Fintech company founded by Stanford GSB graduates helps startups raise capital

May 25, 2022, 12:45 a.m.

Last year, Nick Lombardo MBA ’21, Don Muir MBA ’21 and Raven Jiang BS ’15 MBA ’21 founded a company from Muir’s living room in Menlo Park while studying at Stanford’s Graduate School of Business (GSB). That company, Arc, has since received $161 million in equity and debt funding. Now, they help startups grow by raising capital in non-traditional ways. 

“United by a shared passion for finance and entrepreneurship, the three of us joined forces at the Stanford GSB,” Muir wrote in a blog posted to the company’s website earlier this year. “We created Arc to give founders an alternative to the status quo. Now we’re on a mission to help startups grow – with technology and without dilution.”

Before pursuing their MBAs, all three founders gained experience related to Arc’s purpose and mission.

Lombardo and Muir worked in private equity and investment banking, participating in the traditional capital raising process. Meanwhile, Jiang worked as a software engineer at various companies in Silicon Valley, where he learned the ins and outs of enterprise software. Through their research and personal experiences, the trio came to the conclusion that startup funding could be improved. 

“At Arc, we believe best-in-class technology companies deserve best-in-class financial technology to fuel their growth. Where we’re going, founders won’t have to choose between Wall Street and Sand Hill Road,” wrote Lombardo. 

Typically, founders have two main options for fundraising. The first is equity, which reduces their ownership stakes. The second is venture debt, which can be slow and inflexible and eventually needs to be repaid. In the founders’ view, Arc is intended to offer a solution to both of these problems. 

“Arc eliminates the dilution from selling equity and avoids the restrictive covenants, guarantees and insolvency risk associated with raising debt. Arc offers a modern financing solution that improves data access and underwriting efficiency and provides [a] seamless user experience,” Muir wrote. 

Using their technology, which includes machine learning, Arc algorithmically prices the risks of financing startups. Arc’s tools aid the company’s goal of offering “more flexible, efficient and affordable capital” to customers. Arc has also partnered with both Y Combinator and Stripe. 

Two Stanford professors expressed confidence in the Arc founders and their venture. 

John Hurley MBA ’93, who teaches investment courses at the GSB, had high praise for the trio: “[They] were exceptional students… I have been impressed but not at all surprised by the interest/traction they have generated from both investors and customers,” Hurley told The Daily.

Joseph Grudfest JD ’78 saw the billion-dollar potential of the market and decided to become an early angel investor in Arc.

“The business plan made sense, and the team had sector-appropriate experience. The founders also seemed very capable of pivoting in response to new information, and that’s an important factor in success in my experience. Founders have to be intelligently adaptable,” Grudfest wrote in a comment to The Daily. “Their offering addresses a real need that easily scales into the billions of dollars as an addressable market… Virtually any company with stable, recurring revenues is a potential customer.”

The founders of Arc credit Stanford as an important part of their journey.

While they met on campus, their Stanford experience has come to mean much more than that — the innovative culture supported by their classmates, guest speakers and professors at the GSB both inspired the founders and provided them with key resources and knowledge. 

“Life is too short to take the safe path and simply follow the herd. So is your time at Stanford,” Muir wrote in an email to the Daily. “Take advantage of your fleeting days on campus [to] share your entrepreneurial aspirations, vet your startup idea and take an entrepreneurial swing.” 

Contact Maya at news 'at' stanforddaily.com.

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