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Can Crowdfunding Your Education And Career Really Work? - Crowdfunding Planning

posted May 29, 2013, 4:15 PM by   [ updated May 29, 2013, 4:19 PM ]

Dave Girouard, a former Google executive, is the driving force behind Upstart.

“The Startup is you.” That’s the tagline of Upstart, a new company that aims to connect enterprising students with people who want to invest in them. It’s the brainchild of a former Google high-up, Dave Girouard. But can it work?

Under Upstart’s model, students promise a certain percentage of their income for 10 years in exchange for financing and mentorship from people who sign on as backers. The basic thinking is similar to that behind other platforms that help aspiring entrepreneurs secure funding for their ideas. But rather than sponsoring a project pitch, investors on Upstart are backing a person.

“We aim to make Upstart a network that people are engaged with, not just a place where they receive funding,” says founder and CEO Girouard. “This is a network of people that have relationships, that have skin in the game, that have the motives and incentives to help people succeed.”

Upstart asks students to create profiles with basic information such as what schools they attended, their area of study, grades, job experience and internships, and uses a statistical model to project how much they will likely earn over the next decade. Based on that figure, Upstart tells students how much money they can raise for every 1% of income they agree to sacrifice.

The company is placing no restrictions on who can seek funding or why  — for the seven students in Upstart’s pilot program, reasons range from assistance on loan repayment to seed money for startups — and Girouard says who ultimately gets support will “be for the market to decide.”

While Upstart’s team has been keen to promote the company’s basic platform over the past week, they’ve been less forthcoming about certain specifics.

When I asked Upstart member Paul Gu, a Yale student and Thiel Fellowship recipient, to run my own information as a student through the formula he helped design, Gu emailed me that he and Dave were “concerned that presenting hypothetical pricing might give people the wrong impression — making people focus on comparing offers, setting certain kinds of pricing expectations, etc.” Since the model is private and still developing, Gu said he would “like to avoid diving too deeply into pricing” in the same way that employers wouldn’t disclose employee salaries.

It’s also unclear how the pieces of the model will come together. Since the investments are in people themselves, for example, there’s nothing binding a student to a particular idea or career path. That’s good news for the students, but what will it mean for their backers?

“It’s total freedom to change your mind,” says Nathan Sharp, 26, a pilot round student who worked in public health before attending business school. “One of the risks on [the investors’] part is if I choose to go back to public health and earn less than $30,000 a year, then they lose everything.”

Sharp received $50,000 from Upstart at a roughly 2.5% income rate. A graduate of Harvard College and Dartmouth’s Tuck  School of Business, Sharp says he plans to put most of the money toward his more than $100,000 in student debt, freeing him up to work on his online shopping startup, PayOrPass.

“I’d been thinking about this for a while,” Sharp says. “I heard a lot of people saying ‘I’ll do this for two years out of school and get some great experience and then I’ll do what I like.’ They say experience, but what they mean is earn a little money.”

Upstart estimates that typical students will raise around $30,000 in exchange for 2 to 6% of their 10-year income, designed to give investors a 6% annual return. If they make less than $30,000 in any year, they’ll owe nothing, but the agreement will extend up to another five years, and the return for investors maxes out at 15%. Girouard describes it as risk capital. “It’s a little like a loan, but it also has elements of equity,” he says.

Vincent Lucero, 22, said he was attracted to the mentorship and funding that Upstart offered at what he called equivalent to a 2% loan rate. But he didn’t know much about his potential backers — beyond what he learned from online research and asking around — while making his choice.

He wasn’t the only one. Sharp, Lucero and another student interviewed in the pilot program each seemed unsure how many investors they had, and who all those people were. In the pilot program, backers came from a small group of 13 individuals with strong backgrounds in tech, education and entrepreneurship. It remains to be seen whether Upstart can preserve that quality of investor as the company grows, and how much information students will receive about their potential backers and mentors before signing an agreement.

“It was definitely a really hard decision, being like, ‘this is very big deal that’s going to affect me for the next 10 years, should I do this or not?” said Lucero, who signed on in July and received $25,000 in exchange for 3.32% of his income.

Only a few weeks into the program, Lucero speaks highly about his experience with Upstart. He’s just the type of student Upstart aims to attract: after spending a summer internship in consulting at PricewaterhouseCoopers, he said that he knew he’d prefer to pursue work on his mobile game, Soaring Squirrels, and that Upstart helped him make the thought a reality.

But his friend Shaun Maurer swung the other way. Approached by Upstart at a University of Washington business plan competition, Maurer said he considered the opportunity but decided he wasn’t ready to make the commitment, and he took a job at Deloitte Consulting instead.

“They want to offer kids some capital to help them pay off their students loans and pursue their interests, but I guess I did have that security” of knowing they’d get paid off, Maurer explained. “[Upstart] is not weird if you’re 100% committed to your business or your passion. It is weird if you’re on the fence about whether to pursue your business or not.”

With Upstart still in its early stages — the company launched in April and its beta site went live Wednesday — it will take time, and the market, to tell whether its model works.

Girouard, at least, is optimistic. He and his team are taking the next few weeks to gather interest from students and backers alike, before fully opening the platform in September to students and recent alumni at its first five schools, Arizona State University, Dartmouth College, Rhode Island School of Design, University of Michigan and University of Washington. He says he expects to see hundreds funded over the next six months.

The former VP of Apps and president of enterprise at Google, Girouardannounced in March that he was leaving the company to work on Upstart. So far he’s raised $1.75 million for the effort, with backers including Kleiner Perkins Caufield & Byers, NEA, Google Ventures and Mark Cuban. Upstart takes a 3% cut of the money students raise up front, and collects 1.5% of what they pay back.

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