|01/31/2023||Upstart to lay off 20% of staff|
|11/01/2022||Upstart lays off 7% of workforce|
|10/13/2022||Upstart hit with another lawsuit|
|08/11/2021||Upstart: $37.3M profit in Q2|
|03/04/2021||Apple Bank partners with Upstart|
Upstart, the embattled online lender that recently announced a 20% reduction in headcount, revealed on Tuesday that it had also suspended its small business lending operations. The sudden about-face is notable given that the company just entered that market in mid-2022.
“With th[at] reduction in staffing, we also decided to pause development of our small business lending product,” said Upstart CEO David Girouard during the quarterly earnings call. “This was a necessary step to ensure we can adequately resource the rest of the roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.”
In the previous quarter, talk of small business lending had sounded more celebratory, which had just crossed $10 million originated since inception at the time.
“In many ways, last year was the perfect storm for our business model,” Girouard said. “The withdrawal of federal stimulus disproportionately harmed our borrowers, akin to a simulated recession for millions of mainstream Americans suddenly lost what had become their primary source of income. The Fed’s interest rate hikes, the fastest in several decades, left both lenders and capital markets cautious and concerned about what might come next in our economy.”
They’re known as a consumer fintech lender but last quarter Upstart also originated $9M in small business loans. It’s a new market it entered into this past June that coincided with revelations that the company is struggling in its core lending divisions due to adverse market conditions that led to a 90% drop in its stock price. Nevertheless, despite just laying off 7% of its workforce, Upstart sees small business lending as a growth opportunity.
“Well now we’re close to $10 million in loans originated and the team is rapidly shipping improvements as we look to refine that product,” said Upstart CEO David Girouard during the quarterly earnings call. “While the financial impact of these upgrades to our products is muted in the current environment, we’re confident that they’ll set us up for a giant leap forward once the economy and credit markets normalize.”
Upstart considers small business lending to be a $644B/year market, according to the quarterly earnings presentation. When questioned if it made sense to be investing in this business versus just trying to manage expenses in the near term, Girouard said “the way we think about that is we would like to, to the extent possible, continue to invest or even increase investment in the future products because that’s obviously what our franchise is built on and what will lead to significant growth in the future.”
Upstart set a record in Q3, claiming that 75% of all the loans made on its platform during the quarter required no human intervention.
A new lawsuit brought by a shareholder of Upstart is also being brought derivatively on behalf of Upstart. That’s because plaintiff alleges that the Directors of the company would otherwise have to sue themselves or the company’s executives for the damage caused, a highly unlikely course of action.
Plaintiff alleges the company or certain directors and executives violated Section 14(a) of the Exchange Act, breached fiduciary duties, were unjustly enriched, abused their control, grossly mismanaged the company, wasted corporate assets, and violated Section 10(b) and 21D of the Exchange Act.
Things are not exactly great in shareholder land. The company’s stock as of May 4th close was $93.57 and is now currently hovering around $24.49. The plunge began when the company released its poorly-received quarterly earnings on May 9th. For a long time, the company had asserted it was not a balance sheet lender, but a shift in economic conditions was causing that to change.
The unwelcome quarterly earnings report was coincidentally timed after Upstart CEO David Girouard had sold more than $200M worth of company stock in the previous 8 month span and co-founder and SVP Paul Gu sold $140M worth over nearly the same time period.
Then, in August, Girouard said, “In the last few months, lenders and institutional credit investors reacted more quickly and abruptly than we anticipated. Despite the fact that our bank partners have seen consistently strong credit performance, meaning portfolios performing at or above plan across quarterly cohorts, several of them have paused or reduced originations due to fear about the future of the economy.”
Plaintiff alleges that false and misleading statements allowed the stock price to be propped up while insiders sold their stock on material non-public information. The full complaint can be viewed here.
This lawsuit is separate from a securities class action filed earlier this year.
