Case Study: In The Highly Regulated Homeowner Industry, Chloe Crafts A Best-In-Class Consumer Experience

Chloe helps Americans quickly access a HELOC via a credit card backed by their home equity.

Sep 27, 2022

Introduction:

Eyal Cohen is the co-founder & CEO of Chloe. After his father passed away from Stage 4 Lung Cancer when he was 20 years old, he dropped out of college and eventually got into sales, where he quickly outperformed 180 seasoned sales reps and had a taste for success. After that role, he co-founded a MarTech SaaS solution for Real Estate professionals called Zentap and bootstrapped it to $5M ARR. This accolade led to him getting placed on the Forbes 30U30 list.

Executive Summary:

Problem: Dealing With The Compliance And Regulations Of Two Different Industries

The biggest set of problems we’ve had to face was compliance and regulatory policies, given that we are bridging the mortgage & consumer credit worlds in a way that hasn’t been seen before aside from our one competitor.
Market: Homeowners Who Want To Tap Their HELOC Faster

We further learned through industry research that over 1/3rd of households take on extra debt to cover basic bills and that most households were unaware that HELOCs existed or that their home equity could be tapped into.
Solution: Building A Great Membership Experience For An Asset-Backed Card

Our thesis is that the hardest part of scaling will be ensuring the member experience is strong, with sufficient call center support, as we add membership.
Team: Build Transparency Through Crafting A Company Manifesto

We decided to spend time working on our company manifesto – a document that outlined our mission, vision, and values. This then allowed us to outline OKRs and KPIs for our company more easily but also individually as well which we made transparent on Notion. This was key and allowed us to truly understand what each person owned and how we each contributed to our company goals.
Takeaway: Simplify Things For And Educate Your Consumer

Key lessons include 1) focusing on the consumer experience first and simplifying it as much as possible and 2) educating our members to further clarify why the product is applicable and how it could benefit them.

Case Study: Chloe

Problem: Dealing With The Compliance And Regulations Of Two Different Industries

Tell me about a problem or set of problems that you’ve had to solve on your journey to product-market fit.

The biggest set of problems we’ve had to face was compliance and regulatory policies, given that we are bridging the mortgage & consumer credit worlds in a way that hasn’t been seen before aside from our one competitor. Without a clear plan of how we’ll tackle these challenges, we wouldn’t be able to form relationships with all the partners needed to execute, such as bank partners and card networks, which are critical even to start the product build. Given the importance that compliance plays in our execution roadmap, we decided to create a wishlist dream team of compliance professionals and, through a mix of cold outreach & warm intros, were connected with several experts who were able to give us critical insights into how we address these problems.

One of these experts included a serial compliance executive for major Fintechs with deep expertise in the HELOC product. We sold her on us and our vision to make home equity frictionless to access and provide homeowners with the educational tools & resources they need to use HELOCs to build wealth. We brought on this key advisor, and through her advisory, we were able to meet further and sell other key compliance executives that also believed in Chloe’s vision. These compliance executives accelerated our ability to move quickly, outline our compliance management system and build the relationships we need to deploy VC capital effectively post-raise.

Why were these problems so critical to solve? What was it like personally struggling to overcome these challenges to achieving PMF?

HELOCs are already extremely attractive financial solutions for consumers, given they provide access to one of the lowest-cost forms of credit available to borrowers. Because HELOCs are second mortgages, there are established compliance & regulatory hurdles that add friction to implementing new technology solutions and products. Given these regulatory hurdles, adding a credit card product adds even further complexity as it also comes with regulatory barriers and compliance requirements. Solving this first was key in building relationships with bank partners, distribution partners, technology partners, loan servicers, and VCs. These parties love to see a team that double down on compliance early on, given that for most consumer lending Fintechs, compliance is one of the largest blockers to building the product and getting to market quickly.

