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Upstart announces a new way to invest — yes, actually invest — in a recent college grad

Posted by Scott Kirsner  August 8, 2012 09:00 AM

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A new Silicon Valley company called Upstart launches today, with plans to make it possible for individuals to invest in the future success of a recent college grad — and potentially earn a return as their career takes off.

Upstart's founder is a Massachusetts native, former Google executive Dave Girouard, right, and one of his founding board members is Cambridge entrepreneur and angel investor Andy Palmer. The company's initial funding — $1.75 million — comes from Google Ventures, New Enterprise Associates, and Kleiner Perkins.

Here's how it will work: anyone wrapping up their undergraduate or graduate studies this spring at Upstart's five launch schools can create a profile on the site. (People who graduated in 2010 or later are also eligible.) They might be looking to raise money so that they can work on a startup, make an independent film, travel with an eye toward starting a non-profit, or begin a career as an artist. Similar to Kickstarter, other individuals can decide to put money toward their fundraising goal. But unlike that site, the recent grads who take the money must repay their backers a share of their income — no more than 7 percent, and over no more than 15 years of working. In years when they earn less than $30,000, they pay nothing. And the profit upside tops out at a 14.99 percent annual return to backers. (To fund its operations, Upstart will keep a 3 percent slice of the money invested in recent grads, and a 1.5 percent slice of the money returned to investors.)

Upstart is working with just five schools to start with, to "make sure the agreements are right, and that we have sufficient backers, and that the right processes are in place," Girouard says. The group includes Dartmouth College and the Rhode Island School of Design. And among the first group of students is Nathan Sharp, a 2012 graduate of Dartmouth's Tuck School of Business; he's working to launch the online shopping start-up PayOrPass. Sharp will be using the money he raises from Upstart to pay off the debt he racked up while earning his MBA, so that he can focus on the new venture.

"This is not necessarily tied to students starting companies," Girouard says, "but it's for non-traditional careers, people carving their own paths. That might mean their own company, but it could be an artist or creative type of person."

But unlike an angel investment in a company, or Kickstarter, which tends to fund specific projects, "this is a true investment in a person," Girouard says. "The payback is a defined fraction of their income over about ten years. There's no guaranteed return, but it's designed to generate a reasonable return. It's meant to be an alternative to debt, something that allows this young person to pursue a more risky career choice."

Too often, Girouard says, "unless you want to use credit cards, or you have a rich relative, you're locked into going to work for a big company." He did: after finishing his undergrad degree at Dartmouth, he took a job as a COBOL programmer at Andersen Consulting in Boston. "I had a ton of student debt, and I needed reliable income." By the time he took a job that felt fulfilling — at Apple — he was in his late 20s.

"We're trying to help people at a pivotal time in their lives," Girouard says, "to be able to forgo the traditional job search and pursue what they want to do."

It'll be interesting to watch how well the Upstart model works...

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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