Upstart, once known as the AI-fintech lender for student loans, has gradually added products over time. Today, the company has entered the small business lending market, making good on the plans it announced last year.
Launched shortly before the close of the 2nd quarter, Upstart CEO Dave Girouard said during the earnings call that “We’ve already seen some more than 40 small business loans originated, totaling more than $1 million in principal in just a few weeks.” He further added that the company is “well ahead of schedule” in terms of rolling the program out.
“That team is quickly ironing out operational issues with an eye toward rapidly expanding this product in the coming months and years,” Girouard stated.
Previously, Girouard acknowledged that small business lending is becoming a crowded field.
“While there is no shortage of credit options to business owners, we aim to deliver the zero-latency affordable credit solution that modern businesses require,” he said last year.
There is a lot on the line for Upstart with this new product. Its core consumer lending business experienced a setback in the 2nd quarter when revenues declined on weaker demand for loans originated through its marketplace.
“In the last few months, lenders and institutional credit investors reacted more quickly and abruptly than we anticipated,” Girouard said. “Despite the fact that our bank partners have seen consistently strong credit performance, meaning portfolios performing at or above plan across quarterly cohorts, several of them have paused or reduced originations due to fear about the future of the economy.”
Upstart, the fintech AI consumer lender originally known for its student loan platform, is heading into small business lending.
“…we believe there is an unmet need to provide fast, easy access to affordable installment loans to business owners across the country,” said Upstart CEO David Girouard during the earnings call. “Every small business is different and they operate across a crazy wide spectrum of industries.”
Girouard explained that there are “significant challenges to delivering a compelling loan product that is useful to business owners,” in which there is also reliable value for the lender itself.
“This challenge is tailor-made for Upstart,” Girouard said. “While there is no shortage of credit options to business owners, we aim to deliver the zero-latency affordable credit solution that modern businesses require. This is another product in high demand from our bank and credit union partners, and we hope to bring it to market during 2022 as well.”
Upstart is no small player. The company’s market cap is currently around $20B and it is putting out about 1.5M loans a year for a total of more than $16B.
One of the nation’s top artificial intelligence lending platforms announced Tuesday that they will be operating the first ever online lending platform in Spanish. Upstart will mimic its English platform with full access to loan information, borrowing tools, loan agreements, and customer support for Spanish speaking customers.
“Inclusion often starts with language,” said Dave Girouard, co-founder and CEO, to deBanked. “We founded Upstart with the belief that better technology could improve access to affordable credit. While better AI models are the primary lever we use to create a more inclusive platform, they are not the only lever.
“While restaurants and retailers routinely offer a Spanish-language alternative, online lenders unfortunately do not,” Girouard continued. “Taking out a loan is a big decision and comes with important obligations, so it’s clearly better for the consumer if the entire experience, including disclosures, the loan agreement, and customer support, are available in their preferred language.”
With more than 60 million Latinos living in the United States, access to information about personal loans in another language will be able to provide more clarity and transparency for a new breed of customers who may be hesitant about lending as is.
The launch of the platform is somewhat unique, as they are introducing borrowing services to an entire demographic that is perceived as untapped. Getting access to an entire community of people by breaking a language barrier could definitely be one way to add potential borrowers to Upstart’s book of business.
This pattern of increasing qualified borrowers is nothing new for Upstart, whose business model has been to work with both banks and credit unions by examining potential borrowers on more than just raw credit scores. Work history, education, academic standing, and standardized test scores are also factors that Upstart considers when underwriting their loans.
The loans are offered exclusively through Cross River Bank, but could be offered by other institutions that work with Upstart in the near future.
Upstart Says Covid Had No Material Impact on Loan Performance, Believes All Loan Underwriting Will be Powered by AI in the FutureMarch 17, 2021
Yet another online consumer lender has reported that the Covid-era was good for business. Upstart, which went public in December, recorded $1M in profit in Q4 and $6M in profit for the year. Prosper Marketplace, an Upstart competitor, reported an $18.5M profit for 2020 just days earlier.
