With the cost of college increasing exponentially over the past 40 years, most graduates begin adulthood thousands of dollars in debt. A new investment platform called Upstart wants to give enterprising graduates a chance to pursue their entrepreneurial dreams instead of a “safe” job, and possibly relieve them of student debt.
That’s what Nathan Sharp, who graduated from Dartmouth College’s Tuck School of Business in 2012, chose.
Sharp wanted to start a company, but with school debts to pay, hesitated to pursue a traditional business loan with its unforgiving interest and payback schedule.
Instead, as a member of Upstart’s pilot class this year, Sharp nabbed a personal investment from backers who will share in his good and bad years. This frees him to work on PayOrPass, an app that lets shoppers bid for products and get personalized deals.
Each “Upstart,” as the young entrepreneurs are called, pays back between 2 and 7 percent of their income for 10 years each year they earn more than $30,000. If they earn less annually, they pay nothing until they do. Currently, only high-income investors can fund Upstarts, but the company plans to allow other investors in the future.
The shared risk attracted Sharp to Upstart, which he said is “much more humane” than a traditional loan because it allows for some bad years.
“Historically, the most responsible thing for you to do if you had tons of student debt was to go straight into something that will help you pay off that debt. But that’s only because there was no other option,” he said.
Direct Investments in People
Upstart is unique in that investments are tied to each person, not their ideas, Upstart’s business development lead Jeff Keltner said.
Backers have a personal interest in seeing their upstarts succeed, which fosters mentoring as well as business relationships.
The mentorship has proved Upstart’s most valuable aspect for Omri Mor, who graduated this year from the University of Washington and turned down a “safe” job to start ZIIBRA, a music platform that helps new artists build audiences and bank accounts.
Upstart has helped Mor pay his expenses while he runs ZIIBRA, instead of depleting his savings. But Upstart’s “level of mentorship and support” has been even more valuable, he said.
The Upstart team’s tech experience—CEO Dave Girouard was formerly president of Google Enterprise—and savvy investors draw tech-minded upstarts.
Vincent Lucero, who also graduated from the University of Washington this year, will join the Google Games team while simultaneously working with a business partner on their first mobile game, Soaring Squirrels.
“Upstart is the perfect model for me because it uniquely combines the cash I need to get my startup running, while also providing relationships with seasoned tech professionals,” he said. “That really is the beauty of this model. It aligns interests between the investor and the entrepreneur much better since you both want big successes, even if it takes a little bit longer.”
Likelihood of Success
Some hesitate to endorse Upstart’s model because young entrepreneurs lack real-world business experience.
“Statistically, 40-year-olds are more likely than 20-year-olds to succeed,” Cato Institute adjunct scholar Arnold Kling said. “Professional investors know how to play the corporate governance game to protect their interests. Amateurs have a much harder time.”
Others say because young people are more willing to take risks, Upstart is an exciting alternative to the safe-but-boring job route.
“Given the economic uncertainty and poor labor market for recent college graduates, this demographic is more willing to explore non-traditional options since there are relatively few jobs for them,” said Jonathan Robe, administrative director of the Center for College Affordability and Productivity.
The Upstart model could become more common over the next few years, he said.
“I suspect that these types of investments will continue in the future and perhaps even grow even if the labor market rebounds strongly in the next couple of years,” Robe said.
Upstarts agree it’s not the path for everyone, but are quick to recommend it.
“It’s ideal for people going out of their way to pursue their passions at all costs,” Mor said.
Image by Tatyana Kanzaveli.