Outlining a business idea I have. Potentially totally crazy, but would love any feedback.
Problem:
I currently work for a startup (about 100 people) and in our quarterly meetings, 401k matching is consistently the #1 ask from employees. I started digging into this more and realized, very few early stage startups offer 401k matching. But larger companies, almost certainly offer matching and other benefits. So, unless you are an early employee (first 5 or 10) the equity at a startup for loss of benefits often does not make sense.
Solution:
The idea is to create an almost inverse insurance system for early stage startups. For early stage startups, what if there were a system to group startups together and offer a loan to cover 401k matching. Of course, most startups would fail and be unable to repay this loan, but the few that are tremendously successful would repay the loan at some later (IPO?).
Challenges + Benefits Identified:
The immediate issue here is the interest rate to cover the vast majority of failures would have to be super high (as in 50-60%). I am aware this is absurd, but before dismissing the idea completely, hear me out.
Problem:
I currently work for a startup (about 100 people) and in our quarterly meetings, 401k matching is consistently the #1 ask from employees. I started digging into this more and realized, very few early stage startups offer 401k matching. But larger companies, almost certainly offer matching and other benefits. So, unless you are an early employee (first 5 or 10) the equity at a startup for loss of benefits often does not make sense.
Solution:
The idea is to create an almost inverse insurance system for early stage startups. For early stage startups, what if there were a system to group startups together and offer a loan to cover 401k matching. Of course, most startups would fail and be unable to repay this loan, but the few that are tremendously successful would repay the loan at some later (IPO?).
Challenges + Benefits Identified:
The immediate issue here is the interest rate to cover the vast majority of failures would have to be super high (as in 50-60%). I am aware this is absurd, but before dismissing the idea completely, hear me out.
- First, in the event of failure of the company, that company does not repay the loan.
- Second, the overall sum paid by a successful company (defined as IPO) is quite low. For example, I estimate a company offering 5% 401k matching through the first 3 years to the first 100 employees would repay at $900k - $1m (on $175k principal). Clearly, this is absurd in a normal loan context, but in the longterm, this is a small amount for access to better talent early in a companies life cycle, which leads to the final point. Also, if everything fails, there is no repayment.
- Third, providing retirement security (albeit not the whole picture when it comes to benefits) will provide security to talent considering joining a startup vs. a more mature company. In theory, this would improve a startup’s prospects for success as they can secure higher talent.