Leaders in Lending
Leaders in Lending

Episode 50 · 8 months ago

A Fireside Chat with Upstart’s CEO, Dave Girouard

ABOUT THIS EPISODE

Dave Girouard, Co-Founder & CEO at Upstart, believed that young people were "potential rich yet cash poor"—and that dynamic caused them to make poor financial decisions for themselves and the economy as a whole. 

There had to be a better way to provide people with affordable access to credit, on reasonable terms, when they needed it. 

Using AI and machine learning provided that new way forward. 

In this episode, Dave shares how the company came to be and how Upstart provides transformative access to credit for all. 

We discuss:

  • The problem statement for Upstart and the choice to venture into unsecured consumer loans
  • The application of AI in the credit process
  • The choice to partner with financial institutions
  • Adding value in auto, small business, and mortgage loan spaces  

To hear more from Leaders in Lending, check us out on Apple Podcasts, Spotify, or on our website

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But the real right future we see is where the vast majority of people have access to affordable credit on reasonable terms, in the blink of an eye, not through an elongated process or painful process, but when you need it. You're listening to leaders and lending from upstart, a podcast dedicated to helping consumer lenders grow their programs and improve their product offerings. Each week here, decision makers in the finance industry offer insights into the future of the lending industry, Best Practices around digital transformation. In more let's get into the show. Welcome to leaders and lending. I'm your host, Jeff Keltner. This week's episode features a conversation with upstart CEO and founder, Dave Gerard. I've known day for many years, since you first hired me into Google, I think two thousand and six, and so I really wanted to explore in this kind of his his journey into technology, his journey out of the big the big Googleplex, and what caused him to really want to start upstart, how he came upon the problem that he really wanted to solve and kind of the journey of learning the credit industry along the way. What the things that were true were what motivates day. I think the story of the importance of credit to consumers and the journey of many individuals and achieving their life success, including his own, really drives a lot of the company and I think that's a really interesting part of the story and in the true North the company, I think, maintains to this day. Also delving into kind of how I became a part of this story was a really core in the beginning in some ways, and how that evolved, both in terms of importance to the business and also the the depth and breadth of where, Hey I was being used. I think Dave's story is is really fascinating for anybody WHO's starting a new business, for anybody who's starting something new within an existing business. The kind of ups and downs and the leaps of faith you have to take to make an entrepreneurial journey happen, I think are kind of a universal and upstart story kind of embodies all of those. So I think it's a lot of lessons to learn about leadership, about starting something new and seeing it through and obviously also about the lending space and where you know the things up start seeing point to what the future of lending might look like over the next decade or so. So lots of interesting stuff, I think, something for everybody this episode. Please enjoy this conversation with Dave Gerard, the founder and CEO of upstart day. Thanks for doing it on the podcast to day. I appreciate you're making the time. Great to be here. Jeff, this will be an interesting one for me because you and I know each other pretty well versus meeting of my guests that I don't know as well. But I really wanted to start the conversation with you know your life pre upstart and like walk me a little bit through how you ended up in you know, it feels like it too interesting places, at interesting transition points and cloud computing at Google back in the early and then in Fintech right now. You kind of find good points in the wave to ride them. It feels like. Yeah, I mean, I guess to go back to the beginning a little bit. I mean I grew up outside of Boston in a suburb. You know, I born in the s grew up in the s eighty, so I'm a lot older than most of the founders and steal in valley for sure, but you know, my parents for like first in their families to go to college. They have that sort of you know, moved to the suburbs as the greatest thing you can do and get a job and work your way etc. So like the whole emotion of entrepreneurism, it's that's a word wasn't really, honestly, in my vocabulary or family or DNA at whatsoever. It was really about just sort of that more traditional path of a career. And you know, went to a great college and you know ended up coming out to California in the early to mid s and of course landed in technology and I've been here ever since, twenty eight issue years out here. So I quickly gravitated. I mean I studied computer science computer engineering in college. I wasn't destined to be a programmer for my life, but I was certainly kind of enamored with the potential for technology in and so you know, that's what got me out to Silicon Valley. I had a stint at apple like way back when, you know, another startup that wasn't my start up, but you know had some start experience in it and then landed, you know, quite a few years now, because two thousand and four at Google and that was a little fortuitous. It wasn't yet public, so were he quite knew what to make of Google, you know, until they saw the numbers and they knew what to make of it. It's hard to think back to and Google was an unknown quantity of like is this a good call to joint or not? But that's that's what it felt like back then. Yeah, I remember like driving there to go to an interview and in thinking wow, these people work for Google. I'd never met someone who works for Google because it was quite small and it was just this really search engine that was getting to be famous, but still wasn't really clear, you know, what exactly was going on in those buildings. And so anyway, I was very fortunate to have landed there just at the right place at the right time and and, you know, spent eight years. They're building what is now called Google cloud. You know, didn't call that then, but it was. It was the cloud applications like Gmail and in Google, dox, et Cetera, as you know well. And so that was kind of like a nice pioneering thing, with some of the challenges being that Google had this crazy runaway business, advertising business that in substance, as...