“Despite the COVID-19 pandemic, we delivered strong growth and profits in Q4 and for the full year 2020,” Upstart CEO Dave Girouard said in the company earnings announcement. “This combination is rare among FinTechs and demonstrates the growing advantages of AI-based lending.”
Upstart actually grew its revenue in 2020 by 42% over the previous year while keeping loan performance steady.
“We’re happy to report that the COVID-19 pandemic had no material impact on the returns that our bank partners and loan investors experienced this past year.”
The company is going full speed ahead on AI-based lending. “We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation.”
Keenly aware that AI is an overly used buzzword, the company reminded investors about what its AI can actually do.
Our AI models, like all AI systems, are fueled by incredible amounts of data and sophisticated software to interpret that data, while most lenders consider only a handful of variables as part of a lending decision, Upstart’s model considers more than 1,000 variables about each applicant. You can think of these as the columns in a spreadsheet. And as of December 31, 2020, our model was trained on more than 10.5 million unique repayment events.
These are like the rows in the spreadsheet. And we continually upgrade the machine learning software that interprets this data, enabling us to price the next loan on our platform just a bit more accurately. Upstart goes far beyond a singular AI model predicting default risk. We have discrete AI model that improve the entire lending process, including identity fraud, income misrepresentation, loan stacking, prepayment risk, fee optimization, and more.
But of course, our model that targets default risk is the centerpiece of our system. It predicts not just the likelihood that a loan will default, but when that default can be expected to happen.
Upstart also intends to bring that technology to auto lending. The company simultaneously announced that it had acquired Prodigy Software, Inc, a tech that’s been used to assist with selling more than $6B worth of cars.
“…2021, from our perspective with auto, is really a building year,” said Girouard, “And the acquisition of Prodigy, we certainly view as an accelerator toward the point of sale, the majority of the market that happens at the dealership.”
Upstart, the online personal lender that uses non-traditional data like a college education, job history, and residency to evaluate borrowers, is moving forward with an IPO.
The company revealed its financial statements in an S-1 filed on Thursday. In 2019, Upstart generated $164.2M in revenue and had a net loss of $5M. For 2020 through Sept 30th, revenue was at $146.7M with a net income of $4.5M.
The company said that in 2020, 98% of its revenue was generated from platform, referral and servicing fees that it receives from its bank partners. Their bank partners “include Cross River Bank, Customers Bank, FinWise Bank, First Federal Bank of Kansas City, First National Bank of Omaha, KEMBA Financial Credit Union, TCF Bank, Apple Bank for Savings and Ridgewood Savings Bank.”
Upstart borrowers tend to have limited or no credit history, which is where its AI-driven models with 1,600 variables come into play.
“Our bank partners have generally increasingly retained loans for their own customer base and balance sheet,” the company wrote in its S-1. “In the third quarter of 2020, approximately 22% of Upstart-powered loans were retained by the originating bank, while about 76% of Upstart-powered loans were purchased by institutional investors through our loan funding programs.”
Upstart was valued at $750M during its 2019 Series D.
In 2017, deBanked referred to Upstart as the Tesla of alternative lending.
“You hear so much about how Tesla cars will drive themselves, how Google or Amazon home assistants talk to you to as if you’re human,” said Dave Girouard, Upstart co-founder, in an interview back then. “In lending we are the first company to apply these types of technologies to lending.”
Girouard’s co-founder Paul Gu, who serves as SVP of Product and Data Science, was only 21 when Upstart launched in 2012. He’s now 29.
Anna M. Counselman, the third co-founder, is SVP of People and Operations.
Upstart is planning to raise $100M from its IPO.
upstart(founded by ex-googlers) further down the automated fintech ladder., , ahhh....,i use basic quant strategies, i use to be better at it ...now i am looking for nsfs lol sigh and google and amazon have an obscene amount of money,...
upstart(founded by ex-googlers) further down the automated fintech ladder....