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When Mark Volchek, 24, was a student at Yale a few years ago, he was struck by how inefficiently the school disbursed its financial aid. “You had to wait in incredibly long lines for the check, then wait in another line to deposit it, and then wait for it to clear,” he recalled. “I don’t know of any schools that don’t distribute their money through paper. It’s a big hassle.” So he and two of his buddies, Miles Lasater, 24, and Sean Glass, 22 — they met through the Yale Entrepreneurial Society, which they started in 1999 — decided to create a business to address this problem. In March 2000, Higher One was born. Today, the company has raised $2 million in two rounds of financing, has 13 employees, and on Aug. 15 will roll out its service with its first client, the University of Houston, which has 50,000 students and 10,000 employees. The state of Connecticut has approved their application for a bank charter, and they’re waiting for federal approval from the FDIC. Not bad, considering that Glass won’t even graduate from Yale until next May. In a nutshell, Higher One, which is based in New Haven, Conn., offers colleges and universities a way to make money management easier for students, parents and the school’s own employees. With this account, for instance, financial aid can be credited directly, paychecks can be direct deposited, and parents can transfer funds instantly from any U.S. bank. From the student’s perspective, it means that financial services become part of the “one card” system already in place at most schools. With a Higher One account, students can use the same piece of plastic to get into their dorm, pay for food at the cafeteria, utilize library services — and cash checks, make purchases, or withdraw money. DUMB CARD “Students need a bank account when they go to college, and this one will be pre-established,” explains Volchek. “They’ll get their student ID in the mail, issued by us. That means no signature, no paperwork, no waiting in lines. And, it’s free — no cost, no paper statements … much better than having to go to the post office to get your mail, to pay money for an account, for paper statements that no one needs, and to have to carry more than one card. “This is the opposite of a ‘smart’ card,” he continues. “It’s a dumb piece of plastic with a number. We’re using traditional mag stripe technology … it has only one number, plus a picture. As soon as it’s reported lost or stolen, it’s shut off.” Aside from being convenient for students and their families, the system will also save schools money, Volchek says. “The University of Houston issues 30,000 paper checks in financial aid disbursements per year,” he says. “That costs them $500,000 — they’ll be saving that right away. And it’s not that they’ll be laying people off; this is people they won’t have to hire, because most places bring in temp staff to get these checks out.” The founders seem to have had a fairly easy time selling the idea, even in the midst of the dot-com implosion and the shriveling venture capital pool. “We really don’t see ourselves as a dot-com; we’re a financial services technology company,” says Volchek. “Certainly our timing was very, very difficult. The summer of 2000 was the worst time ever to try to raise money. But we’ve raised around $2 million so far, primarily from high net-worth individuals.” They’ve also gotten money from Sachem Ventures and Silicon Ivy Ventures. He said they are about halfway through their third round of financing, looking for $1 million to $2 million. CONNECTIONS Their Yale connections helped. “Especially since we are young founders, we didn’t have a network of people from other companies we’ve worked at,” he says. “So we have to build it. We’ve gone to lots of receptions and industry functions. We’ve called on a lot of Yale people; that’s been a very successful strategy for us.” It’s also helped them attract some of the gray hair they knew they’d need to lend clout to their fledgling business. As it turns out, the dark cloud over the dot-com industry actually offered them a silver lining, he said. “There are more tech people available now — but they’re also more scared about going with a startup. But we’ve found that people believe in our customized niche idea. And they’re impressed that we got through these past two years,” he added. In March, the company named Dean Hatton as president and chief executive officer. (Volchek is the chairman; Lasater is COO; and Glass is vice president of marketing.) Hatton has 20 years of experience at a variety of companies, including Carlson Wagonlit Travel, Citigroup, and most recently, Yclip. Higher One’s board of directors has some heavy hitters as well, including David Cromwell (former CEO of JP Morgan Capital) and Greg Baroni, the president of Unisys Global Public Sector. Fred Frank, vice chairman of Lehman Brothers, and John Griswold, vice president for external communications for the Commonfund, are advisers to the company. HIGH EXPECTATIONS Volchek’s aspirations for Higher One are, well, high: “We hope to be a $100 million company within a few years,” he says. “We have close to three dozen other prospects in the pipeline, and expect to have two or three more online in January, maybe 10 by September ’03.” They are not too concerned about competition at the moment, he adds. “There is always the risk of competitors entering the market sometime in the future. But we have significant proprietary technology — it would take some time to replicate what we have. And university systems are hard to sell into. We have the first mover advantage.” He said they are also exploring partnerships with other one-card providers, and are close to agreements with two of them. And, although they are still pursuing their application for a bank charter, they are also exploring relationships with existing banks. “Obviously there’s a huge potential,” he concludes. “There are always regulatory concerns — you just never know what will come up. And of course we have capital-raising concerns. But it’s very exciting to see the growth in a few years. We still have that piece of paper from November 1999 when we started working the idea. When you look back it is sometimes amazing … we say the only way the company could fail is if we give up!”

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