EBS graduate Nicholas Hinrichsen (left) and Chris Coleman, founder of the US-American company Clutch
Nicholas, you graduated from EBS Universität in 2007. Could you tell us more about yourself and your career?
Of course! I used to play on the German National Team before I decided to study computer science and business at EBS. However, I continued to play Golf while at school, I focused much more on academics and my semesters abroad. In 2005, I went to Chile for six months and right after leaving Chile, I took the plane around the world to spend another six months in Sydney.
After graduating in 2007, I wasn’t sure what I wanted to do so instead of taking a job, I did two more internships! First I spent three months in Munich at Bain & Company and then I moved to Frankfurt to work at Merrill Lynch in M&A. Frankly, both experiences were not what I was looking for, and I ended up joining a renewable energy startup that invested in biomass, solar and wind projects in China and India.
Fast forward, in 2011, I moved to the Bay Area to go to Business School at Stanford. I wanted to experience Tech first-hand and thought an MBA is an excellent way to get a foot in the door. I co-founded a company called Carlypso after graduating in 2013, we went through the startup accelerator YCombinator in 2014, raised a total of $10M in venture funding by 2015 and sold the business to Carvana.com in 2017.
We joined Carvana pre-IPO. We then went public at a $2.5bn valuation and are now worth north of $35bn, which makes Carvana the most valuable used car retailer in the United States. My co-founder Chris and I stayed with Carvana for three years and left in June 2020 to start a digital auto loan refinancing platform. Our new business is all around helping Americans with challenged credit. We’re very excited to be doing our part to address income inequality!
How did the idea for Clutch emerge?
I learned the hard way that startup ideas don’t emerge overnight or while having a shower. You get your ideas from insights you gained while talking to customers: the best way to start a company is to create something and learn. We learned the two critical insights for our new business Clutch while we were retailing cars:
- 80 % of Americans who finance their vehicles get their loans at the dealership. People shop for cars. They don’t shop for loans.
- 68 % of Americans have a challenged / bad credit history. Their car loan rates can be as high as 29 %, which is crazy. If they make their payments though, they qualify for a lower rate.
Hence, we learned over seven years that people are massively overpaying on their car loans and can save thousands of dollars through refinancing: right now, the market for auto loans is inefficient, and rates are all over the map.
Could you please explain the concept behind Clutch?
The American dream is all about owning a house! It’s the life goal of most Americans. 50 % of all funded mortgage applications, however, are refinancing! That means, one out of two mortgages is not to buy a new house but to lower the interest rate on an existing home. That said, we don’t see the same phenomenon in the car space: less than 5 % of all funded car loans are refinancing. Most people don’t know they can refinance their auto loans. The few people who do know they can refinance, quickly realise that refinancing a cumbersome and offline process.
Clutch is a digital FinTech platform to refinance auto loans. Borrowers can save thousands of dollars in minutes, 100 % online and from the comfort of their homes.
What are the biggest challenges on the way to starting a business?
The biggest challenges in every startup are all the things you don’t know you don’t. Yes, I mean the things you don’t know you don’t. On day 1, you have a conviction and are most certainly wrong. The important thing is to stay nimble and learn until you discover Product-Market fit and you really can put capital to work to grow.
In our case, we, for example, thought we could build a big business going straight to the consumers. Amongst others, we created rich content about auto loan refinance to rank high on Google. Although we got a ton of traction very quickly, we gained yet another unexpected insight: all lenders are trying to refinance auto loans but have no software supporting them.
We are in our early days, which allows us to explore multiple avenues to achieve our goal. We currently believe that we may have the most significant impact by building software for banks instead of going directly to the consumer.
Has the demand changed due to the current pandemic? And has the Corona pandemic made it necessary to adapt your business model?
Two things happened following the Corona pandemic:
- Americans are looking for creative ways to generate cash, and
- the pandemic and shut-downs have compressed five years of digital transformation into 12 months.
Both of these dynamics help our business tremendously! Remember, we are a digital platform to refinance auto loans! In other words, we allow Americans with a car loan lower their monthly expenses and free up cash in a creative way while every other incumbent is reliant on their shut-down branches. The timing couldn’t be better!
These are exciting times for entrepreneurs – just don’t let this crisis go to waste!