Wednesday, May 7, 2014

Upstart had an intriguing business model permitting investment in the future income streams of people who were going places.  I kept meaning to put a few dollars at risk as an experiment and I also kept meaning to incorporate some discussion of Upstart in one of my classes.  Or maybe even to write an article.  None of those things happened.

The very early "assets" (people -- yes, it is weird) were true gems.  Ms. So-and-so might have graduated summa from Princeton, spent three years creating pure drinking water systems in Africa, and entered b-school with a plan already drafted for optimizing water distribution to California agriculture.  Mr. Such-and-such might have left the military after a successful career as a non-commissioned officer and have a business plan for repurposing surplus military equipment to improve the lives of indigenous peoples in the Amazon.  Or whatever.  The point is that they would be classic low-cap investments with real upside potential, socially conscious investment value, and a need for equity investment to make it work.

Over the past couple of years the Upstart assets became pretty dull.  Joe would be a 19-year-old switching to a Computer Science major at the University of Verygoodstatecollege and want to avoid student loans.  Sally would be a 22-year-old entering law school with a credible chance of a top-10% graduation GPA.  No high-flier equity bets here, but a good chance of a steady income stream.  Thus, a safe but not exciting investment.

Any surprise, then, that I received this note today from Upstart?  Could there be a clearer picture of when equity investment is appropriate and when debt investment is appropriate?

We’re excited to let you know about the availability of fixed rate loans on the Upstart platform. We launched this product on April 23rd, and we already have a number of loans you can invest in on the site.
The online lending market is growing very rapidly (per this article from Sunday’s NY Times), and we see a significant opportunity to leverage education-related variables to identify and lend to high quality borrowers with minimal credit history and work experience. Early response to our fixed-rate loan product is very encouraging.
After significant soul searching, we concluded that it’s best to focus our efforts on the fixed-rate loan product. As of today, we have decided to discontinue offering income share agreements on the Upstart platform.
If you have any questions, please contact us at

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