Two years ago, Upstart, a two-year-old, Palo Alto-based company debuted a newfangled funding platform that pairs accredited investors with students or recent graduates who are looking to finance their ideas. The idea, essentially: investors lend their own capital against the future earnings of the borrower, capital that is expected to repaid with interest within 10 years.
Though the peer-to-peer lending aspect isn’t novel, the way that Upstart assesses risk, which is tied directly to a borrower’s academic credentials, seemed to be.
Now, says Upstart, it’s using similar analysis to roll out a new and surprisingly old-fashioned product: three-year, $25,000 loans which will be assigned to people based not on their future earnings potential but their basic employability.
It’s a natural fit for the company. Not only is Upstart planning to target people without much work or credit history (a demographic it knows well), but it will be again be assessing those individuals’ risk profiles based on where they went to school and what they studied while there.
A Harvard graduate who majored in business, for example, might be assigned an annual percentage rate, or APR, of 6.5 percent, while someone who studied education at Bowling Green State University might be assigned an APR as high as 20 percent. (Those are lowest and highest ends of the loans’ range, respectively.)
The move isn’t a pivot, says CEO Dave Girouard, who says the business of funding future earnings is strong, with 30 percent more “Upstarts” on and backers on the company’s lending platform as last year.
Still, Girouard sounds even more enthusiastic in describing the market opportunity for traditional loans. By his account, most banks won’t touch anyone without a credit or employment background and neither will alternatives like LendingClub and Prosper, which creates an opening for Upstart.
Its window is limited. Girouard notes that once people drift into their 30s and 40s and gain employment histories that can be assessed by a broader spectrum of lenders, Upstart loses its advantages as an underwriter.
But that still leaves 20 million potential borrowers in the U.S. alone, and “there are a lot of places we could take this over time in terms of underwriting,” he adds.
Upstart has raised $7.6 million from Kleiner Perkins Caufield & Byers, NEA, First Round Capital, and Google Ventures, among others. It hasn’t raised any capital in the last year, though. Girouard says he expects to raise another round in the “second half of this year.”