CEO AND CO-FOUNDER, LENDINGHOME | SAN FRANCISCO, CALIFORNIA
A remarkable graduate of the Tepper School’s 3-2 MBA program, Matt Humphrey has had his toe in entrepreneurial waters since his undergraduate computer science studies. He collaborated with colleagues from computer science and the business school to develop Envivial — a company that produced 3-D re-creations of retail stores allowing customers to virtually browse store shelves and buy products online.
Humphrey pursued numerous software startups, beginning with Eivod, a peer-to-peer video delivery platform he developed during the earliest days of Carnegie Mellon’s Project Olympus program in 2006. Companies that followed included Kickball Labs and Bumba Labs, the former of which Humphrey helped launch during the second year of his MBA, and which proved so successful that Humphrey stayed in California and finished his degree via Carnegie Mellon’s Silicon Valley campus. He shifted into e-commerce with HomeRun, a platform that collated discounts from local businesses. In spite of significant competition, HomeRun was acquired by Rearden Commerce for more than $100 million less than 18 months after launch.
Now, Humphrey’s focus is on LendingHome, a fintech mortgage startup. In its three-year history, LendingHome has lent over $1 billion and raised well over $100 million of equity to fund its expansion.
What is your elevator pitch?
LendingHome is the best way to get a mortgage. We drive a simple, fast, reliable process across a variety of mortgage products to help customers everywhere buy or refinance their homes. Customers can find their perfect loan product in seconds, finish the application in minutes, and close in days, versus a few months. The whole process, end to end, is online and entirely self-serve, but if you need help, we’re here to help as well.
What was the “a ha!” moment?
In 2013 I started to get interested in investing in real estate, and what I realized was that there was no simple, transparent, direct way to invest that really struck my fancy. As I delved further in and thought about investing my money in a couple of real estate funds, I was introduced to a few mortgage funds — not on the equity side with buying and selling homes, but on the debt side of lending to those who are buying. This opened my eyes to the fact that after the financial crisis, banks in the United States really pulled back their mortgage lending. Many, many people across the country do not qualify for a mortgage. This applies to people who are financing an investment home, rental property, are self-employed— and many more use cases. Even though many of them are creditworthy, they can’t get funding through traditional mortgage bank financing, so there’s a lot of private lenders that have stepped in to fill the void.
It takes 60 to 90 days to close loans, and, the vast majority of loans are still closed offline, in person, on paper. For many lenders, the customer satisfaction is horrible. The internal cost for a bank to close a loan is now almost $8,000, so the borrower has to pay about 4 percent in fees before the lender has made its first dollar. A lot of things didn’t make sense: Why aren’t we lending to more people? Why isn’t the customer experience awesome? Why is it not fast? Why is the cost structure so high? And what it came down to was a lack of technology. I realized that there was a big opportunity here to do something better and different.
We started building a next-generation platform to solve all those problems. We set up a system for customers to do everything online. We rethought the way we use data and credit modeling to prove that a borrower is worthy of credit. We automated massive pieces of operational and financial infrastructure that are otherwise very manual and inefficient. We wrapped a private capital marketplace around the platform where hedge funds, private equity, banks, government and even individual peer-to-peer investors can actually invest and buy pieces of mortgages, which no one else at the time had really done. We innovated all the way through the value chain including servicing, payment collection and what happens when things go wrong and loans default. We basically took what in a bank would be 20 to 30 disparate tech systems and many people, and we do it with one core tech system and far fewer people.
What kinds of ventures succeed?
I think, first and foremost, it comes down to the founders. To use a CMU example, Michael Preysman from Everlane was an electrical and computer engineering major from the class of ’07. He left Elevation Partners, where he was in private equity, and decided, “I want to start a brand, and I want to do it all online.” I remember the earliest discussions when the company was just an idea on a napkin. There are so many things that can go wrong: You don’t get product market fit; your value proposition doesn’t resonate with the customer; you don’t get your operations or technology right; you can’t make enough money — there are so many things in the sequence that can go wrong that I think the bet has to be on great people, because you always have bumps in the road, and those people need to be scrappy, hungry, smart, to have the grit to find a way to value. At Everlane, many early changes in the course of its business development led it to become one of the top brands in the United States, especially for online brands right now, and I think it’s a testament to Michael and the strong team he has put together.
What I ask when I’m investing is, is it a big market with a meaningful innovation, or is it just an incremental innovation? Obviously you’d like to be in the former camp — taking big swings, taking on things that are ambitious. There are a lot of folks who are doing things that are nice to have, a little bit better, but aren’t really changing massive industries in a big way. I think as someone who’s an investor looking at companies, that’s always a key factor.
What key piece of information gets overlooked when getting started?
