“All of us have idle money that’s just sitting in a bank, not earning anything,” says Neel, a finance expert, who prior to Donut spent more than a decade managing more than $150 billion in assets at leading investment funds. “It shouldn’t have to be that way. A new world has come with DeFi. Our job is to connect the average consumer to this new world and really bring them the access to take their finances to the next step.”
For its app, Donut uses DeFi—or decentralized finance—an emerging blockchain technology. By employing smart contracts on blockchains, Donut offers consumers opportunities to earn, lend, and borrow money at an interest rate that reflects the supply and demand of money among Donut’s pool of users rather than rates set by traditional financial intermediaries, such as banks or brokerages, that are designed to benefit their bottom line.
“Imagine that a process can be written into an agreement via software, and that process of lending and borrowing can be done in an automated fashion,” Neel explains. “You put your money in the pool, and people are borrowing from the pool and depending on the demand and the supply, that drives the interest rates.”
With DeFi, Donut’s more than 5,000 users are earning a fixed (4%) and variable (2-10%) annual percentage yield (APY), much like a high-yield savings account. Although Donut savings accounts are not backed by the FDIC, Donut’s business is regulated, and Donut protects funds through over-collateralization, requiring borrowers to have $1.50 in collateral for every $1 they borrow.
Founded in Berlin in 2018 and relaunched in Los Angeles in 2020, Donut has raised nearly $3M from angel and VC investors.
Neel’s advice to other international entrepreneurs is to come to the United States to create or grow your company and leverage any support from the government or organizations in your home country to do so. For instance, the UK appointed its first-ever tech envoy in 2020 in San Francisco to work with entrepreneurs from the UK. And the German Federal Ministry for Economic Affairs and Energy funds German Accelerator, which supports high-potential German startups in expanding into the world’s leading innovation hubs.
“Don’t be phased by setting up and starting your business in the U.S. or navigating the immigration process,” says Neel. “If you have an innovation and you want to take it global, you need to be in the U.S. market or start in the U.S. market. The U.S. is 12 to 24 months ahead of any other market in terms of development, and the investor community in the U.S. is willing to take a forward-thinking view. If you really want to do something groundbreaking, the U.S. is the place to do it.”