I see how this could work in countries where there are no investors, loans or any form of financing at all.
But in the US? Unless these guys want to commit business suicide my guess is they'll only approve individuals with a solid track record (eg: a kid with high grades) and not just any poor bastard that may never amount to anything.
Problem is wonder boy above will get a scholarship to Stanford, and then will meet investors who will fund his startup regardless of what the idea is, so why would he go to upstart which will siphon his revenues away indefinitely?
I'm wondering what kind of investors would put money into a company which couldn't raise capital through a conventional route.
The only kind of investment which makes sense in this kind of scenario is one where the investors actually don't anticipate any return from the product being invested in itself, but see a cash cow in the form of a share of future income.
In which case, the comparison with payday lenders doesn't seem that far off.
Edit: The fact that this is encouraging young people in particular to mortgage their futures makes me feel worse about this.
Yes, obviously. While it can be whimsical to compare the two, and while you could come up with a single definition that is loose enough to describe them both, they certainly are different.
The analogy breaks when you accept that, then, debtors prison was not meant to be ironic or figurative. It was a literal prison.
Most importantly, the socioeconomic factors matter. Your comment is almost offensive to me. I'm an engineer in the bay area. I work for a startup. It's important to remember that while my colleagues and I aren't full-on rich, we are very very well off. As an engineer with 5-15 years experience, you have myriad options to earn between 100-150k. That's the middle of the bell curve. And it goes up from there with more experience, I just haven't made it that far yet.
Sure, the bay area is an expensive place to live. But even here, that salary is more than double the median.
This concept is aimed at engineers. They're not targeting inner-city troubled young adults. Indentured servitude? Hardly.
Sacrificing future income in exchange for current liquidity is the very essence of a loan. The only difference is that the return from a loan is fixed, whereas a proportion of future income represents a variable rate-of-return, with more risk (when assessed through conventional means) but more opportunity for reward.
Just last night, I recalled that a company used to offer student loans in exchange for a percent of future income based on current major, grades, SAT scores, etc. some time around the .com crash.
Warren Buffet said in a talk at Columbia that he would gladly pay $100k for 10% of any student in the rooms future earnings, and 50% more if they had strong communication skills. (during that same talk, a student asked Warren why he invested in burlington northern, and he replied, "I always wanted a train set, but my father never bought me one!"
The biggest flaw in this plan is that anyone who took investment is basically saying they don't believe much in their future value and potential, or are too lazy to do the math about their future earnings. It's like running a groupon deal, you are borrowing at an outrageous rate because you are bad at math, and value money now much more than its worth.
"Through this website, investors could provide money to pay for a student’s undergraduate or graduate degree expenses in exchange for a fixed percentage of that student’s future income for a set period after graduation."
They're one of my all time favorite startup stories, going from the charter described above, to trying to be a "white knight" in student lending - ultimately going public, then going bankrupt spectacuarrly.
Yes, that was the startup I remember from 10 years ago. I found and skimmed the same article but didn't find that line. Considering they became one of the biggest lenders, I would say they're a success story.
Also, a competitor I uncovered from same era is part of the Clinton Global Initiative and appears to be doing well in four different countries: http://lumni.net
I think the idea has substance. My Interpretation was that they provide you with capital and in return for x% of your future revenue (personally). As opposed to a loan that gets repaid via x% of your income for a period of time. Like a student loan or payday loan.
I would consider this. But considering the investment would include all future companies I may start and not just what I intend to do with the funds in the short term, the terms would have to be much more favourable than if I raised funds just for a single company.
not to be a jerk, but you're just some random guy on an anonymous forum who's account is 3 days old. They are a well funded company. Not sure what you bring to the table, but unless you sort of state your expertise to prove your credibility, I wouldn't hope for much.
Hm, I'm able to raise capital without Upstart.. and keep all portions of my future income.
If your idea is good enough, planned out enough, and presentation is good - then all you need to do is talk to investors.
I like how they're trying to be clever, though can't currently see how the service taking future income is justifiable.