#StartupsEverywhere Profile: Nicholas Hinrichsen, Co-Founder & CEO, WithClutch
This profile is part of #StartupsEverywhere, an ongoing series highlighting startup leaders in ecosystems across the country. This interview has been edited for length, content, and clarity.
Reducing the Financial Burdens of Auto Loans Through Software
WithClutch is a software company working to provide access to easily refinance car loans through credit unions. Based in San Francisco, Calif., Nicholas Hinrichsen—Co-Founder and CEO—told us how he founded WithClutch, the challenges he’s faced while navigating the immigration system as an entrepreneur, and how his company has benefitted from the innovative environment provided by a regulatory sandbox in Arizona.
Tell us about your background. What led you to WithClutch?
I came to the U.S. from Germany to go to business school at Stanford. While I was studying there, I met Chris, my Co-Founder. In 2013, when we graduated, he and I started our first business together. We thought used car sales should move online—that there was room for an online marketplace like Amazon for used cars. We went through the Y Combinator startup accelerator program, raised $10 million in venture funding, ran the business for four years, and, eventually, we sold the company to Carvana. Along with the rest of our team, we went to work with Carvana before it went public, and had a blast while there. Last summer we decided it was time to leave and start a new business. This time we wanted to use all the insights we'd gained from having been in the car space for so long, and flip it upside down to really focus on helping the consumer.
What is the work you all are doing at WithClutch? How does your platform work?
Think of us as a loan application portal for refinancing or applying for a car loan through credit unions. If you look at the rates people are paying for car loans, they are all over the map. You'd expect interest rates to correlate to credit scores (someone with a low credit score would get a high interest rate), but we found that the data didn't reflect that assumption. One reason for that is a very large number of people who get a car loan get it at the dealership. They don't shop for a loan first and then for a car, they shop for a car and they need financing. So that loan is going to be what’s best for the dealer, not necessarily the customer. Also, if a person’s credit score gets better, they are often stuck with a car loan reflecting a time when they had worse credit. People often don’t realize they can refinance car loans. They know they can refinance a mortgage, for example; but because that process takes so much time and money, even if they know they can refinance a car loan, the process feels incredibly inconvenient.
To solve this problem for consumers with high loan rates, WithClutch set out to build a direct-to-consumer business and connect the dots to make refinancing more accessible. We found credit unions were offering the lowest rates. There are five thousand credit unions, every third American is a member of one, they are non-profits, and because of the way they are structured, they have the lowest cost of capital so they can offer the lowest interest rates. But they are not very good at developing new technology, and until COVID hit, were typically very branch-centric. Now they, and their members, are looking to enhance online operations, which made this a strong moment for us to go out and offer a tech platform to an interested industry.
So WithClutch allows credit unions to set up the technology they need to work with their customers. There's a portal—I always call it the app—which is a website that's white labeled and built on top of our tech platform, so members think they're interacting directly with that credit union. Users log in to the portal, and from there they can pre-fill loan applications, find the loans they already have matched to exact vehicles, and pick what they want to refinance. They will be able to choose the terms and payment they want, and then submit those loan applications. We are doing this for auto loans today, but it could work with anything from mortgages to student loans—our technology could be used to refinance all of a person’s debt and bring it to the credit union where rates are lower.
I understand that you immigrated to the U.S. in part to build your business here. Can you speak to what it was like to navigate the immigration process? How can policymakers do more to enable international entrepreneurs to launch companies in the U.S.?
I came to the U.S. on a student visa at first. As expected, the visa lapsed after I graduated, and when we started the company I started the process to apply for an H1-B visa, like most college graduate employees in the U.S. I spent a lot of money on lawyers to navigate the process, only to learn on the day my optional practical training (OPT) visa—basically an extension of my student visa—expired that my H1-B visa application was denied. It turns out I was not considered an employee of my company. I was a founder and couldn't get fired, so therefore it wasn’t the right visa. I was then told I had 60 days leave the country.
At that point we had raised $2 million, and had 12 employees, so I couldn't just leave the country. Trying to navigate this while running a business was incredibly stressful. I had just spent $10,000 on a lawyer and I thought they would be able to handle this. I started talking to other founder friends who connected me with a different lawyer who pushed me to apply for the O-1 visa, which my previous lawyer had said was out of reach for founders. Eventually, through working a number of connections to find the right advice and another application process, I was able to get my O-1.
I was so fed up with the whole process. My takeaway was to go straight for the green card and be done with it. The whole process was insanely difficult and I know there are founders who don’t even try. All you're trying to do is build a company, employ Americans, be successful, and pay taxes. But there's no visa for founders. We need a startup visa. It's overdue and there are a lot of talented people who would not go home after studying in the U.S. or work from abroad, if they could just start their company here.
Can you tell me about your experience participating in Arizona’s regulatory sandbox and how that has informed your growth plan?
When you try to build a vertically integrated solution you’re working through all the bits and pieces of the value chain to see what works. Initially we thought, maybe we should just be the lender and wanted to be able to test that model to see what happens. We were living in Arizona at the time when I found the state’s sandbox program and it was a perfect fit. Participating in the sandbox meant we didn't have to operate under normal regulation and licensure requirements, which in FinTech is incredibly helpful when you’re trying to refine your business model. In return, we were in constant communication with the state about our plans and business. Sure enough we turned around and started pitching to interested parties much faster than we would have been able to otherwise.
We began to build the demand for our services and went to talk to lenders. It was then that we realized they're much better at the actual lending than we are, so we should never be lending business. Instead, we determined we were better suited as a marketplace and, ultimately, a software company. And had we not been in the sandbox, it would have been very difficult for us to test that model versus being the lender without running afoul of all the rules that regulate that space. And so very quickly we were able to pivot into the model that's much more suited for us. We've benefited massively from that experience.
What are your goals for WithClutch moving forward?
There's no other country where people are as deep in debt as the U.S. Americans have $1.35 trillion in car loan debt. People who don’t have good credit have subprime mortgages that are really predatory. Many people have a large amount of student loans. There's so much debt and it's completely mispriced. You'd have to be blind to not see that something is wrong.
It is our goal to try to fix that problem to the extent possible. If you build a business that moves the needle, you move the needle at a massive scale. For example, if someone is living off of $400 in savings (as a lot of Americans are), and you save them $80 or $100 a month in interest expenses, instead of throwing that money out the window, they could do something else with it—put it in their savings account, and they may get to a place where capital starts working for them. Look at what happened during COVID—people with money became orders of magnitude richer than people who didn't have any capital before, and one of the big traps is debt.
Our goal is to just put as much money back in the pockets of the consumer, and try to help people build wealth to get out of this trap. If we’re just a tiny bit successful, it impacts a lot of people. It's very motivating to go to work every day when that's your mission.
All of the information in this profile was accurate at the date and time of publication.
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