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How To Bet Money On Your Future Success
waderoush writes "Say you're in your early 20s, you're finishing college or graduate school, and you're smart but poor — and you've got some big student loans hanging over you. You're pretty sure that within 10 years you'll be selling your first startup or earning a high-six-figure salary. But you need some money *now* so that you can actually start the company, and avoid taking a corporate job. Shouldn't there be a way to calculate how much you'll be worth, and borrow against that promise of future success? Upstart, a new Palo Alto investing operation founded by a group of ex-Google employees, thinks the answer is yes. In a new spin on the crowdfunding model, the organization gathers data from recent graduates such as schools attended, academic transcripts, job offers, and credit scores. Its 'pricing engine,' based partly on techniques developed to assess job applicants at Google, determines how much each aspiring 'upstart' should be allowed to raise from investors per each percentage point of their future income. Upstart has already helped 35 young people raise amounts varying from $10,000 to $170,000; the upstarts, who must pay the money back over a 10-year period, say they're using the funds mainly to retire student debt or bootstrap startups. 'We can look at a 25-year-old and very quickly assess whether he or she would be successful at Google,' says Upstart founder Dave Girouard, formerly the head of Googles $1 billion enterprise apps division. 'My whole thesis was, if you could use the same algorithms to predict whether he or she would be successful beyond that, in the business world, that would be pretty useful.'"
The position this person is in is that they are mortgaged to the hilt, have no income and are too young to know what life is about and they want to borrow even more?
Why not just sell yourself into slavery?
I should really patent this idea, but what the hell.
Make sure you incorporate so that these are considered "student loans". Otherwise their next stop may be to a bankruptcy lawyer's office.
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
If someone is so confident in their startup idea, why not try to get actual investors instead of an "investment" you have to pay back?
This is just the next step up from student loans.
First Marblehead makes student loans using a huge set of heuristics based on whether someone can pay the money back or not. Why it caught my attention is they do it with customers that have no credit history, so nothing to base a loan off of except other data points...
Must be getting a lot dumber. I'm willing to bet an insane amount of money relative to my income that the credit cards companies are FAR FAR better at predicting who to loan money too than any Googler. They have the advantage of having Googler level employees, years of experience, and financial greed driving them.
You can not predict what they will be worth in 10 years, they don't have any idea what they'll even like NEXT YEAR, let alone 10 years.
Once you get a little older you realize that the person you were when you got out of school is entirely different than the person you are 10 years later. Its well accepted fact that no one under 25 knows who they are, and no one under 30 is really sure who they are.
Persistent Volume manager for Kubernetes - https://github.com/dwimsey/openshift-pvmanager
I'm faced with a dilemma here: I'm an algorithmist, and believe most questions can be more accurately be answered, in the long run at least, by a well developed algorithm than even the most skilled human being. This should be a good thing, then, finding a better answer for funding projects, and accurately determining loans.
Where I became concerned, is that a lot of success is then predicated on some system determining that you'd be successful, and might therefor create a systemic problem sorting the undeserving into future success, by virtue of predicting it, and leaving those who have the spirit to succeed, but not the resources, to languish without recourse. It seems it could make the rich richer, and the poor poorer, even more than our current system, which already does so.
I feel this approach fails to account for its own effect upon the market. A world where you get divided into upper class and lower class on factors beyond your own control should scare just about anyone.
And considering how generous Federal Student Loan terms are compared to regular loans, you would be pretty fucking stupid to "retire student debt" with this (especially at 7% interest).
Your political party doesn't care about your rights and only represents corporate interests.
This just reinforces the Matthew Principle
Brandon Chicotsky, an upstart educated at UT-Austin and NYU, is the founder of an “animate social marketing” business, BaldLogo.com, that offers advertisers the chance to emblazon their logos on the heads of bald men like himself. He’s using the $15,000 he raised on Upstart to wipe out half of his student debt, and says his backers have helped him review pitch decks and sent offers of future business partnerships.
Emphasis mine. Hey, good luck with that. I don't want anything to do with this. I have never lived beyond my means and while I've had to work my ass off these past ten years to pay off all of my student loans in two years, I've also saved up enough money to start a business. I'm waiting and testing the waters for customers because that money was really hard to earn so right now it's just $50 a year on a VPS and some slick coding on the side. Personally I feel this is a healthier safer model that will prevent me from flushing money down the drain but you're free to spend your money where you want. If I ever get revenue too large for me to handle on my own, I'll seek backing. I didn't even know "pitch decks" still existed ... I thought that was something they brought back for a TV show.
