Why We Invested: Backer
Making saving social and attainable.
Backer is a social savings platform that makes it quick and easy to set up a 529 plan account and get family and friends involved as contributors (“backers”).
Backer has helped families save $20 million for college, with 40% of the money coming from grandparents, aunts/uncles, and friends of the family — a rate of gifting that’s 30x higher than the 529 industry average. With Americans carrying a record $1.8 trillion in student loan debt, Backer helps families give their child the prospect of financial freedom.
The 529 industry is a several hundred billion dollar opportunity, but it’s still fairly archaic and can be difficult to navigate. There is a large segment of the market not yet served, and we need more modern ways for people to pay for college and other life milestones.
One of Backer’s core goals is to democratize access to 529 accounts, and their numbers back it up. 60% of Backer’s users are women, 70% have a household income below $100k, and 50% are non-white.
Rally Managing Director Jeff Hinck has a decade of experience in social and collaborative finance. He was an early investor in SoFi (Social Finance, Inc), which was originally started as an alumni-funded lending model to connect recent grads with alumni in their community.
Backer’s mission is to transform the way Americans save money by making it a social experience, and we’re thrilled to partner with them in this endeavor and welcome their team to the Rally portfolio. Below are five questions with Backer’s founder and CEO, Jordan Lee.
1. What inspired you to found Backer?
I was a pretty mediocre student until one of my high school teachers challenged me to try a summer program at a nearby university. That’s when I got a peek at the kinds of doors that higher education might open up, and a newfound love of learning set me on a path of attending Harvard for college and Yale and Princeton for grad school.
I remember when I got into Harvard, the opportunity to get the best education in the world became both a moment of pride and fear for my parents. It turned out they had not saved for college and didn’t want to tell me not to go, but also didn’t want me to be saddled with debt. They ended up making some tough financial choices and refinancing their home to make it work. I felt so incredibly fortunate.
When I got to Harvard, I quickly realized that my story was not unique. Many of my peers were only able to be there because they had received significant financial support not just from their parents, but sometimes from more distant family members or even close family friends. This stuck with me — How many kids were missing out on educational opportunities because of financial reasons they had no control over? What if more kids out there had early financial support from friends and relatives?
Years later, my friends’ constant stresses over their student loan debt started shifting to fears about how their kids would afford college given the rapidly rising cost of higher education. They were anxious about being unprepared and letting their kids down. One of my friends shared that the best way to save for college was a 529 Savings Plan, which he described as a retirement account for college, where you could invest tax-free. It sounded like a no-brainer and I was eager to start one, too. When I asked how much he had put into the fund so far, he stared blankly for a second and then admitted that he had never gotten around to setting it up because he wasn’t sure which plan or portfolio to pick and it seemed to require a lot of work to research.
This piqued my curiosity. If this friend of mine, a well-educated person with savings to invest, still hadn’t actually opened the account, how many millions of parents were stuck at step 1? The more I learned about 529 plans, the more passionate I became about democratizing this public benefit that seemed to have been adopted primarily by more affluent families who could afford decent financial advice. I thought I could bring a unique perspective as a technologist and Y Combinator alum with a passion for education who had a prior career in political science and public policy.
I’ve since been driven by a mission to modernize the college savings industry, so that more American kids will have the kind of educational opportunities that helped get me to where I am today.
2. What key problem is Backer solving?
There’s both a macro and micro approach to what we’re doing and how we see Backer helping families.
The direct problem that we’re solving is the inaccessibility of 529 accounts. Despite being around for decades, 529s are massively underused because of low awareness (almost 70% of Americans haven’t heard of them) and needless complexity (there are over 100 plans with different rules and requirements, and they’re all pretty rudimentary from a technology perspective). Americans could obviously benefit from this tax-free investment tool — collectively they now have a record $1.8 trillion in student loan debt! — so we are attacking the problem at its root.
You can think of Backer as preventative medicine for the student debt crisis. We make it so that there’s no need to maneuver through state-run websites or share bank account information with people who want to contribute to your child’s college fund.
