YC wouldn't do that. I don't know the history here but I do know that both founders left the company years ago (which is pretty unusual). I can only assume that a lot changed since they started 10 years ago (they were in W12).
DanG, do you have any comments regarding the replies you received to your comment here? You seem to have made a blanket statement that YC wouldn't do that, but the evidence points to the fact that YC did do that, as it funded the founders who made these decisions that led to enforcement actions in 2016 against them.
It's not like this is esoteric finance law either, I've worked in fintech lending during this whole time period and some of these violations are lending regulation 101. Military Lending Act compliance at the very least is dead simple to comply with and is the very first thing most lenders ensure compliance with (due to it being federal, whereas some more esoteric state level stuff can often get missed).
Dang doesn't represent YC's accelerator/investments arm (i.e., he's an employee engaged to run HN, not a YC partner who makes investment decisions or official YC announcements).
I don't know much about LendUp at all, but I do remember the surprise - and feeling it myself - when it was announced that YC was funding a payday lending company. Then I remember the thinking behind it being explained (perhaps on HN, perhaps elsewhere) and seeing that the founders seemed to be making a sincere effort to offer something that was at least just less-terrible than the existing payday lending options around (many of which involve dealing with crime gangs), which made me think "OK, I guess it's worth a try". I presume YC thought the same thing when they invested almost ten years ago.
If it turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before, I still don't think it's reprehensible that YC thought it was worth backing founders that seemed to be making a sincere effort to try.
I don't think it's true that the only alternative is loan sharks. It's mostly "traditional" payday lenders, many of which are owned by the big banks (through a couple layers of obfuscation to cover up the stench).
I edited my comment to tone down the implication that it's only loan sharks.
That said, the "traditional" payday lenders all turn out to be quite predatory, don't they? (I understand that's what the original founding premise of LendUp was intended to address, even if they couldn't make it work.)
But aside from that, will the traditional payday lenders lend to everyone and anyone, no matter their circumstances? If not, what are the options for people who they won't deal with?
Sure, I would agree with that characterization. But apparently LendUp was even more predatory, to the point that regulators shut it down. So in retrospect, I think we need to take the claim that they wanted to create a kinder, gentler kind of lending with a grain of salt.
The claim we’re addressing in this subthread is that in 2012 YC knowingly invested in a company that intended to be predatory towards military personnel, such that it would end up being shut down by regulators, implying that YC was both deeply unethical and deeply stupid. Are we really to believe that YC was being as unethical and stupid as this claim requires us to?
"Knowing," "intended [at the time]", "would end up being shut down by regulators" are all your embellishments. The claim is "YC funded a payday lender that targeted active duty military service members." As far as I can tell, that is true, regardless of how pure anyone's intentions were at the time. The defense on offer is that the founders left the company between funding and now, but it is not very compelling given the timelines.
OK then. You weren't the root commenter, but it's pretty clear the root comment and the reply to dang were attempting to pin an accusation of unethical conduct on YC. But never mind.
There of course is another possibility: the founding team in 2011 was proposing a concept that seemed ethical and an improvement over payday lending options that existed at the time, but over time the company's idea or execution changed for some reason, in which case, there was neither poor ethics nor poor judgement on YC's part.
Occam's razor would require us to accept this explanation unless there was substantive evidence for another scenario.
By definition, Occam's razor requires us to believe that founders sincerely intended to do what they said they planned to do, unless there is evidence to the contrary.
It is not self evident to me that someone sincerely intending to do kinder, gentler lending and ending up through some confluence of circumstances doing something else is a “simpler” explanation than the same person just lying about their intent.
Without evidence that they lied in 2011-12, it requires an explanation as to why they would lie, and for us to believe that a strategy to lie to investors then defraud customers and get shut down by regulators is more plausible than to have set out with high-minded ambitions that later turned out to be fanciful.
The lofty goals are pretty much always puffery we can discount because most people find it distasteful to say "well, the main reason I want to go into this business is I think it's high-margin and I can make a lot of money at it." I doubt they openly set out with an intention to flagrantly violate the law, but I don't find it unlikely that they didn't have much qualm about skating close to where they imagined the line was on the theory that they could establish themselves before the regulators caught up with them -- after all, this is precisely the strategy that worked well for YouTube, Uber, or AirBnb.
Ok, so you now seem to be conceding they likely didn’t lie or have intent to defraud people at the beginning, in which case we now have no major disagreement about this topic.
The rest of the comment is commentary about the nature of contemporary startups and VC, including some mind-reading into the true motives of everyone who starts a company, not just LendUp. Obviously you’re entitled to your views on this but it’s all rather nebulous narrative that can be invoked any time to try and win a debate when there’s no clear evidence relevant to the specific topic of discussion.