Have fun when that novelty wears off and it's synonymous with "douche" to turn yourself into a walking billboard (I thought we were past this, people, time to bust out my Member's Only jacket).
My work here is dung.
student loan interest is TAX DEDUCTIBLE
these crazy loans are not
the US has the lowest interest rates in a generation. smart thing to do is to consolidate your loans and lock in the low rates.
Someone at Google thinks that a) they have figured out a way to predict future success and b) this is the best way they can take advantage of that knowledge? Just... wow.
Dear Slashdot: next time you want to mess with the site, add a rich-text editor for comments.
See "The Unincorporated Man" by Dani Kollin and Eytan Kollin for a full explanation of this idea, and some ramifications. A bit hyperbolic (I think the authors have a bit of a libertarian streak) but a decent read.
Wow. I cannot believe there are people willing to invest in early-20-somethings who think they're going to become rich, if only they had the resources. What ever happened to smart investments, or am I missing some other more subtle way to profit when 99% of their customers fail miserably.
Of course, the folks who created Upstart really are well-connected. And I'll bet if you were in that well-connected club and looking for the best and the brightest, you might call them up and ask them if they knew of any good people.
This is rank speculation, but I wonder if the backend part of this model is more like a high-priced HR staffing firm, so it boils down to identifying folks that can pass "Google" muster, hook them on some debt and then pump them out to high-paying elite clients. In addition to getting a placement fee they get a percentage of what that client pays over 7-10 years.
You're pretty sure that within 10 years you'll be selling your first startup or earning a high -six-figure salary.
Ya, many may be "pretty sure" of all that, but most are not that smart, inventive, resourceful, connected, and/or lucky.
It must have been something you assimilated. . . .
Having just graduated(assumption); are you arrogant and stupid enough to make this "bet" and burden yourself even further than ever before.
Losers are invited to line up at Upstart.com
Buy 1 BTC now, and redeem it after graduation! Trust me on this! I'm doing this my self and my tuition fees are "only" £9000 a year
who dropped out of college and became the richest man in the world would have been worth . . . . .
That's a great message you're sending the youngsters there.
Shouldn't there be a way to calculate how efficiently a man can be weaponized -- through training, drugs, surgery, cybernetics, social engineering -- so the State can induct the best candidates into service?
(Nickie Haflinger, I'm thinking of you.)
-kgj
You're pretty sure that within 10 years you'll be selling your first startup or earning a high-six-figure salary
Ahahahahhahahahahahahahah!
No. you're not that talented. really. You're not.
Because people like that don't think like that.
They do what they do. They create without thinking of rewards because they're better than us.
BRB, going to short myself and be lazy. I'm going to make so much money! Er... wait. :-/
Intent to defraud.
This scheme is not new, and you won't get away with it.
Jerry Lundegaard: No, but, Wade, see, I was bringin' you this deal for you to loan me the money to put in. It's my deal here, see?
Stan Grossman: Jerry, we thought you were bringin' us an investment.
Jerry Lundegaard: Yah, right.
Stan Grossman: You're sayin'... What're you sayin'?
Wade Gustafson: You're sayin' that we put in all the money and you collect when it pays off?
Jerry Lundegaard: No, no. I- I 'd, pay you back the principal, and interest. Heck, I'd go one over prime?
Stan Grossman: We're not a bank, Jerry.
Wade Gustafson: What the heck, Jerry, if I wanted bank interest on seven hundred fifty thousand I'd go to Midwest Federal. Talk to Bill Diehl.
Stan Grossman: He's at Norstar.
Wade Gustafson: He's at -
Jerry Lundegaard: No, see, I don't need a finder's fee, I need a... finder's fee's, what, ten percent, heck that's not gonna do it for me. I need the principal!
Stan Grossman: Jerry, we're not just going to give you seven hundred and fifty thousand dollars.
Wade Gustafson: What the heck were you thinkin'? Heck, if I'm only gettin' bank interest, I'd look for complete security. Heck, FDIC. I don't see nothin' like that here.
Jerry Lundegaard: Yah, but I... Okay, I would, I'd guarantee ya your money back.
Wade Gustafson: I'm not talkin' about your damn word, Jerry. Geez, what the heck're you--
Stan Grossman: We’re not a bank, Jerry.
Want to be on the odds of getting funding if you aren't a graduate of Stanford, MIT or a handful of other name-check universities?
academic transcripts don't prove much and skills gaps are condom with grads.