Market: Homeowners Who Want To Tap Their HELOC Faster

Let’s get deeper into the pain point or points you were trying to solve. Imagine I’m a customer thinking about using your product or service. How do you go about understanding my pain and creating a solution to address it?

All of my co-founders have had personal pain points with the HELOC experience, either directly or via close family members. As we began to dig into the HELOC industry more and research the processes and consumer experience, we realized that there were numerous pain points for consumers, and there had been little-to-no innovation in the space for decades. We first began to examine the experience or customer journey of a prospective borrower, but we did so using a lens of a fintech-builder, given fintech has been so successful in disrupting other financial products and consumer experiences. Once examining the member pain points from this perspective, it became obvious to us that the HELOC process needed significant improvements, especially given the size and scope of the market. Thus, we all knew at a high level that the HELOC process came with significant challenges.

We first learned that the average time from application to funding took 45 days. We saw this firsthand, and this was backed up by mounds of industry research that demonstrated the consistent timeline for other prospective borrowers. Further, as part of this process, we learned that banks demanded multiple sources of information from the consumer, required manual appraisals, and generally added friction at every step of the process. We knew this was the first aspect of the HELOC process that needed to be fixed (speeding up and simplifying the application and approval process) to get members more comfortable taking out our HELOC. We started from this framework and built the rest of our solution.

Assuming you’ve managed to address the pain points I face as a customer, what additional information did you discover in your journey to PMF that there’s a large market in need of a solution to the existing problem?

We further learned through industry research that over 1/3rd of households take on extra debt to cover basic bills and that most households were unaware that HELOCs existed or that their home equity could be tapped into. This led to our thesis that, despite the ten trillion+ dollar market already in the mortgage industry, there was an opportunity to expand the HELOC market through education and a simpler user experience. We decided then that a key piece of our offering would be creating an app with educational tools that worked to improve members’ financial literacy and well-being through their homes.

And from that educational application (similar to a Mint or Credit Karma experience), members could better understand how using Chloe’s product could save them money and improve their household balance sheets. From there, we knew the last key piece would be making the transaction experience better for members by adding a credit card solution that made it easy for homeowners to use their HELOC funds for everyday purchases, reducing the last friction point in the customer journey.

How did you narrow your scope of what portion of the market you wanted to tackle first? Who did you decide would be your first beachhead customers and why?

Chloe initially aims to serve the 33% (40m+) of homeowners that are actively incurring extra expensive credit card debt to pay their basic bills. We saw that these members are most in need of improving their financial well-being and could benefit most from our HELOC offering. From there, we can further expand to other homeowners. But without first tackling the portion of the population most in need of a solution, our impact wouldn’t be as significant, and Chloe would be less sticky for our users.

Solution: Building A Great Membership Experience For An Asset-Backed Card

How did you build your solution to maximize its relevance with the customer and ensure product-market fit? If you haven't found PMF yet, what have you learned? What are the blockers for getting to PMF?

We broadly recognized a product-market fit within the HELOC space, given the number of new loan originations per year in the industry (1mm). The biggest question we faced was whether customers would be receptive to a card-based solution such as the one being offered by Chloe. We learned from our main competitor and other Fintechs that offer asset-backed credit cards that demand is high from potential borrowers. The reason is that asset-backed cards (such as being backed by home equity) enable far cheaper interest rates for borrowers than unsecured credit forms such as credit cards. As a result, APRs on HELOCs are in the mid-single-digit range compared to high-teens or greater for unsecured credit cards. Seeing the demand for other asset-backed cards in the marketplace helped validate PMF for us.

What are some of the things you did that “didn’t scale” to shape your solution today?

Our thesis is that the hardest part of scaling will be ensuring the member experience is strong, with sufficient call center support, as we add membership. We are still building our product, so we will better understand what doesn’t scale well as we get to market. Another aspect that we believe will be challenging to scale is the lien and title filing process with the various counties in which the homes are located. Some counties allow for simple, electronic filing, while others have more manual processes.

