





Upstart $UPST is an online lending marketplace that provides personal loans by using machine learning
It was founded in 2012 by Dave Grirouard, former president of Google Enterprise, Paul Gu, a Thiel Fellow and Anna Counselman, a former Google manager https://techcrunch.com/2020/11/05/inside-fintech-startup-upstarts-ipo-filing/

It developed a model that is capable of determining the creditworthiness of prospective borrowers
Next to traditional variables (FICO score, income, credit report) it relies on the following features:
Academic variables (GPA, area of study, colleges)
Work history



Upstart doesn’t make loans itself:
Rather it connects consumers to its network of Upstart AI-enabled bank partners
These consumers benefit from lower interest rates, higher approval rates and a highly automated and digital experience


In more tangible terms:
· It uses over 1,600 data points to score borrowers
· Upstart provides 27% more approvals than traditional models
· 16% lower rates than traditional models
· It uses over 1,600 data points to score borrowers
· Upstart provides 27% more approvals than traditional models
· 16% lower rates than traditional models
Upstart’s model is built on its “AI” flywheel
It uses more data and better models to undercut competition
Customers get approved and get better interest rates
With more data, Upstart is able to generate more loans




Upstart’s loans go from $ 1,000 to $ 50,000 and concern 3 & 5 years loan terms with an APR range of 8.27% to 35.99%
99% of these loans are funded within 1 business day after signing
Borrowers can pay their loan back early at no cost


What about the customer base?
Upstart is dedicated to personal loans, it thus offers helps customer with:
Moving loans
Home improvement loans
Medical loans
Credit card consolidation
Debt consolidation
Wedding loans
Upstart is dedicated to personal loans, it thus offers helps customer with:






How does Upstart makes loans?
Directly through the Upstart website
· A partner bank emits the loan as Upstart itself doesn’t provide any loan
· The loan can be retained by the bank, sold to Upstart’s network of institutional investors or funded by Upstart’s balance sheet

· A partner bank emits the loan as Upstart itself doesn’t provide any loan
· The loan can be retained by the bank, sold to Upstart’s network of institutional investors or funded by Upstart’s balance sheet
· In Q3 ’20, around 22% of the loans issued directly through Upstart were retained by the originating bank
· Around 76% were purchased by institutional investors (such as PIMCO, Goldman Sachs, Morgan Stanley)
· Around 2% were funded by Upstart’s own balance sheet
· Around 76% were purchased by institutional investors (such as PIMCO, Goldman Sachs, Morgan Stanley)
· Around 2% were funded by Upstart’s own balance sheet

· The bank uses Upstart’s models and algorithms to predict a prospective borrower’s creditworthiness
· It then makes the loan on its own

Upstart generates the majority of its sales from fees paid by banks:



Great!
Upstart was founded by a team of ex-Silicon Valley employees that wanted to apply their experience in machine learning to loans
It choose the personal loans market and makes money by collecting fees from banks
But how large is their market?


But how large is their market?




“Also, technologies like Artificial Intelligence, Machine Learning, and Cloud Computing benefit the banks and fintech as they can process huge amounts of information about customers.” - Mordor Intelligence
https://www.mordorintelligence.com/industry-reports/digital-lending-market
https://www.mordorintelligence.com/industry-reports/digital-lending-market
Upstart’s ambitions do not stop at personal loans 
“[…] by applying our AI models and technology to adjacent opportunities, we believe we are well-positioned to address the U.S. auto loan, credit card and mortgage markets.” - Upstart S1

“[…] by applying our AI models and technology to adjacent opportunities, we believe we are well-positioned to address the U.S. auto loan, credit card and mortgage markets.” - Upstart S1

· $625 billion in U.S. auto loan originations
· $363 billion in U.S. credit card originations
· $2.5 trillion in U.S. mortgage originations
“In June 2020, we began offering auto loans on our platform, and in September 2020, the first auto loan was originated through the Upstart platform” - Upstart S1
Things look bright for Upstart!
The company developed a model that relies on non-traditional data to predict a borrower’s creditworthiness
It started with the personal loans segment and already serves 5% of the market




But is this profitable?






















Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.
Sources
✑ Investor presentation
✑ Company website
✑ Mordor Intelligence
✑ TransUnion
✑ FED
✑ TechCrunch
✑ Crunchbase
✑ FED
✑ TechCrunch
✑ Crunchbase
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