joining us. Let’s dive in.

To start, tell us a little bit about your career path and what inspired you to make the leap from the traditional finance sector to launching a social impact startup.

David Helene:

Thanks, Samir, I appreciate that question. I sort of fell into my first job out of college. An interesting organization that was executing a twin mandate of facilitating about 85% of the payments in the United States and also lobbying on behalf of the largest, at the time, 24 commercial banking institutions in the country. It was a really interesting first job and really helped me understand how Washington worked, how the sausage is made, and also what our infrastructure looks like with regards to financial services. It was also at a time when widening income inequality in this country was a big topic of conversation; it was an issue of heightened awareness for me. And the growing student debt crisis was one that was looming and also being pointed to as having a lot of similar characteristics to the housing market pre-crisis. As I was doing my work, I realized that what I wanted to be doing was working with communities that had historically been disenfranchised from the institutions that I was representing. I actually started a not-for-profit organization as a moonlighting gig that was focused on the intersection of financial empowerment and college success, sort of addressing both of the twin issues that I mentioned. I did that in a moonlighting capacity, as I mentioned, where I took vacation time to run summer and after-school programs for low-income high school students across New York City, and then I left my job full-time in 2015 to run Unified Scholars, my nonprofit, in a full-time capacity for about a year. A tremendously amazing learning experience for me, and one that opened my eyes to some of the structural injustices that our country is starting to recognize pretty publicly now, and one that sort of began my learning journey to start Edquity in 2016.

Samir:

It looks like you got a pretty close up view of how Washington works when it comes to financial aid and what the issues are with respect to the system. In that light, what is the problem that Edquity is solving for?

David:

Appreciate that question. When I think about the problem, I think about the little problem and what is the business doing immediately, but also the big problem and the structural issue that we’re solving for. Edquity, as an organization, is the first end-to-end administrator of emergency aid, where we administer emergency cash grants in a way that’s fast, equitable and effective, with the goal being to keep students enrolled and help them continue their educational journeys to achieve the transformational outcomes of a degree. The big problem is that, right now, students in college of all ages—and it’s worth noting that over 50% of college students are now above the age of 25—they are fundamentally set up to fail. Even pre-crisis, before the pandemic, three million students were dropping out every year due to a time-sensitive financial crisis of less than $500, and about 50% of college students were grappling with issues like food or housing insecurity. As you can imagine, the distribution of these outcomes was not equitable—it was disproportionally Black students, Latinx students and indigenous students that were the ones experiencing these issues and dropping out, which means that post-secondary education as a mechanism of achieving social mobility, for narrowing intergenerational wealth gaps, was fundamentally failing. So, when we set out to start Edquity, we wanted to acknowledge the structural issue at hand and create a framework that could streamline access to the safety net in a way that would be needed and accessible for many college students. And that’s the work that we’re doing today.

Samir:

Out of curiosity, what has the response, from your perspective, been from some our large universities that you try to partner with? What have you seen so far?

David:

That perspective has certainly evolved over the last 12months, but even pre-pandemic there was a growing recognition, in a grassroots way, that this was real. So, community colleges in particular had oddly been reengineering themselves as, effectively, social services organizations. Four-year institutions were doing this as well, but this was definitely a stronger movement at our community colleges. And the reason was, yes, these institutions definitely care about equity given that a large population of their student body are Black students, Latinx students, indigenous students, the types of students who are disproportionately running into these issues. But it’s also an economic necessity because, from an enrollment standpoint, these institutions need to ensure that these students are able to succeed. And to do that they began recognizing that they needed to tend to students’ basic needs. So they started setting up food pantries, they started making sure that they had coordination with housing agencies and started to experiment around making housing vouchers available. Some community colleges are building housing, which is completely non-traditional for community colleges. So, we had seen about 80% of colleges nationwide actually put together an emergency aid program even before COVID had occurred. Now, in the last 12months, the federal government has invested $32billion of emergency aid that is specifically earmarked for the purpose of remediating student financial emergency. So, it’s certainly been a sea change. It’s one that sort of acknowledged and pointed to, “Oh yeah, these programs were actually important and effective before the pandemic, and now we just need way more of them.” I think that the transformations that we’ve seen in CARES and CRSSA and now the ARP, this was recognition of some of the structural forces that had materialized over generations of bad policy. But, we had only taken the wool over our eyes after the pandemic laid these issues really bare for everyone to see.