...you know all. So we always had to compete with in terms of resources and attention and hard to be the little brother, little sister to one of the greatest financial innovations in the history of mankind, which would be the Google advertising system. Yeah, that is maybe the greatest business innovation and history, just the way that thing, prince, could take earnings call it seemed to continue to go well for yeah, just doesn't even stop the so now tell me about the decision to lead, because I remember me and I left, and I used to tell the joke that my mother in law, you know, you hired me into Google, you hired me out, and she thanked you for one of the two, because it was kind of like the blazing leave, right, it was the thing. We want her over on the upstart. But you know, and I remember when I left, you had already started, started up start. You had some you know, sense of where you're going, and that felt like like maybe a crazy decision, but you were. You were leaving, you know, maybe the greatest place in the world to work, as people like to point out to me, with like nothing but an idea and some hope that somebody would give you some money. Like that seems like it's hugely what got you to the point of saying this is something I want to go do. Yeah, you know, I had been there for eight years. The the APPS business had grown into, you know, about a about a billion dollar revenue run rate and all the way along, as I said, it was kind of a secondary, frankly, business for Google and I always thought once you get a hundred million, once you get to two hundred million, once you get to a billion, you know it's going to also be the center of the universe there. And of course it was just you just keeping up with the advertising business. So anyway, it was a great success. I mean it's actually heartwarming to me that it's so big today and they're carrying it, for it's more than a twenty billion dollar run rate business, and so it's really it would have been very saddening if they had just sort of written it off after I left. So but in any case, you know, having been there eight years, I kind of always wondered, you know, it went really well for me there, but was it? Was it me or was it Google? You know, could anyone have walked in there to those doors in March two thousand and four, sat down and just started turning knobs and built a great business because Google just had such course strength. So part of it was, you know, I wanted to prove it to myself. Part of it was like I was there for eight years, I could stuck around for another eight. But, you know, is this the last cool thing I'm going to do with my life? For I'm going to take a shot at something different, and I'm not sure I ever imagined I could leave Google and do something cooler, better than what I had done there. But that's, you know. I fortunately I had made some money so I had the financial freedom to do it and my wife was behind it. And so, you know, when you're in Silicon Valley for twenty some odd years, at some point you decide you want to be a founder and you want to try that, and I do recommend you don't wait until you're forty five years old to do that, generally speaking, but that's that's what I did. Well, if that's your advice for me, I'm running out of time by well, you're all pretty much a founder here, so close. So tell me about the initial like what was the problem? I feel like most founders, more than falling in love with a product that they have or an idea. It's like it's a problem in the world. That is the thing that drives them to say, Hey, this is a thing, I've got a fix. Right. What was that problem as you saw it, when you are sitting at Google and you said, Hey, this is a thing I'm going to go and as my shot as a founder to take, to take a shot to do, and that's like this is what I want to go try and fix. Yeah, you know, I'm not a purest to say like the only way to be a founder is to have an idea that you're obsessed with and fix and you can't. You know, there's a lot of people that say this is the only way to do it. That's the only way to do it. I guess for me, like I got the idea of starting company would be cool in ideas were coming night and day to think about. I just I just met an open mind to look for things that could be in string companies for a period of time. You know, I literally started thinking about the notion. I had a really nice cannon s l our camera. I really hated how I had to like take it home and connect it to my computer to get the photos out and I was like maybe I could have like a st storage that was actually a bluetooth sort of device. It could stick it instantly on my phone. I literally wrote this down in like a Gmail draft and said, you know something about a Bluetooth you know, s SD card for for a nice camera, and and and then the next thing after I wrote it is like letting people borrow from their future income. And it was just randomly, through some series of conversations, where it just kind of became clear that young people are kind of potential rich in cash poor and that sort of potential rich in cash poor situation made them sort of make decisions that ultimately weren't awesome for them, weren't awesome for the economy, and so it really was just fascination with access to capital and access to credit, how it worked and, you know, didn't immediately lead to what upstart has become, but that was really the thread I started a whole way back then. Interesting and how did you go from you know, young people with potentially, you know, I like that phrase, more potential than access to credits? An interesting concept, but how do you go from that to unsecured lending? I mean that's like, you know, there's a lot of things you could do. That almost feels like student lending in some way is the thing that you're going hey, how do I like enable people to pursue their dreams? Education seems like the thing or, you know, certificate programs, of boot camps are...

