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Upstart Is Crowdfunding for Dreamers

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Upstart Is Crowdfunding for Dreamers
By Sarah Mitroff | 08.08.12 9:00 AM

Photo: Will Folsom/Flickr

Somewhere between Kickstarter, micro-loan non-profit Kiva, traditional bank loans, and venture capital sits Upstart, a lending service for college graduates started by ex-Googler Dave Girouard. Think of it as the money you might get from an indulgent relative, but you have to pay it back. The service, which was unveiled today, rolls out this fall at Arizona State University, Dartmouth College, Rhode Island School of Design, University of Michigan, and University of Washington. Girouard, who served as president of enterprise at Google and developed Google Docs and Google Apps before leaving the search engine company earlier this year, had the idea for the financial startup after listening to the complaints of college grads facing the possibility of soul-crushing jobs to service wallet-crushing college

debt. “I’d see that someone would have an idea for a startup or a research project that they were really excited about, but they were going to accept a job with a large company instead,” Girouard says. Upstart was his answer keep the dream alive. In order to keep Upstart alive, it raised its own investments from Kleiner Perkins, Crunchfund, NEA Ventures, and Mark Cuban, to name a few, though the company won’t reveal how much. The premise of Upstart is simple: Help people get the money they need to pursue their dream. It could be anything from launching a software startup to becoming a sculptor. In return for a loan that might range from $1,000 to $100,000 or more, recipients commit up to 7% of their future income to pay back investors over as many as 15 years. For backers, it’s a chance to invest in the next generation of entrepreneurs, get the warm, fuzzy feeling of helping someone’s dream come true – and this being a loan, not a gift – up to 15% return on their money in the form of interest. Here’s how it works. Ambitious college grads with a stable credit history and a clean criminal background create a campaign on Upstart with details on why they need or want money. While there is no “good” or “bad” reason for asking for money, the Upstart team envisions people who want to start a business or pay down student loan debt to pursue low-paying careers like acting or take on an internship at a museum. Graduates set a funding goal by deciding how much of their future income they are willing to pay back. “We have built a model that is predictive of future income of people from different schools with different majors and GPAs,” says Girouard, “We then tell students that for every one percent of their income over ten years they’re willing to commit back to the network, they can raise X dollars.” For example, Upstart could tell one borrower they can raise $7500 for every 1% of income they are willing to repay. If they wanted to raise $30,000, they would have to commit 4% of their annual income for 10 years to pay that money back. Upstart expects that most people will be allowed to raise between $6,000 and $8,000 for every 1% of future income.

The cash-strapped grad doesn’t get the money until the campaign reaches its goal. Once they get the money, repayment begins the January following the end of the campaign. To help ease the burden, if a borrower makes less than $30,000 in any given year, they don’t have to repay their investors. For each year they put off payment, Upstart adds a year to their repayment cycle, up to 15 years total. Backers must invest in $1,000 increments. There’s no guaranteed return on investment (this is risk capital after all), but investors can earn up to 14.99% in interest on top of the principal they invest. “There’s no 100% iron-clad commitment that the principle will be repaid,” Girouard says. Still, Girouard is banking on the idea that investing in people, rather than companies or products, is the safest bet. It’s a message venture firms have been pushing for decades. But in Upstart’s case, as with that rich uncle or aunt that writes you a check without questions, it might just be true.

Summary Somewhere between Kickstarter, micro-loan non-profit Kiva, traditional bank loans, and venture capital sits Upstart, a lending service for college graduates started by ex-Googler Dave Girouard. Think of it as the money you might get from an indulgent relative, but you have to pay it back. The service, which was unveiled today, rolls out this fall at Arizona State University, Dartmouth College, Rhode Island School of Design, University of Michigan, and University of Washington.

Description
The premise of Upstart is simple: Help people get the money they need to pursue their dream. It could be anything from launching a software startup to becoming a sculptor. In return for a loan that might range from $1,000 to $100,000 or more, recipients commit up to 7% of their future income to pay back investors over as many as 15 years.

Tags: Crowdfunding, Crowdsourcing, Dave Girouard, Upstart

Posted by Marco Torquati

Aug 08, 2012 11:48 pm GMT Viewed 589 times

Author: Sarah Mitroff Source

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