Samir:

I think it would be pretty interesting also for us to hear a little bit about what your experience had been in founding the company. And if you could tell us a little bit about what you’ve learned about the social entrepreneurship ecosystem along the way—especially in some of these interactions that you’ve had with your investor community, but also with these universities that you were just talking about.

David:

Yeah, I’d be happy to. It’s interesting, I view my journey as sort of a continuous one, over the course of now close to eight years. Unified Scholars, even though it was a nonprofit, even though it was a completely different programmatic model, different target population, in many ways was trying to solve the same problem. And part of the reason that we approached it as a nonprofit was (a)yes, the model, the programmatic in-person learning model is sort of is best done with a nonprofit; but also (b)the landscape of impact capital and sort of the way that the industry views social entrepreneurship has radically transformed, particularly over the last four years. By the time that we started Edquity in 2016, the landscape for seed-stage social impact capital had really begun to blossom, and the stigma that was attached to solving social impact problems as a for-profit had begun to erode. In fact, as we’re starting to see now, it’s sort of en vogue for companies to take on a social impact mission, and to do so through a social enterprise. It’s been really interesting to see that evolution over the last few years. I think doing this work, particularly in the education sector, was a lot easier than perhaps in other verticals, because there is a rich landscape of foundations that had been doing innovative program-related investments; around 2015– 2016 is when we start to see some of these types of investments take off. We’re really grateful to some of our early investors like the Lumina Foundation, Strada Education Network, ECMC Foundation and others because they have been on the cutting edge of deploying capital toward social enterprises for the last few years and I think they’ve helped contribute to normalizing this as we go forward, where there’s almost a lot of seed-stage capital for social enterprises today. The interesting thing from my vantage point is we’ve sort of solved the seed-stage problem, where I think it’s now as good an environment as ever for a social entrepreneur to try to solve a big societal problem through a for-profit model. But what happens when you get to the B stage? What happens when you get to the C stage? I think what we have to start to think ahead to is growth impact vehicles—how they’re structured, what their return expectations are—because a lot of these companies that were started when we did back in 2016 are going to need access to that capitalization soon. And you have to think about, “How do we not dilute the impact of these organizations?” “How do we allow them to continue to sort of to aspire to solve for these big societal problems, even as larger entities?” That’s sort of the interesting trajectory that I’ve seen over the last few years.

Samir:

To double down on that a little bit, what really has been your experience with the investor community as of late when it comes to being a social entrepreneurship company? I think you’re right that it’s lately in the last 8-12 months been a little bit en vogue, and the reaction has been much more positive. But I would be curious to hear a little bit more about that from you.

David:

I even got this question from an investor yesterday, which is, “Are you sure this is not a nonprofit?” And even among social impact investors you hear that question a lot. I think the key for social entrepreneurs really is to be crystal clear about what the revenue model is, and what the short-term and longer-term path to both monetization and ultimately profitability look like. It is an interesting exercise to try to prove that you are high-growth and that you can still be justifiably venture-backable as a social enterprise. I think, once upon a time, and I think it’s less so today, you’d see companies say, “We’re an impact company because we’re in education.” But what they do is they cater to tutoring for upper-middle income students, widening equity gaps and performance. We don’t really see that so much anymore, but I do think that the impact investment community does have to put a line on the ground about what they define as impact, and if they are willing to make a true trade-off for return profile. I’m not sure if a lot of impact investors have actually been genuine about the necessary trade-off in certain cases if you are going to serve certain communities in a way that doesn’t necessitate a predatory business model. I think, for us, we operate at the intersection of policy and outcomes, and I think what I’ve seen is there are very few venture capitalists with convictions around the policy environment. Policy risk, I think, is something that is still not embedded into a lot of social impact models. I think that’s where we run into the biggest constraints, as we’ve thought about capitalization. We have a perspective on what the future policy environment can and should look like, and that’s baked into our operating model. I think a lot of even social impact VCs are still a little reticent to engage with those policy risks.

Samir:

That makes sense. From your perspective, would you say as a social entrepreneur that it’s tough to raise a financing round, or more difficult as a social entrepreneur? And what sorts of challenges do social entrepreneurs really have to be prepared to overcome in those conversations?