...in that kind of space. And you ended up over series of times on like unsecured consumer debt, which is just not the obvious place. Talking about how you got there. Yeah, you know, I think when other times, when you start a company, you have this thing drawn up in the white board that you're fascinated with and you love and and and in our case it was what a became to be known as income share agreements. It was similar to alone, except you could, you would essentially pay back as a fraction of which you earn instead of a by a defined interest rate, and so it was this very novel concept. In mean had been kicked around sort of in the University of Chicago School of Economics kind of thing for for a long time, but we were, I think, the first company to really make a go of it as a platform. And but the reality, of course, is, you know, that whiteboard meets the cold reality of the world and it's the outcoding, not always pretty and effectively. We chased this kind of business model for about a year, bit more than a year, and you know, kept trying to turn the knobs and see what we could do to make it work. But but ultimately it wasn't kind of scale was it going to be a successful company. We didn't have a much cash left and so we, you know, toward the end of two thousand and thirteen, decided to move toward a much a product that existed in large scale, which is a consumer loan. The real insight that ended up making it a success was, you know, Paul, my cofounder, had built a model to predict what somebody was likely to earn over the their career. That was the thi you price an income share right, you have to figure out like yeah, yeah, it got a putting a brace on that thing. So we had a model that would predict, you know, given everything a new about you, what you're likely to earn over the next decade or so. Well, we sim over a very short pair of time, Paul transform that into a model that said, what's the likelihood they're going to pay back this alone? And so sort of like asking different questions of a model and loan behold. Starting in two thousand and fourteen we had what became a very unique credit origination model that use data, both traditional data and data that traditional and just weren't using those very simple, simplistic back in the time. But I'll just say that the day we sort of pulled the lever and move from income shares to loans, it started accelerating very, very quickly. So suddenly dawned on us that creating a bespoke market from scratch is no small task. It's no small task to step into a giant, heavily competed industry like lending. But in the end for us it was obviously the better the better step. Yeah, the thing I remember most about that, that those months, was how risky the decision felt in advance and how obvious it felt a retrospect. I mean you turn it on, you watch it, sorry to go. How did we ever think this was a was a questionable call, but it did not feel obvious the time that we were at the first call. I mean it's hard to like do with something even if it's not working. I mean you put so much into it. It always felt like maybe the next turn then around the corner it was going to start working. So it is hard to work away. And you know, the chapter of the upstart book that we will omit is the one where we did hedge and we did look for a period of time, I'm sure you recall, to actually having both of these products in parallel, just just to sort of have a loan, do an income share, and I'm that sort of thing, which we invested in for a few months. We shut off in about a week because it became clear what everybody wanted and it wasn't the income share agreement now became obvious. It took really bit about like the unsecure like you could have. We could have asked Paul to kind of predict student loan repayments other things. We kind of set it on unsecured consumer debt in the kind of small arrange and student loans shorter duration, at three or five year, versus a student loan it's often ten or fifteen. Talking to me about the parts of that market that make that a more compelling place to start from your point of or why you didn't go somewhere else. Yeah, I think it's really a question of what as a non bank technology company, you know what can you play, what can you prove? And secured loans, whether those are cars or homes or what have you, is just a lot to those a lot to prove. Credit Cards. The funding structure of a credit card is fairly sophisticated. You know, a an unsecured personal loan. First of all, obviously the thin text were largely creating the category, the lending clubs and prospers at the time where kind of essentially had been creating this category out of almost out of thin air. So it was clearly doable. You know, even if you had, even if you were selling loans to hedge funds at fairly high returns, if you had a strong enough edge and your model, you could get started. So in some sense it was doable, and that's probably the first thing. But the second thing also is it's really kind of the purest form of credit. Right. You're just underwriting an individual. There's no collateral and in some sense it's process why is the easiest and its model wise the hardest. So that was a good fit for us because we had real modeling advantages, we believe, and I think we're proven to be true. But we of course, you know, the idea of trying to like all suddenly build a mortgage origination product out of scratch, you know, certainly felt beyond us at that time. Yeah, it's really interesting thing about where your strengths make the biggest difference in the market and focusing in on that, which, it's felt like the right decision for the company at the time. So we've used...

...the word model a bunch and it may upstart as maybe at the forefront of what what we term ai lending, and applying a I was ai or machine learning always kind of central to the thesis and central to how how you were thinking about what would differentiate the company, because I it's very much center of what we do today. But I'm curious that that was always in your mind the thing that was going to be the differentiator of the focus. Well, you know, in the early days we certainly didn't use those words. We definitely thought more data in better math, right. So, and they kind of go together. The more data you have, the more you need more sophisticated math to make any sense of it. But we really, you know, it was like in the beginning it was Monte Carlo simulations and a few other things that were probably better than what's out there, but not dramatically. And we started with two or three dozen variables assembled together to create the first version of the model. So I definitely think we saw the road ahead. We knew what we were aheaded. I don't think we would have been so bold to call it ai in those days. Probably would have been a stretch of the term. But you know, over time, certainly is the amount of data and the sophistication of the models grew, it became obvious that that's what it really is. It's a using AI and or machine learning to sort of predict the future, to make credit decisions and in a bunch of other things as well. And but again I think we knew the path. We didn't quite have the vernacular, nor do I think it would have made sense back then. Yeah, the the initial models were not sophisticated enough to probably earn the time term. That's right. I think they are now. I'd like to SPLOIL A to that how the usage of AI evolved, because there's both the sophistication of the initial model the kind of income prediction turn into some version of can you repay. And then there's all other sorts of parts of the lending process to which upstart is now applying Ai. So talk a little about the the journey of like how do we think of AI in the process and how do we go from the one problem who deserves access to credit? How we think about likelihood to repay to applying that more broadly to the problem of getting a consumer alone? Yeah, when you when you think about lending, in the life cycle of lending, there are risks all along the path. You know, all the way from the very beginning. If you if you're going to spend some money to send directmailed a bunch of people, you're risking that no one's going to respond to that thing and you just do some money down the toilet. Obviously, writing. The core of it is is is the decision about who you lend to, and in there's a lot more, but in the very beginning the only thing we really tried to do was say, will this person default or not? What's the likelihood for this product that they're applying for, and so it was a very binary, you know sort of thing. What's the percent likelihood are default? That's simple, and there was a lot of room for improvement just in that and so that's where we got started. But over time, of course, you start to look through the whole process and you say wow, all along this path there's ways to be better modeling and better predicting the future, de risking the process. So you know, for example, the credit decision itself, it's not just important whether or not they default. It actually really matters when you know, someone who defaults in the ten month for loans very different from someone who defaults in the third month of Alan. And so we, over time, you know, probably over a period of years, turned a model with a sort of binary prediction into one that literally predicts the likelihood of default, and or prepayment for that matter, each month of a loan. And that switch, which we flipped, I think, in two thousand and eighteen something like that, was the single biggest upgrade to our model we've done. Now, of course, in online lending there's a lot, a lot of risk involve, a lot of potential fraud, a lot of misrepresentation of credentials. So we also began to apply, you know, what we do to the problem of verification, where essentially you wanted to do is make the borrower, do as little work as possible, but verify everything you can. In the early days we just had a hard rule. We were trying to build that credit decision model. So we just verified every input to the tenth degree. And it's like hand. WAS THAT BY HAND? We're talking everybody, look at it everything. Yeah, it was just really a but you know, the average applicant would probably upload for ish, fiveish documents and they'd be reviewed. That the phone calls to be the everything. And over time we began to build more automated ways to do it and we also began to build models to if you knew four things about somebody, what was the likelihood the fifth thing was true or not true? So began to apply machine learning to that part of the equation. And you know, if you fast forward to today, you know vast majority, more than two thirds of our loans, there's no human involved on any side. There's no documents to upload, there's no human involved, and that's a short a degree of sophistication. You know, we were able, we've been able to get to over one. Yeah, I think that's fasting to see both the increase in sophistication and the core problem that you started with and then they're like hey, there's there's lots of other problems we could take this same concept apply to improve the process. That's kind of how I guess growth works in a business. Talk to me now about the you made this decision. You know, somewhere down the path he started with, you know, a going a bank partner route where all the loans were really originated by by a bank and not by even apply for charter state licenses and...

