Personal loan fintech Upstart seeks $100M in IPO

November 5, 2020.
This June 19, 2015 photo shows the U.S. Securities and Exchange Commission building, in Washington. (AP Photo/Andrew Harnik)

This June 19, 2015 photo shows the U.S. Securities and Exchange Commission building, in Washington. (AP Photo/Andrew Harnik)

U.S. personal lending startup wants to raise up to $100 million in an initial public offering, making it the latest fintech trying to capitalize on red-hot capital markets.

Upstart plans to list on the Nasdaq under the symbol UPST, though a date has not yet been set, according to filing Thursday with the U.S. Securities and Exchange Commission. Goldman Sachs, Bank of America, Citibank, Jefferies, Barclays, JMP Securities and Blaylock Van are underwriting the deal.

The San Mateo, California-based company sells loans using artificial intelligence, which Upstart argues gives it a leg up in comparison to more traditional lending methods. Upstart’s loans carry annual percentage rates of about 6% to 36% and terms of three to five years. The majority of the company’s revenue comes from banks paying referral, platform and servicing fees on the loans. 

Unlike some other startups, Upstart is profitable, having reported $5 million in profit on $147 million in revenue during the third quarter of 2020. Data the company shared in its SEC filing suggests rapid customer growth. Upstart facilitated 177,000 loans through September this year, up 30% from 136,000 during the same period of time last year. 

Upstart says its model allows it to evaluate borrowers more effectively and accurately than traditional lenders by placing less of an emphasis on credit scores, thereby providing lenders with a larger and higher-quality pool of borrowers. 

“It’s stunning how ineffective current approaches to credit origination are,” said Dave Girouard, who left Google to co-found Upstart in 2012, in the SEC filing. “Applied across the entire credit origination funnel, AI can reduce friction, eliminate costs and mitigate risks associated with lending. The result is a superior customer experience and improved economics.” 

Girouard added that Upstart’s intent is not to compete with banks like some other fintechs, but rather to work alongside them by originating loans more efficiently. 

The fintech currently has 10 banking partners, the largest of which is Cross River Bank. Through September of this year, 72% of loans facilitated by Upstart have been for the Fort Lee, New Jersey-based bank, and fees from Cross River accounted for 65% of Upstart’s total revenue.

Cross River, a community bank with $2 billion in assets, is well-known for partnerships with other fintechs like Affirm, Kabbage and Marlette. 

The concept of using AI to evaluate potential borrowers is not unique to Upstart. Global lenders including JPMorgan and Standard Chartered have invested in technology with similar goals. But Upstart sees a path to further growth through small and mid-sized lenders that do not have hundreds of millions to spare for research and development. 

“While a handful of our country’s largest banks may aspire to build an AI-powered lending platform, thousands of others will look to form strong and reliable technology partnerships in order to secure their future,” said Girouard. “We aim to partner with them.” 

Upstart’s biggest stakeholders are currently Third Point Ventures, Stone Ridge Trust, Khosla Ventures, Rakuten and First Round Capital, according to the Silicon Valley Business Journal.