Really, that's all ideas like this are. Same with "startup incubators" and the like: They want the next Mark Zuckerberg to come to them with a great idea, work their butt off thinking they're going to become really rich, and instead make the investors really rich.
And in this case, because it's a loan, the would-be Mark Zuckerberg takes on all the risk, too. Heads, I win. Tails, you lose.
I am officially gone from
I was sure I'd be rich by the age of thirty, and several other people thought I would too. I'm a government code monkey at the age of 37. Thank God I didn't saddle myself with a 7% debt.
...
Okay, so I did sell a business or two, but once the IRS was done with that
Isn't this what the devil does...
I haven't thought of anything clever to put here, but then again most of you haven't either.
I wonder how much this company would have given young Steve Jobs -- a long haired Liberal Arts College drop out back from an Ashram stinking of Patchouli or Bill Gates, another drop out, but from a substantially more well regarded school.
Sorry, but good grades from big name schools does not equal stellar success. We see time and time again that it's the "unlikely underdog" or the free thinker not bound by mainstream convention that has what it takes to be the "upstart" that sets any entrenched industry or paradigm on it's ear. Not the "I got straight A's and was on the honor roll all my life and went to the best schools" type who are more often than not so beholden to established conventions that shaking up anything or taking really big risks would seem unthinkable, if not outright terrifying.
So would the guy who can't afford to go to a big name college or any college at all, didn't get those A's but has the creativity and drive to truly make something happen "if only he had enough money to get by on while he created it" even have a snow balls chance in hell with these guys.
I think probably not. That person would be seen as too risky, and having no "metrics" to indicate success. And that's the problem -- how can we quantify creative genius and identify the next Steve Jobs or Bill Gates?
Just make college free for everybody, paid by tax dollars. If there isn't enough money, raise taxes.
Credit card companies are looking for people with okay credit with okay reasoning skills and okay income who will pay the minimum payment.
They don't want deadbeats who pay their balance in full each month.
I only look human.
My mother is a halfling and my dad is an ogre, so that makes me an Ogreling
Hmm, sounds too good to be true.
Which means it most likely is.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
What on earth is "success" where there is no task or goal described? Please stop abusing language in this way.
If you figure they've been playing this game for companies, and companies are basically people now, it only makes sense to play this game with people.
Is it just my observation, or are there way too many stupid people in the world?
...that debt is to be avoided.
I am very small, utmostly microscopic.
It appears you also have to be an accredited investor to back an "upstart". You can find the qualifiers here: http://www.sec.gov/answers/accred.htm
How screwed up is it that as a broke college grad you can borrow $50,000 at up to 7% of your income for the next decade (Who knows what kind of ridiculous interest rate that could turn into if you're successful) but you can't borrow a fellow grad $100 under the same conditions. What a world we live in.
You've invented payday loans.
Isn't slavery exactly what it is?
Does the funding algorithm take into account the influence that the funding itself will have on the upstart's success? More funding = more success. Therefore I propose that they give *me* ALL of their funds, to maximize their investment. Hell, give me a few trillion, and I bet I could be running the whole planet in no time.
going to a community college and living at home instead of dorms for the first couple of years.
"On the other hand, there are also a ton of 30 year olds who are still living at home in "mommy and daddy's basement"."
Sadly, a lot of them actually have graduate (Even PhD) liberal arts degree..... there needs to be a special job program for those.... I am sure somewhere will be able to utilize all these highly-educated people....
New Economic Perspectives
EMIGRATE from the debt prison of the USSA.
For one, credit card companies have no trouble lending to people can easily repay debt. While they like interest, they don't mind just getting fees. I always pay off my credit cards, since I am in a financial situation that makes that feasible for me to do, I don't carry a balance, and yet I have tons of credit, and get offers for more all the time. While they may not make a ton on me, it is extremely low risk and that makes them happy. There's a big market for low-risk loans. Have a look at the US Treasuries market if you want to see the biggest.
Also in terms of people paying interest they certainly like that, but they still seek out those who are good credit risk, meaning they can probably repay the debt. They do not want defaults, those are expensive. Hence people with poor credit risk end up paying a lot in interest, or just can't get it.
A smart, creative, would have gotten lots of grants for undergraduate, supplemented it with a good parttime job or entreprenuership, and would have been paid a surplus in grad school. That how I got out of two ivies debt-free.