...become a lender the way, the way some fantax have pursued. And then, later on, the decision to partner with more than one bank, to make this kind of a technology that you were making available to banks, to crush it to banks and credit unions and other lenders. But why that decision? Why the why the path of working with existing financial institutions versus the kind of disruptor? We don't we're going to throw out the banks, a bank as the old way. We don't, we don't need them that. I think a lot of fintex take that approach. This is very different. I'm curious why you thought of that as a right approach for upstart. So in the first few years I think we just wanted to make a product that worked. We weren't in position to go, you know, work with two hundred banks or five hundred banks. We really just wanted to prove we could build a better product and we worked with one single bank in those days to make it work. I think we reached pointing the history where it felt to us that this sort of notion of being a brand with a hidden bank behind it and sort of selling moans to hedge funds or whomever, maybe through to securitizations, was ultimately the best business model. And so we kind of saw fork in the road where, you know, either you become a chartered bank of one type or another, you take deposits and also that improves your cost of funding, it improves your liquidity at setter's a lot of great reasons to do that, or you just say we're not a bank, we really want to be a technology company and partner with banks. And you know, as a lot of us, being like you and I, are ex Google people, becoming a mank didn't feel natural to us. It just felt like look, we're building great technology here. I don't know if we have the DNA of being a bank ourselves, but there's a lot of banks out there and and I don't think it makes sense for most of them trying to replicate the kind of things we're doing here. So I think we took a what ended up being a unique path. I don't I don't think others in our peer group or industries really decided this path that for us it made a lot of sense and it kind of main all setten. We can't just work with one bank, we have to lots of banks and that opened up a whole bunch of new sets of capabilities and functionality we needed. But I think several years later now it's been proven to be a great path for us. Yeah, the interesting part of that path to me is that it introduces a number of people producing oversight or or looking at what you're doing and wanting to do diligence and particularly with the utilization of Ai and an environment where that is, my regulatory point of view, not as well understood. How to think about how regulations apply? How do you think about working with your partners to make sure, hey, what you're doing in this space? It's kind of on the cutting edge and maybe where legislation and regulation has kind of fought about how to how to engage, like how do you work with them to get them comfortable and feel like you're supporting those partners to that journey, because in some ways it's easier not to have them on board every to go a abs or what do you think about this over here and with you know, got from the CPP said something, so you know it's comes with the downside. I'm curious how you think about engaging with those partners to make sure they're comfortable and, you know, in support of what we're doing. Yeah, I mean, I think very early on we knew that banks are heavily regulated and conservative by nature, and they should be. So working with them building a product that banks would adopt really meant kind of seeing the world from their position and providing the types of controls and visibility and data that that meant they could do this responsibly. They could do this with their own policy, with their own risk appetite, with her own business objectives and ways that they just had a lot of degrees of control. This is an upstart originating wounds for you. It's a tool set that allows you to originate moans better than you could yourself, and you know so. Also in the company is both a consumer facing company but also really enterprise company selling the most sophisticated of technologies into one of the largest and most important industries that we have in the US, and so pulling those both office no small thing. Also, you know, it became obvious this is not a you know, do things wrong and apologize later, you know, move fast and break things type of industry. So we began to engage with regulators really from the inception the company to say hey, we think what we're trying to do is going to be very good for the American consumer, it's actually going to be very good for lenders. And so I think literally back in two thousand and twelve, before we even got started, we marched up and met with a CFPB and kind of open book, showed them what we're doing. And then, you know, over time, as we started to look to working with banks, took some of a similar approach with FDIC, the OCC, the Federal Reserve, etc. And I think perhaps little naively, you know, Silicon Valley Company just saying hey, here's what we're going to do, we're kind of open in the Kimono to you. What do you think? But I think it's paid off and you know it's never perfect. I view it as an area that we would need to invest in along with our bank partners for a long time because it is cutting edge technology. There's a lot of suspicion about ai and what it could do and could introduce bias, is it explainable? All these myriad of issues. So we have needed to proactively work with regulators, both directly and with our bank and...

