News Column

'Crowdfunding' Company Upstart Looks to Universities to Connect Students, Tech Pros

August 9, 2012

Karl Baker

For Vincent Lucero, Upstart came along at the right time. His gaming company, Soaring Squirrels, was just lifting off in the spring and he was looking for money.

A friend directed the recent University of Washington graduate to Upstart, which offers a platform for multiple investors to drop relatively small investments into the accounts of budding entrepreneurs -- a phenomenon called crowdfunding.

Lucero was part of a pilot project for Upstart, itself a startup only 4 months old. The Palo Alto, Calif.-based company will officially launch on Wednesday and, starting in September, plans to expand its service to students at five universities, including the UW.

The money Lucero received was not for his company, however. It was an investment in him. Rather than funding startups, Upstart investors fund individuals.

"[Upstart] provides mentorship and some financial security so that a student can follow an entrepreneurial path," Matt O'Donnell, professor of bioengineering at the UW, by email.

Besides providing financial support of $25,000, Upstart linked Lucero with tech professionals to guide his entrepreneurial pursuits. One was Russel Simmons, co-founder of Yelp.

Simmons was one who invested in Lucero, so Upstart organized a lunch between the budding entrepreneur and the seasoned high-tech pro.

"He ran me through what made Yelp successful," Lucero said.

The funds Lucero received were not a loan. Upstart founder Dave Girouard says the financing is more "equity-like."

Recipients repay the investors a maximum of 7 percent of their income for up to 15 years after the deal is made. They pay nothing in years when their income is less than $30,000 a year.

Investors' returns are capped at 15 percent annually and recipients can buy out their payment obligations at any date.

Ed Lazowska, who holds the Bill & Melinda Gates Chair in Computer Science & Engineering, says this financing model will give students an incentive to take more risks and look at options away from our region's tech giants.

"We send a very large proportion of our students to very large corporations and a small portion to small companies," he said.

Girouard thinks using university loyalty is a handy way to encourage mentors and investors to support new business leaders. He says investors will be more likely to feel a connection to entrepreneurs from their alma mater.

"We want to find an affinity vector," Girouard said.

So far he's limiting the company's services to five universities, saying he doesn't want to overextend its resources. The other schools are Arizona State University, Dartmouth College, Rhode Island School of Design, and the University of Michigan.

"[We'd] rather really focus and make sure to get it right," he said.

Upstart, which has nine employees, will earn revenue off each deal. Investors can pledge a certain amount and will be charged only if the startup's targeted funding level is reached through the investments of other financiers.

Upstart will then receive 3 percent of that amount for its services.

So far, it has raised $1.75 million from its own list of investors, which includes Google Ventures and Mark Cuban, owner of the NBA's Dallas Mavericks.

"This is a unique opportunity to change the financial model for education and career development," Cuban said in a statement.



Source: (c) 2012 The Seattle Times. Distributed by MCT Information Services


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