Backer makes choosing and opening an account easy, provides guidance on how to invest over the years, and makes it seamless for family and friends to get involved as contributors (“backers”) — all in a few minutes.
We’re also focused on a broader problem: How can American families support each other to unlock opportunity? Too often, personal finance is treated as a personal concern — something private and individual — when everyone has people in their lives who might want to help. Long-term, we see Backer pioneering a new phase of collaborative finance, in which family and friends can help each other to prepare financially for significant milestones beyond college. 529 plans are just the beginning for Backer.
3. What’s one way you’ve pivoted to meet the challenges of the past year?
As with many startups, our attention had been on rapid growth. But when Covid and the accompanying economic crisis hit, we worried our growth might come to a screeching halt. Would Americans continue to save for future college costs when they had more immediate financial challenges? We had to make some hard decisions.
We cut all marketing, reduced our burn rate in other ways, and reassessed our strategy from first principles. We sharpened our focus on improving our product, revenue model, and the quality of our customer acquisition. We also fixated on maximizing the value of our product by helping families keep up with their savings during these uncertain times. For example, we upgraded our gifting features and created new ways to save, like our cashback rewards program.
We spent the next 6 months laser-focused on executing this new strategy. It wasn’t easy, but by the middle of the summer we were tracking well toward our goals, and by the fall we had exceeded them. And the biggest surprise was that Covid had actually reminded Americans of the importance of family and preparing for the future. Savings rates soared across the country, translating into strong college savings behaviors. And with birthdays and holidays being celebrated virtually, virtual gifts into kids’ college funds increased, too.
The entire year felt like a trial-by-fire, but we emerged from it stronger than ever, having built a lean and highly efficient machine that we’re now working to scale.
4. What’s the best advice you’ve ever received?
There are two pieces of advice that have stuck with me over the years. The first comes from an interview Steve Jobs gave in 1994, two years before he returned to Apple, in which he explained that “everything around you that you call life was made up by people who were no smarter than you. And you can change it — you can influence it, you can build your own things that other people can use.”
This simple insight — that no matter how complex the world seems, everything you see and know was originally created by someone not that different from you — is incredibly empowering.
In my own life, getting to attend a dream school or meet a personal hero has had a similar effect: it has reminded me that these places or people, despite all of the mystery and awe that may surround them, are just places and people. Armed with this insight, anyone can make their mark in the world.
The second nugget of wisdom comes from Jeff Bezos. Before he left his Wall Street job to start Amazon, he went to his boss to share his idea for the company. His boss said it sounded like a really good idea, but a better idea for someone who didn’t already have a good job. Bezos decided to take 48 hours to decide whether or not to leave his job and start Amazon, and the framework that helped him decide was a “regret minimization framework.”
He asked himself, “When I’m 80 years old and looking back at my life, what will I regret not having done? I knew that when I was 80 I was not going to regret having tried this. I was not going to regret trying to participate in this thing called the Internet that I thought was going to be a really big deal. I knew that if I failed I wouldn’t regret that, but I knew the one thing I might regret is not ever having tried.” Here’s the full quote. This approach turned a hard decision into an incredibly easy one for Bezos, and the rest is history. I try to apply this approach not just to major life decisions, but to smaller ones as well.
When I am 80, will I be happy with the way I was spending my time earlier in my life? It helps me apply a long view to what I’m doing on a daily basis in my personal and professional lives.
5. What companies or leaders do you admire?
As you can tell from my favorite advice, I deeply admire Steve Jobs and Jeff Bezos. I’m also a big admirer of Scott Cook for ushering in our era of consumer-centric personal finance, and Elon Musk for pushing our world forward with innovations very few thought were possible. I would love for Backer to embody a bit of Apple’s taste and design aesthetic, Amazon’s long-term orientation, Intuit’s ethos of simple customer-centricity, and Elon Musk’s boldness in pursuing a vision for a better world.