Credit Union partners, because it's a whole new area of technology and you just can't expect the world to just embrace it overnight. It's going to take a lot of proof points that this is a good thing, it's helpful to banks. One of the most important things is it's going to allow more banks to be competitive. Right. That's our belief is is you're going to have success of more banks, regional banks, community banks and and the largest of banks, despite the onslaught of technology and fintext and everything else going on out there. But you know, it's a journey and we're it's a journey will never be done with. But those are what I would say the two big pillars that we had to sort of take on when we made this move. Is One is having a product that works for banks gives them degrees of control they want. And number two, of course, is sort of a constant effort to work with to work with regulators. It's a it's a fascinating space to be on, very different than the pure SAS space that's a little little simpler. Yeah, the challenges are I don't know, it make strong companies, I think in the end. One of the other interesting decisions that upstart made that I think it's very different than many finex in the space was to focus almost exclusively on a single product for what feels like an extraordinarily long period of time compared to many who are coming out there with I'm going to have all the products, lots of stuff, and two or three years, why that focus on on one product? And then obviously auto lending is kind of phase two and there's more stuff coming down the pipe. So I'm curious why the focus on keeping really really focus on a singular product for that long? And then what made this the moment to say hey, it's time to go and really start putting a lot of beds in different areas? You know, I a little bit. I would say the DNA of the company in the founders. You know a lot of Silicon Valley is extremely good at raising a lot of money. When you have a lot of money, you've become very good at spending. A lot of money usually means to hire a lot of people and a lot of people you're just actually going to want to put a lot of products out there and it all sounds good and you're kind of hoping it works out. Sometimes it does, but I think we were that a little more one to really prove we had something. We wanted the product to work for banks, for consumers, we wanted the unit economics to work and we just didn't really see a place to sort of replicate what we were doing until we really have the confidence of working and that took quite a few years and I think we will have you know, we're hopeful that this will prove to be the right path and along haul we're now moving pretty quickly into auto lending on the platform and to ask for a variety of reasons, that was a logical next step, but it took us Serius to get started and now we're finally really beginning to see progress on that front. So we will go broader. We but we really felt the base had to be exceptionally strong. We're going to do more work to do auto, more work to do a small business product, more work to do a mortgage product. Eventually they all require a lot of work, but the stronger the basis, the more proven it is, more confident you can feel with dealing with the differences between these products, which are not not small. Yeah, I think it's it was really it's so interesting that you focus on really getting to positively and economics, like a business that works before you expand, because so often a startups they don't do that and so often, I think in fintext, they're focused on solving the business problems. The next product will just like it'll fix all of our you, all of our you. That can always get fixed. That we just have. Yeah, two more things to put out the door. It's like the Change Bank, right, we volume, we make it up in volume, but anyway, sometimes that doesn't can't make up losses with more losses. Actually. So I think those just space and those are really the key focus areas now for new products as that kind of auto, small business mortgage. What do you find as a unifying thread for how you see upstart improving outcomes or like adding value in those spaces because it's it's easy to go to a bunch of places. I think many institutions feel like their goal of having those products is to have them so when they have a customer they have all the things a customer might want are available. And I feel like up starts ethos is a little more like we're going to go into a space if we think we can make it better in some meaningful way, if we can, if we could add value to the consumer of the Bank but improve the outcomes. How do you see that thread between those as far as like how the how you upstart adds value to the the ecosystem of those spaces? Yeah, I think that the sort of common thread is we look for inefficiencies in the existing market, existing products and in ways that mean that consumers aren't being particularly well served and maybe banks aren't doing as well as they could in a category. If there's no inefficiency, then you're just going toetote and there's no margins and and there's just no win in it, you know, you just kind of it's just a fight, a zero sum fight for market share, and we're not necessarily interested in that. We're looking for fairly transformative opportunities to make the product way better from from both parties. Construct and you know, so auto for example. Clearly I also say we're trying to be increasingly meaningful both to the consumer into our lending partners, meaning personal lending. You know, it's a fairly new product. We think it's incredibly useful. I like to call it the duct tape of credit. Conser humors love it, banks love...