I think I’ve learned all the can be learned here. Thanks for the discussion.
> Ok, so you now seem to be conceding they likely didn’t lie or have intent to defraud people at the beginning
I feel like the first sentence of the post you're replying to says the opposite of "they likely didn't lie" and I wouldn't say I have "conceded they likely didn't intend to defraud people" either. I said they likely didn't intend to flagrantly violate the law, which is altogether a different claim.
That first sentence is mind-reading. It demonstrates nothing but your own ideology and imagination.
So, nobody in the subthread has demonstrated that the LendUp founders or YC were guilty of any wrongdoing or malicious intent in 2011-12. All we have is conjecture based on people’s previously held feelings on YC and Silicon Valley.
Now, where I am it’s Christmas Eve, which I’m off to enjoy. Best wishes to you.
But your original notion was that "Occam's razor" simply proved that my suggestion was far less likely than yours; now you've shifted the goalposts to a standard that's impossible to meet. Anyway, I suppose I will take "I'm too busy having a great life to continue this discussion" as an improvement over "Ah, you are too slow to realize that you've actually agreed with everything I said" when I did nothing of the sort.
There’s a strong theme here of assuming the worst possible motivations in people and responding to the worst interpretations of people’s words and actions; first in the case of the company’s founders, which is my main point of contention with your position, but then also in response to my comments, which is not just bad-faith debating but a breach of the HN guidelines.
I note that twice in the above comment, you’ve put statements in quotes as if they were things I wrote when I clearly wrote nothing of the sort. If you can’t engage in a discussion by simply addressing things that were actually written, it’s time to stop commenting.
My comment about it being Christmas Eve was a way of noting the fact that it’s a time when most of us who are in parts of the world that celebrate Christmas probably have better and kinder things to do than perpetuate arguments like this.
As for your apparently-continuing claim that Occam’s razor supports your argument: your central claim seems to rely on the assumption that most company founders are dishonest in their stated intentions to do right by customers, and that we should assume that founders are lying when they claim that.
If I’m wrong that that’s your position, you’re welcome to clarify, but please do so without further ad hominem attacks. If it is your position, OK, but I profoundly disagree, and I point out that that it’s not the kind of uncontroversial, accepted fact that puts your argument on solid ground. But sure, you’re welcome to believe it.
For what it’s worth, my own position comes from a belief, and at least 10 years of looking very closely at the phenomenon, that most people are essentially good and well-intentioned, and when they do wrong it’s not just that they’re inherently dishonest or evil, it’s due to reasons that are important to understand, if nothing else so we can avoid getting into situations where we’d end up doing those kinds of wrong thing ourselves.
This is why I push back against scapegoating rage fests when I see them on HN; only if we’re willing understand and dispassionately reflect on how and why people do wrong can we expect people, including ourselves to do good.
>If it turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before
This is a disingenuous response because this space is highly competitive and most of the big names in it have not gone out of business due to flagrantly breaking the law. Just because LendUp broke the law and went out of business does not mean there are no sustainable, legal entities operating in it.
You could have added your perspective without describing my response as "disingenuous", i.e., dishonest.
I said very clearly I have no specific knowledge on LendUp. I also know little about the space (apart from that it's a nightmare). The only specific insight I have here is on YC's history and ethical track record.
That said, can you educate me and other readers by linking to examples of companies that are doing well in this space (specifically, offering a better lending option than payday loans in the U.S.)?
Ok, we first have to start with acknowledging there are two different things under discussion:
* Sustainable, legal lending businesses operating in the payday loan space
* Better lending options than payday loans
I am not an expert in either of these [though I have worked with numerous people who are experts in these] so will not make blanket statements (which is why your statement was disingenuous, rather than saying look I don't know anything about this you instead chose to make an authoritative statement indicating sustainable business was not possible in this industry which is untrue) about them, rather only indicate some of the information available:
In the first group you have companies like:
* Enova [CashNet USA] - Had CFPB enforcement
* Avant - Also from a YC founder, had FTC enforcement action
* OneMain - Caps interest at 36%, actually has a carve-out in California lending law
These companies have been operating sustainably for years and looks like business is booming for them. Note how despite receiving enforcement action they were not shut down nor called "cheaters" by the CFPB like LendUp was? This is indicative that one can commit predatory actions in this industry and still be sustainable.
Now for the second group of better lending options than PayDay loans, that's a very wide field but let's assume we want to specifically discuss people who would otherwise be going for a PayDay loan. I'm going to link here to NerdWallet which actually has great overview of options: https://www.nerdwallet.com/article/loans/personal-loans/alte... Specifically, I would call out local credit unions as being a "good" option that is often overlooked despite providing a ton of loan capital in the U.S.
