Using the crowdfunding model and ‘future potential’ as collateral, Upstart is helping recent grads pursue their entrepreneurial dreams
A Q&A with Upstart co-founder and CEO Dave Girouard. The Palo Alto–based company raised $5.9 million in Series A funding in late April. Investors include First Round Capital, Founders Fund, Khosla Ventures, Google executive chairman Eric Schmidt, IronPort co-founder Scott Bannister and Salesforce CEO Marc Benioff. Upstart closed a $1.75 million Seed funding round in August of last year.
SUB: Please describe Upstart and your value proposition.
Girouard: Upstart is ‘Kickstarter for people’—it’s a crowdfunding platform that lets recent college graduates raise capital in exchange for a small share of their personal income over ten years. Backers provide ‘upstarts’ with a modest amount of capital, combined with support and guidance they may need. In return, upstarts share a small portion of their income with their backers. Repayment is based on the upstart’s future success, rather than a fixed-rate loan, so we’ve created a strong alignment of interests between both parties. And because repayment is defined as a fixed fraction of income, it’s always affordable.
SUB: Who are your target markets and users?
Girouard: Candidates for raising funds through Upstart must be 2008 through 2014 graduates of college or graduate school. And once funded, an upstart can use the money raised to pay student loans, build a business, focus on a craft, or gain relevant work experience to make a difference in their career.
We see Upstart as a means of allocating risk capital based on the future potential of an individual, rather than what assets they have or what income they’re earning today, so our long-term target market is the world.
SUB: Who do you consider to be your competition?
Girouard: We’re pioneering the concept of investing in a person, so we don’t have direct competitors as of yet. In some sense, we compete with other sources of capital—credit cards or student loans—but realistically we’re competing most with the large companies that are trying to hire these upstarts and shackle them to boring jobs.
SUB: What differentiates Upstart from the competition?
Girouard: We’re first in the market, so it’s probably a better question for somebody else!
SUB: What was the inspiration behind the idea for Upstart? Was there an ‘aha’ moment, or was the idea more gradual in developing?
Girouard: Upstart was founded a year ago, but the idea for Upstart was seeded about a year-and-a-half ago and was the result of three observations.
The first was that millennials are different—the majority of them don’t want a traditional career path. They’re not terribly excited about the idea of signing on with a big company and working for years to move their way up the ladder. A Kaufmann foundation study I read found that 54 percent of millennials want to start their own businesses. Yet the system works against them. Student debt and other financial obligations—coupled with lack of access to capital—drive young people to forgo their preferred career path and to accept boring jobs that will allow them to meet their financial obligations. This isn’t good for them. Nor is it good for our economy.
The second observation was that large companies are creating approximately zero net new jobs. So as Americans, we really need young, bright people to take some risk and pursue their ideas. It’s how our country was built. Almost all job growth in the U.S. is coming from newer and typically smaller businesses—we need more of that.
The third observation resulted from my years at Google. We were hiring hundreds of people every year in this age group, and given it was Google, took a very analytic and data-driven approach to deciding who would be successful at Google. We continued to refine the criteria as we learned. And it worked. So my thought was, if we could use data to assess somebody’s likely success at Google, we could use similar data to assess their likely success in the broader economy. And by identifying and measuring somebody’s potential, you allow them to monetize it. Upstart became the notion that you could in effect, borrow from your future earnings, with your earning potential serving as collateral.
To address this need for a new approach to both funding as well as mentorship, I—along with co-founders Paul Gu and Anna Mongayat—were joined by several ex-Googlers to found Upstart.
SUB: How did you come up with the name? What is the story behind it?
Girouard: An ‘upstart’ is a personality type that resonated with me—somebody who can’t be convinced to take the safe and predictable path, who has a constant itch and drive to do something different and important with their lives. There’s an element of disrespect for the conventional that is part of our brand. And it’s also a twist on startup—because my idea was that each of us should think of ourselves as a one-person startup, for our entire lives. I was fortunate enough to purchase the domain from a long-defunct public relations firm that was sitting on it.
SUB: You recently secured $5.9 million in Series A funding. Why was this a particularly good time to raise more funding?
Girouard: Unless you’re an enterprise-focused startup, the funding market is not as strong as it was a year ago, so frankly it wasn’t a good time in that sense. But we were fortunate to have a big idea, a well-formed team, and product in the market that’s achieving pretty quick traction. It helps to have a concept that is bold and differentiated—nobody wants to fund the 100th social local burrito finder.
SUB: What have the most significant obstacles been so far to building the company?
Girouard: Our biggest challenge so far has been bringing sufficient capital to the platform to meet the huge demand that we’re seeing. We have to work very hard to get to a point where we have a sufficient track record that will speak for itself. We’ve already seen the first repayments from the first upstarts, and so far so good. There’s many proof points about our model—including seeing upstarts do awesome things with their careers that they couldn’t have done elsewhere. We’re beginning to see this even in the very early stages. But real scale will certainly require that we show returns over a period of years.
SUB: How does the company generate revenue or plan to generate revenue?
Girouard: Upstart makes money by taking a three percent cut of the money raised by students and charges backers a 0.5 percent annual management fee on funds invested.
SUB: What are your goals for Upstart over the next year or so?
Girouard: We’ll continue to enhance the platform with the goal in mind of giving promising grads the opportunity to pursue careers and ideas they might otherwise feel are impossible for them. Our economy needs more young entrepreneurs creating jobs. And we’d love to see Upstart assist in the creation of a million new businesses over the next decade.
Upstart – www.upstart.com