Did you ever see a storefront change hands to a parade of restaurants while a nearby shop thrived? Sebastian Villarreal says local customers often know why. He co-founded LendSquare USA Inc. to tap that collective knowledge and help customers and neighbors crowd-fund loans to small businesses. CEO Villarreal says the company launched in February and has received $6 million in funding requests from entrepreneurs nationwide, even though his platform currently remains available only to Chicago businesses. Of the loan campaigns put on the site, he said, 65 percent have been funded. He explains what he has learned.
Q. What inspired this idea?
A. When I was living in Hyde Park, I visited a coffee shop there called Zaleski & Horvath MarketCafe. When I walked in the door I knew this place would be great. I realized neighbors know which place is going to be successful, yet there’s no way to use that knowledge to make any investments in those businesses. I approached Z&H for feedback, and it was through them that I learned that small business credit was a painful process such that they started their business with a credit card. Years later, they were still struggling to pay this credit card off because of the high interest rate. So I started LendSquare to solve that problem.
To me, the idea of people financing the businesses that they value most was very obvious. The trick was realizing what was true for this one business in this one neighborhood was true for many businesses in many neighborhoods. It comes full circle because the business that made me want to start the company, we’ve gotten them two loans (through LendSquare).
Q. You were originally planning to be a scientist. How are science and finance similar?
A. For me the definition of a startup is you’re building a company that’s trying to find its product. And in startups, like in science, you measure progress by lessons learned. The pacing and funding is different, but they’re very similar. Any tech startup entrepreneur should be well versed in many science techniques, experiments, statistics, and a little bit of hustle.
Q. In trying to find your product, how has the business evolved?
A. We thought we were building a way for businesses to get credit. While that is certainly true, many of the businesses we work with find LendSquare is most valuable as a way to engage with their customers and neighborhoods in a very deep and meaningful way. They’re getting a loan from people who care about their business and who also have the capacity to positively affect their business. That means (customers are) going to frequent it more often or tell their friends about it or go on Yelp and give that business a favorable review.
Q. How did you test the concept?
A. We had to answer the following questions: Will business owners be willing to tell their customers that they want credit? Are people willing to invest in small amounts in small businesses? Can business owners find their own lenders? The answer to none of them is an obvious yes.
Q. When did you know you had yeses?
A. The answer is we still don’t. We have a strong suspicion that the answer is yes. But not all loans get funded and we don’t know why.
Q. What have you’ve learned about being a founder?
A. There were many moments when we could have quit and something lucky — meeting the right person, talking to the right customers, getting the right email — happened days later. If you don’t hold on long enough, you don’t get it.
Q&As are edited for length and clarity.
Copyright © 2014, Chicago Tribune
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