While listening to a favourite podcast of mine, This Week in Startups - I heard an interview with the CEO of Upstart, Dave Girouard, which really fascinated me. Upstart is a young company in the United States and although it is early in its development, I really believe that their business model could revolutionise personal funding in the same way that Kickstarter has done for projects and organisations. It really is innovation personified and I am extremely excited about its prospects.
To give some background, the general idea of the business is for young ambitious people to 'borrow' money from their future selves by taking a loan against their future career income. By having more capital to use in their 20's, they can look to jumpstart their career prospects and build a solid platform of skills and experiences which will serve them very well in the future. The best time to take risks and bet long on yourself is when you are young, as you have more enthusiasm, less commitments and generally more ambition.
Thus, by giving these youths capital now, they can invest in their long term goals by:
- Paying off those ridiculous student debts,
- Paying for their tertiary education,
- Starting a business,
- Attending that crucial workshop,
- Take a year off to study a craft,
- Or a number of other endeavours that can give them a boost and serve them very well in the long run!
The way they attract this capital is by 'selling equity in their future income' to investors.
Now this is a very crude way of explaining it, but is the easiest way to understand it. An investor will come in and will give the youth a lump sum payment (determined by Upstart using complex mathematical formulae) which can be used for personal investment in whatever way the youth decides. In return the investor has the right to receive a certain percentage of the youth's income over the next 10 years or so. (normally around 3%)
In this way, the investor is investing in the person and not necessarily one idea, company or ambition. This diversifying the investor's risk. For example, if you were to invest in a young entrepreneur - you are not simply betting on the profitability a single company, but rather on the prospect that in the first 5 companies that the youth starts - one will be a success.
Initially, I was quite put off my the idea because it sounded like a human stock market of sorts, but after more research it was clear that the company had put in place many other provisos and income caps to protect the upstarts, so that they didn't unknowingly lock themselves into indebted servitude.
Once it was legally in the clear, in my mind, I began to run through the various possibilities for such a platform.
It truly is an innovative business model that has the ability to do so much good for our society by allowing the leaders of tomorrow to jump a rung or two up the ladder. It inherently rewards ambitious people who want to add value and I believe this is a fantastic incentive.
Another aspect which really impressed me was that while the idea lends itself to people looking to gain technical skills with proven career paths (software engineers, programmers, website designers), it can also diversify to include artists, musicians, poets or a wide variety of other endeavours because sometimes all these people need is the time to perfect their craft, without worrying about financial constraints. They can just let the creativity flow and imagination becomes the only limit!
Imagine listening to a promising young musician and being able to invest in their future from as little as R500? Not in the record company, or the agent. But the artist himself. You can show faith in them, help them to gain access to the resources they need - and your money-making investment can actually have a positive impact on your community?
Bringing it closer to home, it seems South Africa could really benefit from ideas like this. With wealth so disproportionately distributed in our country - imagine the social change we could enact if those with the resources could invest in those talented, hard-working, ambitious people who don't have the capital necessary to go after their dreams. Not in the organisations they join, or the companies they feed into. But the people themselves. (Click to Tweet)
It is a powerful and a sobering thought.