David:

I think it’s hard for any entrepreneur to raise a financing round. But yes, I think in some ways it is more difficult for social entrepreneurs to raise capital because you have to speak to sustainability, to high growth. And you’re doing it inherently in a space where, usually, the end customer you are dealing with has less access to capital fundamentally. Whether that’s a user-based revenue model, which is not currently what we are operating under. But, even if you think about the end customer for us, higher education institutions, state fiscal budgets have been slashed for over a decade in the wake of the recession. These institutions are really struggling; they rely on tuition revenue disproportionally for their sustainability, and enrollment is declining. You have to get really creative about monetization, but you also have to make sure that you’re not diluting your impact mission by pursuing a revenue model that may be antithetical to the outcomes that you’re seeking. I think the nature of a social enterprise, by having to achieve profitability at some point, or to achieve high growth, and doing it with an end user or customer base that has just fewer resources… I can’t charge $100 a month the way that some organizations can as a baseline revenue model, which means that getting to a venture-backable TAM is a harder exercise. I think we’ve done it. I think Edquity is at a moment where cash transfer programs in the United States have now been normalized. In fact, they’re proliferating. You’re seeing unprecedented federal investments, but on top of that we’ve seen grassroots cash-transfer programs in the forms of guaranteed income or municipal aid programs, and now we’re seeing things like emergency rental assistance. These are multibillion-dollar opportunities where you are engaging with govtech. But, those types of TAMs are few and far between for a lot of social enterprises, particularly in the education space. To be a social entrepreneur means you have to be an innovator x2, because you not only have to find the solution that works and targets outcomes, but you have to find an extremely creative revenue model that is high-growth, that’s venture-backable, and also is not predatory. The literal billion-dollar question for social entrepreneurs is that you have to innovate both on the solution and on the business model side.

Samir:

And obviously the list of investors that are interested is smaller and, as you were alluding to earlier, the market maybe really hasn’t matured in terms of having growth-stage vehicles to support those social impact businesses. So it’s three times as hard, really.

David:

100%. I think the thing I’m heartened about is I’ve had conversations with some innovative funds that are realizing the gap in growth-stage side and are trying to fill it intentionally. I am both hopeful and optimistic that in the next couple of years, the growth stage landscape will look not tremendously dissimilar from the seed-stage landscape, where we see a lot of well intentioned, good acting entities step in to fill that void. It just isn’t fully fleshed out today.

Samir:

Makes sense, and I think we definitely agree with that perspective. Transitioning a little bit to the larger DE&I conversation that’s happening today, I would be interested in getting your understanding and your view on what role you think educational equity plays in that DE&I conversation, and if you think it’s getting enough emphasis.

David:

I really appreciate that question. So, we think about DE&I through an anti-racism lens, and I do think that at a micro level, a lot of higher education institutions acknowledge the importance of anti-racism in their mandate. I would say particularly community colleges understand the demographics of their student population, and most—not all, but most—of their higher education leaders make sure that they are operating through an educational equity lens. At a macro level, it’s fundamental. It’s also fundamental to the myth of the American dream, that you can pursue a meritocratic way of bettering yourself. Theoretically, higher education is the engine through which that occurs. Based on our historical policy, that is a lie, for all intents and purposes. We haven’t funded students on the front end enough. So, you have students, particularly Black and Brown students who don’t have the resources they need to complete, and thus drop out. So, you see material gaps in equity and completion, which means that higher education serves as a mechanism for exacerbating inequality rather than narrowing it. The thing that makes me optimistic is that, I think, at least this administration has acknowledged that. We have seen unprecedented investments through the last two stimulus bills to students who are disproportionately dealing with the types of financial issues that are barriers to completion. But, if you look at just the American Families Plan from April 28^th, you see targeted investments into institutions or students that are Black students, Latinx students, indigenous students to try to ensure that they can complete, and that educational equity can actually occur. You’ve seen proposals like free community college, not only for students at community colleges at large, but also for DACA students, who currently are shut from federal financial aid and, for most states, state financial aid. You see a $62billion proposal for student support at community colleges. Initiatives that are specifically targeting the completion of students who, again, are disproportionally Black students, Latinx students, indigenous students. We also have seen tremendous proposed investments into parents—you’ve seen the extension of the EITC, the expansion of universal Pre-K, you’ve seen a cap on paying for childcare of more than 7% of income. This may be a surprise to many listening, but 25% of college-going students are parents, so that has a material impact of the ability of student parents to complete. Getting this right in higher education is critical to narrowing intergenerational wealth gaps in this country. I am optimistic that this administration, which has itself placed a material emphasis on equity in its policymaking, acknowledges this and is really intent on trying to get it right in the next budget reconciliation, or hopefully legislation. But we haven’t seen a whole lot of precedent that we can pass bills in this country. We talked about policy risk earlier, and the ability to achieve educational equity is fully contingent on our ability to get policy right. At least for 18 months until we get to the midterms, I am optimistic that we might be able to move the needle a little bit. I’m hopeful that beyond that point we can as well.