There are also a number of non-profits working to try to help people fall into the Pay Day loan space, in which I would specifically call out SaverLife https://about.saverlife.org/
Arguing whether or not PayDay loans are good (ethical) or not is subjective, as others have noted a high-interest loan can often be better than no loan, but what I would personally argue is that continued and improved government support for credit union payday lending (e.g. https://www.ncua.gov/support-services/access/advancing-commu... ) as well as more available physical lending options (e.g. Go to the Post Office for a loan) are very much worth exploring and supporting.
You've written a whole lot of words that bypass my point and double down on the accusation that I was dishonest.
You've only cited companies/orgs that are operating legally, not ones that are demonstrated to be highly ethical and substantially better for borrowers to deal with than the payday lending companies that existed when LendUp was conceived around 10 years ago.
Clearly, LendUp was talking about trying to build something much better for borrowers than what existed then, and that's what was compelling to YC (as I said in an earlier comment, I vaguely remember discussions about this being had at the time, and thinking it would be interesting to see how their plans would play out).
Exactly what went wrong along the way, I don't know, and I haven't seen any comments here explaining it - only indignant comments leaping to the conclusion that everyone involved must have had malicious intentions from the start but not offering any evidence for this.
This is why your comments are disingenuous. Both the comments here and the article itself discuss what went wrong legally with LendUp. You are willfully ignoring those.
If you want to weigh in with your "hot take" you should at least read the article, rather than coming in claiming LendUp did nothing wrong and then when presented with evidence fall back on well "I don't know" and "know little about the space".
This is exactly why your comment is disingenuous, because you specifically stated "turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before" as a defense of LendUp's actions, when as I have pointed out to you, there are plenty of sustainable businesses operating in this sector. If you want to quibble around "sustainable" vs. "good" then at the very least you should acknowledge there are companies that are operating legally vs. ones shut down (e.g. LendUp) after committing multiple violations.
I mean seriously, are you just going to ignore this statement:
“LendUp was backed by some of the biggest names in venture capital,” said CFPB director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.”
The Director of the CFPB doesn't just come out and call everyone liars and cheaters.
This is very much worth harping on, because you are perpetuating and defending the idea that YC can do no wrong, instead of accepting that it is possible it made a mistake in funding and supporting these founders.
This attack is full of inventions. “Wilfully ignoring” the legal issues, and didn’t read the article. False. “Claiming LendUp did nothing wrong”. Seriously, where? “Perpetuating and defending the idea that YC can do no wrong”. Again, where, aside from pointing out that nobody has been able to provide any evidence that YC did wrong in this case?
The claim I’m disputing is that the original founders, when founding the company ten years ago, set out with malicious intentions to defraud people, and that YC and other investors knew and supported this.
(Others have later claimed that this wasn’t the allegation, and it was rather that YC made a mistake to invest in this company, in which case, fine, I have no major quarrel with that - most of YC’s investments turn out to be mistakes, that’s how their model works.)
But for those who insist that the original founders’ intentions from the start were nefarious and that YC was aware and complicit, this needs to be pushed back on, hard, as there’s no evidence for it and it makes no sense as you can’t build a successful business that way.
That the founders had high-minded ambitions that later turned out to be unachievable is the simplest explanation. Legal issues several years later, or examples of different companies doing different things to what the founders set out to do are not proof of malice on the part of the founders or YC, or of my dishonesty, and further wordy and aggressive replies from you won’t change that.
Seriously, the legal process has worked and the company has been shut down. Put away the pitchforks and torches.
I'm sorry, but I don't. I don't have any information about the specifics and I don't know anything about the startup or the domain. All I know is that YC would only have invested in such a startup if they believed it could truly be of benefit to people.
That's a fairer statement and one I would agree with.
I hope you know your words hold a ton of moral and social weight in this community.
To say "YC wouldn't do that" is strong language, especially given the facts.
To say, "YC would only have invested in such a startup if they believed it could truly be of benefit to people" is better, because it acknowledges that while YC had the best of intentions, it could have made a mistake in funding these founders rather than give an idea that YC can do no wrong.
The founders, the ones funded by YC, created a company that committed financial crimes before they left the company. Those founders should be seen in that light, regardless of their intentions.
This may not have been YC's intent, but it does appear that's what's effectively happened in the end. I have to assume that YC has some method of exit strategy to separate itself from companies that deviate so strongly. Maybe YC was just asleep at the wheel, I don't know, but in either case they are attached to the failure here.
