How To Bet Money On Your Future Success 188
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.'"
This isn't gambling. (Score:5, Interesting)
This is just the next step up from student loans.
Re:This is the dumbest idea (Score:5, Interesting)
You sir are brilliant.
The other upside to this is to pay off your student debt and then file bankruptcy. Surely this debt is dischargeable unlike student loans.
Hey Good Luck With That! (Score:3, Interesting)
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).
why borrow to repay student loans? (Score:4, Interesting)
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.
Ever Read Sci-Fi (Score:3, Interesting)
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.
Re:Isn't that called a "loan"? (Score:0, Interesting)
It's not 7% interest. It's 7% of future earnings.
Bankroll 100 stereotypical liberal arts majors, all of whom wind up at McDonald's, and the investor gets back 7% of $15000/year minimum wage per grad. x100 grads = ($105K)
Bankroll 100 STEM grads, 50 of whom end up at McDonald's, 50 of whom end up making $100K/year, and the investor gets back 7% on about $57K/year per grad. ($402K)
Bankroll the same 100 STEM grads, 50 of whom end up at McDonald's, 49 of whom end up making $100K/year, and 1 of whom spawns a startup that gets a $10M exit, and you get about 7%*57K*99grads ($399K) + $0.7M (7% of the startup's exit) = ($1.1M)
The investor takes the risk that of the 100 STEM grads, they won't all wind up flipping burgers when their jobs are outsourced -- and other investors may very well be willing to bet on the 100 liberal arts grads, 1/4 of whom end up flipping burgers at $15K, but 3/4 of whom end up earning $80K as marketroids. ($446K)
Federal student loans don't take into account the expected value of a college degree. This system would.
Re:I should really patent this idea, but.... (Score:5, Interesting)
That was my thought. Take out student loans, go to school, get one of these loans after you get out, use it to pay off your school loans, default on this new loan, wait for it to come off your credit record in 7 years. Far better than having that school loan that stays on your record forever otherwise.
Re:This is the dumbest idea (Score:4, Interesting)
In 1998 maybe that was possible, go look around what tuition costs these days.
The university I attended charges something like $33,000 a year. A relatively cheap state school might go for $10,000 a year. Still not the kind of money a minimum wager earner is ever going to have to spare.