Samir:

That makes sense. It seems to be that your view of this is that there is quite a bit of emphasis on educational equity, but a lot of it is just going to depend on the policy risk around it, and whether the current administration puts the force behind it that you think it needs.

David:

My general take is that every social enterprise that operates is a Band-Aid. And collectively the private sector can create Band-Aids, some more sophisticated, bigger, more effective than others. But what we need is structural surgery. We need to make sure that we actually are fixing the underlying root causes of the issues that we are seeing, and only policy can do that, only intentional structures of how government is operating, and how we are allocating resources to folks can really solve the underlying issues. Social entrepreneurs—you know, as one of them, I am certainly not belittling or undermining the importance of that work. It is critical work, particularly if you think about the status quo; we want to make the status quo better through whatever means we have available. But if we want to change the society at large, only our policies can do that. I think that policy advocacy should be part of any social entrepreneur’s mandate. We think about policy advocacy as a part of what we do. Actually, in fact, one of the things I’m really excited about Edquity’s transformational opportunity is that our Chief Strategy Officer is the leading academic research expert in our field. So, we have a unique opportunity to collect and take our data and prove the efficacy of our model and then turn around and advocate for structural policy investments around these types of strategies. I think that social entrepreneurs need to think bigger in that sense, and they need to think about how their work dovetails or intersects with the policy environment.

Samir:

Along those same lines, as a social entrepreneur, what would you say has surprised you most about your Edquity experience?

David:

I think I have been surprised that the outcomes we have preached in theory have actually been realized in our practice. You think that your theory of change really can change and better the world, but we have actually been able to show with statistical significance that students that are funded by Edquity have graduated at twice the rate than students who are not. I think, as a social entrepreneur, it’s hard to appreciate the process and the journey—you want to rush to the outcomes. But I think that was a surprise in that all of the trials, the tribulations, it is amounting to something. I also think I have been surprised at the rate of policy change over the last 12 months. I have had conviction from the get-go that we have been moving in a direction where increased investments in educational equity, in direct cash transfers to citizens were an inevitability. I did not think that this government would be able to deploy such investments at the rate or scale that it has in the last 12months. That gives me a lot of hope and optimism. That has really surprised me, you know, surprised me for the better, but has certainly surprised me. I think there is a little bit of pleasant surprise that the thing we’ve been fighting so hard for is actually doing the thing that we said it was. But also that our government, which for the last couple of decades has been famous for gridlock, has actually done some transformational things from a legislative perspective that give me hope for the future. Those have been two big surprises for me over the last 12 months.

Samir:

I think I know how you’re going to answer my next question, but I’ll ask you: Are you optimistic overall with respect to the whole tech ecosystem, social entrepreneurship and DE&I, generally, and where you think we need to go?

David:

I think there is a lot of reason for optimism. I think last summer there was not quite a reckoning, but an awakening. Silicon Valley has been certainly its own echo chamber, and I think folks began to say that out loud. I will be more optimistic in the tech community when we start to see those words become action. I think that there are a lot of amazing folks who are moving with conviction, who are moving the industry in the right direction. So, yes, I’m optimistic. I’m optimistic that there are more social enterprises than ever. And the types of businesses that are being built are increasingly focusing on outcomes that matter. Not to minimize what your run-of-the-mill enterprise SaaS company is doing or what have you. That folks are focusing on real problems, real problems that affect our society, real problems that don’t just improve outcomes for a select few, but are actually focused on the majority of our society. So, in that way, yes, I’m optimistic. And then from a policy perspective—I mean, at what time could you ever be more optimistic? You’re seeing really radical proposals—not in the sense of the “Radical Left,” but radical in that they’re trying to achieve transformative outcomes, that they’re not necessarily compromises, but they’re actually looking at problems and trying to make targeted investments in a way that will actually move the needle on the underlying issues. Yes, I’m optimistic. There is a lot where there is cause for concern, but I think if you didn’t have reason for optimism, it would be tough to put one foot in front of the other, and try to make the change we want to see.

Samir:

We agree. We’re optimistic as well, and we love everything Edquity is doing. Thank you for joining us today. It’s been really great to have this conversation and learn more about you and your business, and all the issues you’re solving. I think that other social entrepreneurs are going to love to hear that.

David:

My pleasure, appreciate you having me.