Innovating in Fintech: Jason Hogg, CEO of Lending.com (Part 2)

Sramana Mitra: What year does that bring us up to now?

Jason Hogg: We’re now in 2002. The timing was actually interesting because when I was graduating from Cornell, the first dot-com  bomb had gone off. There were a series of venture capital and private equity shops that had made co-investments in a number of opportunities and a lot of brilliant and creative entrepreneurs who did not have hard skills and operating experience.

It was, for me, fortuitous because I did not have the entrepreneurial experience but was able to bring the other side of the equation to bear. I was introduced to Argentum Group, Morgan Stanley, JP Morgan Chase Capital Partners, and First Analysis. The four had co-invested in a series of investments. So began my entrepreneurial journey stepping into a couple of portfolio companies that needed turning around.

Sramana Mitra: How long did you do turnaround work?

Jason Hogg: I did turnaround work until I founded my own company in mid-2005. The first company was a distance learning software company that did synchronous and asynchronous software. I remember the first day when I went in. I was meeting different folks and it was almost like I had no street credentials at that time despite the fact that I had done a whole bunch of things at MBNA in my career. I was getting questions from junior staff saying, “How are you doing to help turn this thing around?” It was very interesting.

I had to roll my sleeves up, learn how to bootstrap, and get in there and get my hands dirty. We were successful at getting that company stabilized and then, ultimately, it was sold to Blackboard. Then I went to another company called MedSite which had its S1 pulled back. We got that company turned around and turned it into a pharmaceutical marketing company that was rated by Forester as the number one analytics company. That got sold to WebMD.

During that process, we raised a round at each of those companies that enabled us to restructure and grow the business. I learned how to operate in a very lean environment. I learned how to work with the Board of Directors, venture capitalists, and private equity shops. I got a tremendous amount of exposure so that when I was ready to go out and start my own company, I knew how to execute on it.

Sramana Mitra: What was the big idea?

Jason Hogg: I was actually sitting and listening to a lecture describing how the Internet was a multi-packet switching network. I had immediately made a connection with the fact that my dad, when he was CEO at MasterCard, deployed the first private multi-packet switching network which is the basis  and foundation of MasterCard network as you know it today. I said to myself, “If the Internet is effectively a public MasterCard network, could I use it to securely transact in lieu of a proprietary network? If I do that, how much money would that save? If it saves a lot of money, why is that important?”

That’s how I came up with the concept of Revolution Money which was to start a whole credit card network and not have to use the traditional rails of Visa, MasterCard, Amex, and Discover in order to transport a transaction. In doing so, we reduced the interchange from 2% to 0.5%. The company grew. In under two years, we went from a start to 1.2 million PIN-enabled merchants and 3.2 million non-PIN. We became the fifth largest card network in the US.

Sramana Mitra: Let’s go back to the beginning of the big idea, and tell me how you got if off the ground. Was it something that you self-funded? How did you get the product out? Who was on the team? Give me more of the beginning of the story.

Jason Hogg: The team consisted of me and my Labrador retriever for starters. We began writing effectively an information memorandum. I wanted to write it all out. I called up and spoke to my college roommate. A couple of months earlier, he had been talking about a gentleman he worked for named Dennis Matheson who had acquired a bank and was looking for opportunities to leverage the bank and create new revenue streams.

I figured out when Dennis was going to be in town. I flew up to Minnesota and crashed on Jorgen’s couch. I was conveniently in Minneapolis when Dennis was there. I got to sit down and talk with him. He and I spent an hour together. I laid out the entire concept that I was shooting for. He said, “I really want to continue this discussion. I have another meeting. Can you wait two or three hours and I will come back?” I said, “Sure.” I called my wife and told her I wasn’t going to make the flight home. When Dennis came back, he brought in the bulk of his executive management team and we went through it for two to three more hours. They were very excited. He asked me what I thought I would need in order to build a proof of concept.

This segment is part 2 in the series : Innovating in Fintech: Jason Hogg, CEO of Lending.com
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