Online lending platform Upstart secured $35 million in Series C funding and announced yesterday (July 16) it will use the new capital to continue growing its millennial-focused, data-driven services.
The latest funding round was led by Third Point Ventures, with participation from existing investors, including Khosla Ventures, First Round Capital and Collaborative Fund.
Upstart’s unique focus on borrowers who have trouble getting loans from conventional sources — mainly millennials — has put it in a position to provide loans to a wider group of people by not solely relying on credit bureau data.
“Upstart’s founding concept was that less-experienced borrowers — so called ‘thin files’ — could be better served with future-looking analytics that predict the individual’s capacity and propensity to repay a loan. With a deeper understanding of our borrowers — including where they went to school, area of study and academic performance — we’re able to systematically identify ‘future prime’ borrowers years before other lenders can,” the company said in a blog post announcing its recent funding.
According to its data, Upstart’s forward-looking credit model is onto something, showing that after facilitating more than $128 million in originations, 100 percent of its investors have seen a positive return.
In an interview with PYMNTS last month, Dave Girouard, founder and CEO of Upstart, discussed the importance of using Big Data, analytics and a series of less-conventional metrics to bring loans to young consumers, an approach that is loosely based on the data-centric hiring process at Google.
Girouard explained that by taking a detour from the same credit bureau data approach used by virtually all other lenders out there, Upstart was better able to serve a demographic of people lacking credit history but still deserving of loans.
“We borrowed from the Google hiring process, which is a process that was very data-driven, and what we’re trying to tease out is somebody’s underlying employability, because the reason most people default on credit cards, or loans or mortgages, etc. tends to be because they become unemployed and can’t service the debt,” Girouard said.
“We’re trying to understand not just what somebody is working at today and what their cash load may look like today, but what their underlying employability looks like over the term of the loan,” he added.
Many of the borrowers Upstart works with utilize the platform to refinance credit cards, allowing them to adjust interest rates from an average of 22 percent to the average Upstart offers, which is between 11 and 12 percent, Forbes reported.
At this point, the company, which was founded by a group of former Google employees, has issued approximately 9,000 loans and collected close to 36,000 repayments.
“These are very high-quality borrowers, just ones without a lot of credit history,” Girouard told Forbes.