...it last but they're warming up and but it's a useful product. But of course it's not a centerpiece. It's hard to say everybody in the country needs a personal loan, but most people do need auto loans. Most people eventually, if they want to be homeowners, need mortgages. Most small businesses need to tap credit. So we look for very large categories at it really, in our view, under served, not really great solutions or offerings from the borrower perspective or from the lender perspective. And you know, I guess it's a little Amazon like. I mean Amazon always says like your your margins are opportunity and I just inefficiency right. Whether there's just a room where better models, more sophisticated elimination of friction can lead to better outcomes for all parties involved, and that's what I think is the real opportunity. If we talked about auto lending, for example, you know we're getting involved now. We're in a business where there are consumers involved, there are lenders, banks and lenders involved, there are car dealerships involved, so you also have yet another party in this thing. But in our view the market works so poorly today that's there's a chance to build product that leads to better outcomes for all three of those parties simultaneously, and that's actually, in our view, ultimately, what you want to achieve. You're not you're not here to like put them out of business or them out of business. You here to really do something that can be a win all around, and I think we have that opportunity. Yeah, that's the thing I always come back to for the business as kind of that core insight that, like many more Americans are credit worthy than we understand to be so and if you can close that gap, then there's there's wins in that for everybody. That consumer can win, the lender can make more money, lower losses that the dealer can serve more consumer. So it's that that cornside really has a lot of legs. Yeah, one of one of the you know, Main Message II fee really feel like we need to deliver better to the market is, you know, credit score, FYCO, was invented in one thousand nine hundred and eighty nine, and it clearly was a very novel notion, sort of a universal number you could look up, not for everybody, but for increasing fraction of Americans to have a basis but by which you could decide if you could make a loan or not. And of course, before that, God only knows, she had people sitting across the desk from each other asking questions and more problems than you can count in that process. So it was an advancement. But but frankly, if you look between nineteen eighty nine or ninety and and today, have we really made strides forward in terms of inclusiveness, in terms of access to credit on affordable terms? I'm not really sure that we have. I don't think the world looks much different in terms of who can get alone at what price. So we really feel this sort of use of technology, AI, machine learning applied to this very large segment, which is such a big part of our economy, is long overdue. I mean it's wonderful cold computing and a I've all sort of come to the forefront and the last decade and it's an unlocking this thing. But the real bright future we see is where the vast majority of people have access to affordable credit on reasonable terms, in the blink of an eye, not through an elongated process or painful process, but when you need it. Because you know someone who grew up as a product of really high quality access to credit, I'm almost like a testament for when it works well. I grew up in a family, you know, with effectively known net worth. I was able to go to a great college and finance that. I went to a great Grad School of Finance that move to the west coast, but my first car bought, my first home, fund my way to Google on my found it upstart and you know, all on the way. If I did not have access to affordable credit, there's just none of it would have happened. So I'm sort of an example when the system works well and I'm very grateful for that, but there's just many, many millions of people who would never would have had the chances I had and that's what we're here to fix. How do you think about it upstart, as there's the company grows, keeping People's focus on that? I mean I feel like all of financial services, when I talk to people, and banks and credit unions, have an obvious kind of affinity to helping consumers and saying, Hey, we want to get watch the George Bailey it's a wonderful life, like going out using credit to enable and then you read the stories and others, one about some the credit card banks where for so many people in the institution it becomes a game and they're like optimizing outstanding balances and like revolving credit because that's where the money comes from, and you're turning knobs and you lose sight of like what you're in it for and you kind of start making choices that aren't as good for the consumer because they're a little bit better for the business. How do you think about driving the organization as it grows, and it grows very rapidly, to maintain that focus on kind of the true north being how do we help people have more access to credit and not turn the knob to optimize gross profit margin or something like that? Yeah, I mean that's a first of all, you have to start with, alignment, meaning what you hope is success with of Your Business, growth of your business as well, aligned with this mission you theoretically are pursuing. If there's misalignment there, it's really hard. So just take I mean I don't want to pick on any particular social media companies, but if a social media companies goal is to keep you using the product as much as you can, ultimately you have misalignment between...

...what the consumer wants and what you need as a business, and that misalignment is really hard to address, because I don't think any of us believe being on our phones all day long is a good thing. I'm not, frankly, sure if the metaverse and immersing ourselves further in a fake world instead of the real one is a good thing. But so. But from our point of view, I think we have really good alignment. When we grow, when we enter new categories, when we bring more banks and lending partners on board, when we serve more consumers, it is generally because we're giving them better than they had available elsewhere. So that alignment is fun and only it's really hard to change. I mean, if we didn't have it, we wouldn't have it. We fortunately do. So that's a good starting point. From there, you know, I would say, you know, being a mission oriented company means not having to say your mission oriented company. You should just feel it and everything you do, everything you talk about, naturally, is about how do we improve the product for the consumer? How do we make it easy and better for lenders to serve the consumer? And it becomes obvious, like why you're doing this. So you know, Google, Jonathan Rosenberg always said, you know, repetition doesn't spoil the prayer. He didn't make that up, of course, but you know, and as a leader and companies like this, you just have to, you know, day in day out, keep reinforcing why we're doing what we're doing, challenging anything that seems to run in the face of it or in the wrong direction. And we kind of know our success is, is the world success and in a way that we feel inherently. And so that that alignment and then just that, you know, sort of constantly reinforcement of where we're going and how we make decisions, how it drives what we do sort of keeps on the right path. Yeah, I think that's an interesting point, that it's not about missions out about talking about the mission, missions, about how you ask questions in the product, in the business and the daytoday execution it. Does it align with what you want or not? Ultimately, could put the big every company's got these mission statements on the wall and you're all doesn't feel that way when I'm here, and that's yes, that's a wrong with capturing things in words because they become a mountable and repeatable. So I'm not against mission statements and not against value statements. We have those, both of those things. Yeah, yeah, but but ultimately they don't certainly don't make the company they don't make him more real than what is already real in the company, and I think we live it every day. We have free founders that have been here since day one and that really helps us stay true to the mission, the creed. And one last area I want to delve. It's is a clearly ai transforming the the consumer, finance, probably the business finds a linning space. Is something you know you see coming. What are the other interesting trends you see in Fintac or finance in general? With there's kind of like the BNPL, the embedded payments, there's all sorts of like stuff going on Crypto. Are there other areas you're going hey, this is the this is a thing I think is really got some legs. What do you what do you focus on over the next couple of years? Yeah, I think, you know, I certainly am a student of Crypto and I think it could be one of the most overwhelming changes that any of us will experience in our lives. It spening, where goes and it's a little unclear. I mean I think, you know, I love to watch foot square and now called block is doing, because you know, they're really building an incredible ecosystem both of consumers meeting they have a huge consumer presence, but also merchants. And so if there's anybody that was going to flip a bit and suddenly you're using bitcoin and pay for something and instead of a visa master card rails, it would probably be, you know, square or again now called block. But so I think that area of technology is I mean, there's a lot of other things that are good and helpful important that that I think are just making business more efficient, making things easier for consumers. But when I think it's something truly potentially transformative, certainly it's sort of web three in what could go on there and it's certainly an area that we are going to be involved in over time and I think at the right time will we want to make sure our partners have a foot in this as well, because if it is that transformative, if you are a financial institution of any type, it's going to be part of your future and and I think we can be an ally for our our partners out there to make sure that they're on the right side of things if and when and as as crypto plays out, so to speak. Yeah, I've certainly. I think students a good word. I don't feel like an expert, but it's there's too much interesting stuff and that the amount of talent pouring into that space really seems to indicate that like that doesn't typically happen. Less there's yeah, this you may still be a little unclear in the value prop of Crypto and I certainly question it in certain areas. But, as you say, yeah, when the technology, when the Sile, when the talent sort of moves so quickly in one demand, in one direction, it's almost inevitable, I mean, that something very big is going to come of that. And there's not really a history of technical talent wholesale moving towards something so quickly where it didn't become, you know, enormous fairly soon. So so I think it's inevitable. I think there'll be a lot of flame oups. Of course, not everything's going to work, not every coin is going to work, and some of the propositions I find a little dubious,...