There are a lot of products that are great products, but they fall down in the sales or marketing, or general user acquisition challenges. There’s a lot of great technology that can never find a home in the customer’s minds. In my first few startups, we built really cool stuff; we just couldn’t figure out how to distribute it for users or market it. Everybody has the early thought of “If you build it, they will come,” but distribution and growth is generally much, much, much harder than people think, even when the product is great.
What were your pivotal moments?
Taking that leap and starting Envivial was a huge step because in 2004, it was not in vogue to have a startup. There weren’t accelerators in Pittsburgh; there wasn’t venture funding really available. It was definitely a leap of faith that we were going to do something. We didn’t have the support systems that exist now, which are great. It took a lot of courage to start out at that time.
Starting HomeRun, raising millions of dollars and then ultimately getting acquired very successfully — it showed that we didn’t just build things and see things that were cool, but we actually built a lasting company that was a piece of fundamental infrastructure that no one else could provide.
And LendingHome was really substantiated when we crossed $1 billion in loans over the first 2 1/2 years to assert that this is a leading fintech company; customers love us; we’re here to stay. I think it was a validation of doing something great for customers and a culmination of our hard work. I think the resources we’ve been able to garner and the trajectory that we’re on have been awesome and humbling, but we still have a lot of work to do.
What skills did you have to learn to keep things moving?
With Envivial, it was really about being able to build something cool, and the fact that well before its time you could run around in a full retail store in 3-D where the shelves are stocked with products you can look at and add to your cart. You have to build something that’s novel, that is pretty “wow,” and we had to check that box with Envivial.
The learning on Eivod was that we had built cool tech, but we didn’t really get the market right. We were a peer-to-peer video delivery company, and again the tech had the “wow” factor, and it worked and was going to scale, but we missed the market. The market for bandwidth costs was just going through the floor, and so people weren’t focused on cost savings with peer-to-peer, so we just had the wrong focus.
HomeRun competed with some industry giants like Groupon and Living Social that were masters of the e-commerce world. We were a small startup that had raised only $9 million, and they had probably raised $2–3 billion between them, and so that’s very David and Goliath. And so how do you get operations, your customer acquisitions and your business model to function when you’re very short stacked against others? It presented a lot of creative challenges to successfully get that company to scale and ultimately get it acquired.
Every market I’ve gone into is completely new. To do something cool, you have to be able to embrace a new market where you’re learning a ton, where you have to come in, run the space, figure out which pieces of the space are good and you want to keep the way it was done before versus where you are going to innovate. Just because the industry does it this way doesn’t mean you have to do it that way — in fact, it’s probably better if you go against the grain.
Why Carnegie Mellon?
I have a pretty unique background with respect to Carnegie Mellon. I grew up just south of Pittsburgh. I did various courses through C-Mites, Carnegie Mellon’s program for elementary and middle school students to study math, very simple robotics, intro programming etc. After I did a bunch of those, my parents reached out to the university, saying, “He’s taken most of your C-Mites and related courses. Is there anything else he can do to advance his learning?” And they said, “We have one thing in computer science. I don’t know if your son will get in, but he can take the exam.” That was Andrew’s Leap [now known as Leap@CMU], at the time taught by Steven Rudich [professor of computer science], who founded it.
I took the entrance exam: one of those crazy eight-question, three-hour brain teaser things. I did really well, apparently; I got in and took that in the summer when I was 13, and absolutely fell in love with the subject matter, which was a lot of discrete math and theoretical computer science. So after I did that for the summer, at the very end, my parents suggested we go to Steven and again ask him, “What’s next?” When I did so, he said, “I want to talk to you about how much you’ve learned. Normally, Andrew’s Leap is for 17- to 18-year-olds right before they go to college. You’re much younger; I want to see how much you’ve really soaked up.” We sat for four to five hours, and he grilled me on various concepts. He looked at me at the end and said, “All right, I know what to do. Come to college. It starts next week.”
We ended up doing a creative arrangement where, starting when I was in eighth grade, I would go to my school and then I’d go take a class or two a semester at Carnegie Mellon. And then after a few years of doing that, I decided to leave high school altogether and come to Carnegie Mellon. I did my computer science degree, which I basically finished requirements for by 18, and then instead of doing a minor or electives or other things, I talked to the school and asked if I could apply to the Tepper MBA program for the 3-2 MBA.
I owe a lot to various people and the university overall for being incredibly accommodating time after time for 10 straight years. The support they gave me is nothing short of special.
Pivotal players who get included in the thank-you speech?
In no particular order: My parents for pushing me very early on and always being super supportive, even in times when they had to put their lives on pause to enable my very non-standard path through school and then through business.