From the website:
"Share a small percent of your income as reported on your tax returns for 10 years. You share some of your upside, but payments are capped regardless of your success. Your payments are waived entirely in certain cases including years you earn less than $30,000. However, one year will be added to the length of your contract - up to a maximum of 5 years."
Sounds to me that you don't have to pay back all of the money you borrowed if you end up being a miserable failure. Sounds like you'll be paying back between 1% and 7% of your income for 10 to 15 years, and if that amount is smaller than the loan, that's too bad for the investors. Further, if you keep making $30,000 or less for 15 years you pay nothing back.
So let's say I get funded for $200,000 because of some credential or another. My startup fails miserably, and I end up getting an average job for someone who is educated at some company, earning $60,000. Over 10 years that means I only have to pay back $42,000 of what I got from the loan. Not a bad deal if I have some amount of confidence in my idea.
Also works well if I have more student loans than $42,000, and I bet many do.
non degree qualifications need more respect as the what you learn with a degree is at times dated and others to much theory.
also give 2 year and tech / trade school plans more meaning. To much is betting put on 4 year schools that is pulling then down even more so then HR is trying to trun them into trades / tech schools when they are not really setup for that.
Success is "successful at Google" -- I've been wondering how long it would take for something like "The Sources of the Nile" to happen.
(If you haven't read the Avram Davidson story, find it sometime in a library, thank the librarian, and muse on how it's done nowadays.)
This reminds me of Warren Buffett's speech that he gave to a group of MBA graduates.
His thought experiment* ran eerily similiar to Upstart's goal: if you have to invest 10% of your money in your classmates, what attributes do you look for? Warren placed integrity above all else. In fact, he joked and I quote: "if they don't have integrity, you want them dumb and lazy".
* - about 1:40 into the video.
So I guess every successful Google employee is also personally financially responsible? There is nothing that determines personal financial success other than a track record of personal financial success. If there was, your credit score would already take it into consideration.
As you may notice all the people saying that you can do this to pay off student loans then default, no one will back such a loan without greater collateral than the student loan. As you can't bankruptcy out of a student loan, the only collateral you have left is actual indenture. Indenture is illegal.
The real solution is to recognise undefaultable loans as a form of illegal indenture and prosecute those responsible.
What's to stop you squandering the money on wine, women and song, then declaring bankruptcy?
Will it burst before or after student loans bubble?
Welcome to Jurrasic Park.
What could go wrong?
So.....
1.) A person who has no work experience and little life experience - you're going to loan them money? I mean I am sure everyone thinks they will be a millionaire until reality sets in. I would rather bet on people who have proven they can succeed than people who idealistically think they can. Also, it cracks me up how they want to work at a start-up instead of corporate. Corporate is what start-ups become if they succeed. Either your start-up will fail and you will be in deep doo-doo, or it will succeed and after 5 years you will be in a corporate company. Unless you become one of those serial start-up creators.
2. It says a lot of people are using these loans to pay off school loans - does that make any sense at all? School loans are typically long term and low interest. Who wants to convert a 30 year loan into a 10 year one? If you want, you can just pay the 30 year loan early anyway.
Gambling on the future of a person makes no sense at all. You are also gambling on the state of world affairs and the economy. Simply assuming that credentials will indicate a probability of success is worse than a lottery. People die, they become disabled, the become addicts and convicts and homeless. I knew a Princeton trained professional chemist who ended up a gutter alcoholic who bounced in and out of mental institutions and jails. Naturally people don't want to understand that in fact they may be the one that fails. Reality sucks.
I consider myself one of those lucky people having a scholarship that is self denominated Non-refundable. The only thingthat my grant asks me as a payback is to work for my country at least one year after finishing my studies abroad. I think that's pretty fair. Generally in Europe, tuition fees are low or totally non existing, I guess that helps a lot!
Only a few outliers actually make a lot of money, and everyone else loses big, when it comes to startups. For this to succeed, the outliers would have to subsidize the losers. Is this built into the system? If you actually make money from a good idea, you'd have to pay back a huge amount to cover the losses from bad ideas, or this system would collapse in a year or so.
Vote Republican.
Of course, if you don't happen to be successful, you'll be screwed, but what's the chances of that? After all, you're talented and fabulous!
That is all.
More specifically, why would you borrow from loan sharks to pay off student loans?
Last time I checked they were some of the most reasonable funding you'll ever see.
Mine were a combination of 5% and 0% Federal loans, and I paid off the latter as slowly as I was allowed to.