How a mother-daughter duo turned their experience with the criminal justice system into a company that helps former inmates land jobs and loansMay 9, 2021
- Teresa Hodge and her daughter Laurin Leonard are the cofounders of background-check platform R3 Score.
- Their company aims to better contextualize people living with an arrest or conviction records.
- In September 2020, R3 Score went through a reverse merger with Global Boatworks Holdings, Inc.
- See more stories on Insider’s business page.
A background check and credit scores are required for most of the things we want and need in life — a job, a house, a car, a loan.
However, a background check can present a barrier for over 70 million Americans who have a criminal record and are looking for a fresh start.
The uncertainty people who’ve been in prison face when trying to start their second chance on the right foot loomed over Teresa Hodge and her daughter Laurin Leonard. Aiming to solve the problem, the mother-daughter team developed R3 Score, a model for overhauling how businesses and financial institutions evaluate applicants.
“We produce two products, a basic score and an advanced score, both of which better contextualize people living with the arrest or conviction records,” Leonard, 36, told Insider.
A standard background check uses government-affiliated databases to look for criminal justice-related data attached to a person’s identifying information. One of the things that makes R3 Score different is that its two-step process includes a 15-minute interview that allows the organization to get additional data directly from the person being assessed. “From customer interviews, we have learned that the bias decision-makers have against people with records and consumers with thin credit files is that they are inherently riskier because they are less stable,” Leonard said.
Most people, she added, are measured against a very static profile when it comes to how we each perform in life, and this profile is often male, white, college-educated, and a white-collar professional. “This means people who don’t fit that profile are not even properly assessed for riskiness because not fitting that profile doesn’t make you risky; it just makes you different,” she said. R3 Score is able to generate diverse demographic profiles and measure the indicators of how people are moving toward stability for that profile type.
R3 Score’s clientele base consists of human-resources departments assessing job seekers’ backgrounds and community development financial institutions assessing entrepreneurs with records. “What we know and what the research has shown is that by having a criminal record, typically a person can expect a 40 to 69 point drop in their credit score,” Leonard said.
“We are looking for holistic factors that can paint a better picture of who a person was, who they are today, and help to look at the dynamic choices they’re making,” she added.
Leonard and Hodge were inspired by their personal experience with the justice system to start R3 Score. They shared with Insider how they got the company off the ground.
Imprisonment becomes a foundation for business success
From 2006 to 2011, Hodge served a 70-month prison sentence for mail fraud, along with three years of probation.
During that time, she realized how challenging it was for the women she was in prison with to return to society.
“I sat in prison knowing that if I could just survive being in prison, that I had taken enough good skill sets, and if I could personally live past my own shame of going to prison, that I could come back and get back on my feet,” Hodge said.
She added that she was lucky to have Leonard as a support system. “Most people who go to prison don’t have the luxury of having family support them the whole time for a variety of reasons,” she said. “What could have been a permanently debilitating time in our lives and something that could have served as a wedge to drive us apart, we were able to somehow turn that into an opportunity to grow closer.”
Leonard was in college when her mother was on trial and had to reallocate her college savings to cover the legal fees. This left her with student-loan debt and no nest egg to transition into life after school. So she took the first job available to her, as an income development manager at the American Cancer Society in Virginia Beach, Virginia, where she volunteered in her undergraduate years, spent money on gas and hotels to visit Hodge, and put money on her mom’s books.
“It became a very weird dynamic in both of our lives where I went from taking care of her to she went to taking care of me,” Hodge said. “But that speaks to the economic burden of incarceration.”
When Hodge got out of prison, the duo started a nonprofit called Mission: Launch with the goal of helping individuals who turned to entrepreneurship out of necessity. Through this, they discovered the opportunities starting a business offered formerly incarcerated individuals.
In 2015, the women aspired to create a business accelerator to teach and develop entrepreneurship for former inmates.
“We did not know at the time how much you really needed to be either independently wealthy or connected to capital resources,” Hodge said about starting a business. The challenge was going to be access to capital. “And that actually set us on the journey of really trying to figure out how to unlock capital,” she said. “So we kind of continued down this pathway, and it was this pathway, ultimately, that led us to R3 Score.”
Raising money and launching in a pandemic
Hodge stepped away from Mission: Launch to work on getting funding to start R3 Score while Leonard kept running the nonprofit. The women went through tech cohorts like Techstars to raise capital and meet potential clients. They relocated to Austin, Texas, in 2019.
“That gave us an opportunity to get some brand-name institutional investors, and also some high-level individual investors,” Hodge said. In July 2020, Techstars reported the cofounders had raised a $500,000 pre-seed round and a $260,000 commitment toward a $500,000 extension round. Once the cohort ended, Hodge and Leonard were prepared to set some pilots in motion when the pandemic hit.
“We ended up losing roughly about $3 million worth of anticipated pilots in contracts,” Hodge said. “We had gotten off the startup track only to find ourselves not only back as a startup, but in really a very desperate mode of, are we going to make it?”
But the women believed in their product and what it could do, so they regrouped and kept conversations and relationships going to get clients to use their services. They refocused their pilot strategy to target businesses that have brand recognition and serve as industry leaders to help generate more leads and interest. “As an innovative company, we need to be validated and derisked, and having brand-name companies use our product does that,” Leonard said. The two declined to reveal the companies they partner with.
In September 2020, R3 Score went through a reverse merger with Global Boatworks Holdings, Inc. “We are in a place where we can now access capital differently than had we stayed as a private company,” Leonard said.
During this process, the women traded their positions, with Hodge stepping down to become president of their nonprofit so that her criminal record would not interfere with the transition and Leonard becoming CEO of R3 Score.
Although their focus has been to help former inmates, Leonard and Hodge have seen how their product can assist millennials who are known to have lower credit scores due to spending behaviors.
“I am fortunate. It’s kind of going full circle that I started this business, and all of the work that we’re doing with Laurin,” Hodge said.
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