Some key Carnegie Mellon faculty come to mind: Steven Rudich, of course, who took a chance on me with Andrew’s Leap; Peter Lee, who used to be the dean of the School of Computer Science who took me under his wing early on; Mark Stehlik [Assistant Dean for Outreach and teaching professor of computer science]; Lenore Blum [Distinguished Career Professor of Computer Science] and Manuel Blum [Bruce Nelson Professor of Computer Science], who were the first people that I did entrepreneurial stuff and research under, respectively; Art Boni [The John R. Thorne Distinguished Career Professor of Entrepreneurship] on the business school side, who coached methrough building the businesses and getting out there to raise money.
Charles Moldow from Foundation Capital bet on me with millions of dollars when I was just a 22-year-old kid who had never founded a real company. He backed me in HomeRun, and then backed me again with LendingHome. My HomeRun co-founder Jared Kopf, who was one of those guys who really took me under his wing; he believed we could really build something cool in a competitive space, taking a chance on a young co-founder coupled with just an idea on a napkin.
How did the business school help shape your companies?
Early on in my career, I was purely a technologist: I could code stuff, I could build stuff, I could think about how to architect platforms, but I didn’t really have a savvy business sense of how to turn this piece of technology into an actual lasting, meaningful business that helps customers out in the world. And so the business school was amazing in taking someone like me, who was purely technical, and forming me into a more complete entrepreneur. It gave me the blocking and tackling of all the other elements of growing a company that you just don’t know how to do around operations and finance and making sure that all those verticals were strong. Even if, at the end of the day, the key differentiator in how I approach things is rooted deeply in technology, I had to have a range of competencies to build a significant business, and I think Tepper taught me that in spades. I would also say that the fact that school was creative and flexible, and took a shot on me when I was really young and enabling the 3-2 thing to happen was huge. This is because a lot of schools don’t even remotely have programs like that and wouldn’t even consider someone like me who didn’t have years of mainstream industry experience.
I also appreciated doing the Swartz Fellowship and the entrepreneurship track with Art Boni and team, where my companies and the things I was working on were the focus and were interwoven into the coursework. This helped me really focus on entrepreneurship and hone that craft.
How about growth?
We kicked LendingHome off in October 2013. We spent the first seven or eight months with our heads down to build the platform, and then we started lending money in the middle of 2014. By the end of 2016, we had lent north of a billion dollars of aggregate mortgages from a standing start. We’ve also raised well over $100 million of equity in the process to build the company, and now have over 250 employees in just a little over three years. We can close loans in as little as days, not on a timeline of months, and the entire mortgage process end to end is online. We have net promoter scores in the high 70s or mid 80s — among the best brands in the world — where traditional finance companies and mortgage banks end up significantly below that. We feel like we’ve built something special. We’ve gotten a lot of market traction. It’s a unique value proposition to customers.
What’s the best advice you received?
When I was very young my dad told me all the time that “the world doesn’t owe you anything” and implied that I just have to work harder than the next guy or gal. Nothing that is valuable is ever easy, and you just have to grit through it and make it work.
My co-founder Jared was the first person I met when I moved to Silicon Valley — I didn’t move to work with him, but I met him on the first day when I was in San Francisco. I said, “If you were going to give advice to someone in my shoes, what would you say?” And he said, “Find the smartest, most ambitious, most accomplished person who will take you seriously, tell them you’ll work for them for free.” He suggested learning all that you can, and then seeing if you’re ready to do it yourself. I’ve paid that advice forward to a bunch of business school groups and panels I’ve been on. I think sometimes people see a business school degree as a way to switch career functions or eventually get on a higher salary track or break through into management. But I think that if you want to do something entrepreneurial, whether you’re ready or not, finding and partnering with somebody great, who is more accomplished than you or has a lot you can learn from — even if it doesn’t mean a big paycheck or a sexy title —is worth more than anything else you can do at that stage in your life.
Does anything keep you up at night?
Most of what I think about day in and day out is LendingHome. By a lot of metrics, we’ve been very successful: being able to grow revenue nearly 3x this past year, get to 250 employees and have the necessary infrastructure to make sure we’re operating successfully, being able to lend over a billion dollars to customers we’ve helped all over the country. We’ve done a lot of good things; I would say we’ve still got a long, long way to go. Are we taking on a lot, and are we moving at the right level of intensity or pace? Questions like that keep me up at night. How do we continue to be innovative in the face of lots and lots of competition? How do we keep thinking bigger, bigger, bigger, bigger — never being content with what’s right in front of us today? How do we build a lasting financial services brand that’s here for the next 10, 20, 30 years or more? That’s a many-year endeavor to build something that hopefully has a shot to be so enduring, and we’re only really in year 3, so there’s still a lot to do.