...but I think there's going to be some very, very big transformative winds and we certainly want to be a part of that. Absolutely. Say, was there anything else? I got my kind of closing three questions that I ask everybody that I've got for you. But was there anything else you thought we should cover? It? I say there's more like a performance review when I ask this question there. But good use a little diver like was there anything else you felt like we ought to cover or topics you want to talk about that I didn't ask about, I guess. So maybe I would just ask back to you, Jeff, like when did you know you made a good decision to come to up start? It's a hard question. I would just say. You know, there's the question of like, did you make a good financial decision? Like was was giving up some salary frequitally. was that a smost of my you. That's, of course like that. I think I'd made a good call, and did. I convinced my motherin law and made a good call. The second one, probably it took a while longer, but to me, the amount I learned coming in day one, and this is for anybody listening, like joining a start up. I was a fourth or fifth person in the door, depending on a WHO whether you get Alison orry on the podcast to talk about it. I get the microphone, so I could say here. But you know just the amount you learn and that that experience is incredible, and I I mean I joined you at Google in two thousand and six, right at the beginning of the cloud wave. But it is a whole different thing google. The Google Business Card got you so many meetings that you couldn't have gotten and it just kind of like it's like playing the game on the easy level, not that it's a hard game, but you're not on the hard level and doing it on your own is is a whole different level and I had that learning was in valuable. So I knew I made a good choice from the very beginning from that point of view. And then you know, I think I think one of the one of the other points, and you can talk to this, is that you never the the the success people see from the outside or any startup or new venture. It can look like, Oh my God, you guys just killed it and and there were points along the way until very recently where you went man, maybe maybe we're not going to get get there. Never feel nearly a certain from the inside as it looks from the outside, and so I think from that point of view it's been a it truly is a roller coaster. I think people who haven't been through the real company starting experience don't appreciate how on the edge it can feel for how long, even on the outside work, as I'm like, I used raised a ton of money. You're looking so successfully on. Man, it's I mean I think even in the best years of the company, if you looked at them day by day, each day would look like a struggle. It would look like work. They they, they only tend to look really nice in retrospect when you're past something and you see the aggregate of what you've achieved and and hopefully it's a good thing, but but it's it's an experience. I would never give up. It's not for everybody, for sure, and I think you know, even if you're not going to be in a startup, not going to do a startup, there's things you can take away into your own job and, you know, being a leader of innovation, being the person that's going to stick their neck out a little bit and and push things forward. You know, to me it's always about that. Is just how do you make steps forward? How do you, you know, move a little beyond your comfort zone and say I have this idea, this vision of where things are going for my company and and I'm going to really, you know, do something new and different to get there. And you don't have to do a startup. It's not, again, not for everybody and and so many of them don't work out. So it's not given everybody should do that, but I think there's something almost anybody can learn from you how startups work and what makes them special. Yeah, I guess that. When I get asked for by crevice, ask you for your sin. Like one of the things I always tell people's like I've always looked for jobs where I felt a little bit like like I can't quite believe that I'm qualified for the thing and that you offered it to me. But like I feel like maybe I could figure it out, and that's always felt like the place where you're to your point, where you're learning. We're going, Hey, I'm I'm there's something here for me to learn and contribute to. But if it feels comfortable, it's probably not. Maybe a quote tell lass a right challenges, like riding a horse. If you're comfortable all you're doing it, you're probably not doing it right. The last time. I love tell us, but like, I think that's always the way I viewed it upstart as bits been at in spades right from they one. You kind of went, I don't quite know how I'm doing our I'm supposed to do it or what its supposed to be. But like I think with little bit of hard work and a little bit a lot we can figure it out and make it for point at a point be. So let me let me start all these kind of three closed questions for you. Number One, what's the most valuable leadership lesson you've learned during the course of starting and growing up start? It's been it's been quite the journey from, you know, your wife and kids in a tshirt to say congrats for leaving Google, and it would nobody's with you, but we are to you know, you know, go for a thousand and I think five hundred people in the company now and and Ipoh. But like what if? What's the most valuable kind of leadership lessons you've learned along that journey? You know, I think maybe the first starting point is kind of self awareness of who you are, why you're in it, what you think you're good at and what you're not good at. So a real dose of self awareness to start with, because in building a company unique, first and foremost to surround yourself with people that makes sense, meaning you can share the mission with them, but hopefully they bring a lot of skills and capabilities that you don't have in your complimentary and because, ultimately, you know, we've been up and down and all around, as you know. I mean we usually could have failed and but out a business many years ago, but we saw our we through it,...