What did you learn to best engage with your customers? How did you build a tight feedback loop with your customers to rapidly improve your solution to their problems?

We are still building our product, but thus far, we have used questionnaires on our waitlist to get insights from those interested in our solution. It also helps that my previous business, which provided automated marketing tools for thousands of real estate professionals, helped us gain insights into the significant amount of financial illiteracy in homeownership.

Walk me through how you landed your first few customers as you were building your product or service.

Thus far, we have used our waitlist to generate our initial interest; we ran ads on social media, wrote educational blog content, and received excellent feedback thus far.

We are starting with our educational app to first educate members on how they can utilize Chloe’s HELOC card offering. Our freemium application, combined with our direct-to-consumer and B2B2C approach (through real estate agents), will drive our execution within our various go-to-market strategies and value-add product creation for members.

Team: Build Transparency Through Crafting A Company Manifesto

If you have a cofounder, walk me through a time when you two had a conflict. What was it about? How did you handle the situation? What was the resolution, and how did it impact your working relationship with your cofounder?

Earlier on, we had a minor conflict regarding who owns what. Given that early stage, it’s common to wear multiple hats. The concern was that we weren’t working effectively and that if we didn’t outline our objectives sooner than later, it could lead to a much larger conflict. We decided to spend time working on our company manifesto – a document that outlined our mission, vision, and values. This then allowed us to outline OKRs and KPIs for our company more easily but also individually as well which we made transparent on Notion. This was key and allowed us to truly understand what each person was owning and how we each contributed to our company goals.

What key qualities did you look for in key early hires to increase your chances of discovering product-market fit, and how did you prioritize what types of hires you needed to make first?

While we are still early and haven’t made any hires yet, the same type of thinking applies to how we brought on our initial set of advisors. We first and foremost share our mission, vision, and values with them and talk about why we will win this market. This is enough for them to create their sentiment on the business, its mission, and us. We then gauge our sentiment and use our gut to determine if we feel this person is passionate about solving this problem – this is key. Passion is what enables us to push through adversity, and there’s no such thing as an easy journey when building a startup.

Through an intense amount of research, we understood that compliance is the biggest hurdle we have to overcome, and so given the lack of compliance experience my co-founders have, we focused on finding someone with deep expertise in this world. From there, our compliance advisory helped us conclude the talent we need to seek next. We look for the people who, when times get rough, choose to double down their efforts instead of looking for shelter.

If there was a potential employee of your startup reading this Case Study right now, how would you convince them that joining your team is the next best step in their career?

I’d tell them the truth in that if they join, they are signing themselves up for a journey of many difficult challenges. We acknowledge this won’t be easy, so we look for intense passion first when seeking new talent. If you can find pleasure in solving this huge problem with us, nothing will take you down, and together we will build something that creates a massive impact. We aim to create better financial outcomes for the millions of cash-constrained homeowners by helping them unlock the power of their home equity. This gets me up in the morning, and I’ve never been more excited. My co-founders and I share the same passion, and we have fun solving this puzzle together.

Takeaway: Simplify Things For And Educate Your Consumer

What are the key lessons have you learned so far from your journey to achieve product-market fit?

Key lessons include 1) focusing on the consumer experience first and simplifying it as much as possible; 2) educating our members to further clarify why the product is applicable and how it could benefit them; 3) enabling a better method for transacting (our credit card solution) that looks/feels like what the customer is already used to.

What’s the hardest problem you’re facing now after solving the prior one(s)?

Ensuring that all pieces of our business (card network and processing, technology, customer acquisition, compliance, capital markets, servicing) are ready to scale simultaneously.

Three Cool Founders You Should Know About:

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Cristina De La Pena, Founder of Synapbox: Synapbox helps brands and creators access automated consumer feedback to improve content creation and predict performance.
Evan Zimmerman, Founder of Drift Biotechnologies: Drift Biotechnologies makes bioinformatics software for infectious disease sequencing.

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