...and then I think we got to this point several years in where even when the worst thing hit us in the face, we really didn't flinch. We had huge confidence that this team could work its way few things. So you know that self awareness, I think, leads to having a team that, if you do the right in terms of recruiting and you can get the right people in the boat, leads to a strength of team and ultimately that's the key to success. It is the strength of the team itself. It's not choosing the right product of the right market. I mean over time you have to make good decisions and execute well in the right team will help you do that more often than not. But it's that team, a core team, that I think is ultimately the predictor of your success. I mean, I can happily say, as you know, so much of our leadership team has been together either from the very beginning or from many years. We have very little turnover and it just kind of means when the next crazy thing in the road happens that, like covid for example, you know you're just in a place where you can navigate an execute, do things well, feel comfortable that this team is going to navigate these these turbulent waters, whatever they might be, and if you can just get yourself to that position, everything feels much better. I almost feel like it inverts it a little bit, like like the challenge becomes the opportunity go hey, if it's hard for us, just imagine everybody else it doesn't have this group of people in the room to tackle it like it kind of I feel like, at least for that team we almost get to go. I know it's going to suck, but it's probably good for us competitively because we feel like we can whether that's storm better than most and we'll make better decisions because sure the quality people all right. That's what be interesting. I usually ask bankers like what's the best piece of consumer banking or consumer lending advice to get there? They're off of come back to me twenty years ago when I was going through training, and you've come into the space a little more recently in your career. Then, all the way back. What's the best advice you've gotten about entering the consumer lending or the consumer banking space? I think you know, ultimately it was the advice early on from some legal folks we knew even before Alison had joined, to say like you should meet the regulators, you should take that path, because it was sort of it. There's many people in still look in valley who I think, would have said, you know, run under the radar as long as you can and then eventually you'll just talk to them. But we sort of took the counter advice to go and really be, as I said, open Kimono early on, perhaps naively in certain ways, but I think the trusted engendered over time, not not purely. I mean there's still plenty of that don't know us. We is a very wide array of regulators and attorney generals and lawmakers and advocacy groups and you can't win them all over once. But I think having that like we have nothing to hide attitude, we will share what we're doing with anybody. Were proud of it. We're dedicating our careers to, you know, improving access to credit for people. So so I think when you have that you know go back to it is is yet if you're confident proud of what you're doing, in the case of what we're doing, work closely with the regulators because they matter a lot. That was that was certainly fascinating advice and I got certainly was given the counter advice off of like what are you crazy? People do on talk in the regulators and I think it's paid off in spades. All Right, last question for you, Dave. What's one bold prediction about the future. So, I mean, I guess usually I got to bring up guests back on too to see if they were right. Right. Yeah, I get to see you more frequently. So what? We'll get to check it on this one more. No, do no sort of context for that, just a bold prediction about well, I've had another Brady Super Bowl, which I guess who ever said that is because losing their bet, because that's not happening now. But you know, any, any you can keep it in the banking space, you can put in the metaverse wherever you want. Yeah, I think we're going to start to see a lot of new banks being formed. I mean I think the grounds, you know, we went many decades were without really bank formation almost at all, and in suddenly we're seeing some some fintext pushing through and there's some charter OCC chars and MILEC stuff happening, and I think that can only, you know, go in the direction of more and and if there's if there's people that come together to create these businesses and pursue charters, I just don't see how. I think it's good, by the way. I mean I think naturally any market should be able to have new competitors and incumbents and it's been a emerging of banks going on for a long time. But I think we're going to start to see some real new competitors in the industry and I think in a helpful way, in a way that's going to be good for the instrue overall. It's really going to change things and drive change. But so I think we'll see a lot more vibrant industry looking forward than I think we've probably seen recent times. More partners for upstart. Let's hope. Let's hope. All right, Dave, I appreciate your making the time. This is a great conversation and it's really great to have you. Thanks, Jeff. Great to be here. Upstart partners with banks and credit unions to help grow their consumer loan portfolios and deliver a modern, all digital lending experience. As the average consumer becomes more digitally savvy, it only makes sense that their bank does to. UPSTARTS AI landing platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional credit models.

With fraud rates near zero, upstarts all digital experience reduces manual processing for banks and offers a simple and convenient experience for consumers. Whether you're looking to grow and enhance your existing personal and auto learning programs, or you're just getting started, upstart can help. Upstart offers an into end solution that can help you find more credit worthy borrowers within your risk profile, with all digital underwriting, onboarding, loan closing and servicing. It's all possible with upstart in your corner. Learn more about finding new borrowers, enhancing your credit decisioning process and growing your business by visiting UPSTARTCOM forward banks. That's upstartcom forward banks. You've been listening to leaders and lending from upstart. Make sure you never miss an episode. Subscribe to leaders and lending in your favorite podcast player using apple podcast. Leave us a quick creating by tapping the number of stars you think the show deserves. Thanks for listening. Until next time. The views and opinions expressed by the host and guests on the leaders and lending podcast are their own and their participation in this podcast does not imply an endorsement of such views by their organization or themselves. The content provided is for informational purposes only and the discussion between the host and guests should not be taken as financial advice by companies or individuals.

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