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Dave Girouard

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2021-09-30

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2021-09-30

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1. “So many things, but I sort of have to go back to my youth. I grew up in a family with six kids, a very small house with one bathroom and zero net worth as a family, paycheck to paycheck. And I have to go back to my dad. I mean, my dad, of course, worked 50 hours a week at his main job. And even when he had his two weeks off, he would go get another job as my family would drive to Hampton Beach, New Hampshire and go on vacation. My dad would literally work those extra two weeks. So I grew up in a family where I certainly didn't have a lot, but I never felt poor. We weren't really poor. I shouldn't, and it was just really through someone just committing themselves to making a good life for his family, for our family. And so can go no further than that.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Not a natural fundraiser. So it was always like, oh man, I got to do this again. So I had all the incentives in the world to become cash flow positive and to not need to necessarily go on the sandhill circuit again.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

3. “Part that we did struggle with, and I'm sort of referencing in here, was the sort of capital raising part. At certain times, the business was unclear which direction was going, it was pivoting, et cetera. But we never got through all our private rounds, except for our seed round, we never got more than a single viable lead term sheet. You hear these stories in Silicon Valley people writing blog posts about how to deal with 10 different term sheets and evaluating which one you should take. And I was, I just laugh at those. I'm like, I didn't have that problem. It's not that I go, wow, all these VCs were being really blind or stupid and not offering us term sheets. I tend to think, what did we do wrong? Like we were not telling the story in a way that made sense. And I think maybe we just didn't focus enough. We were too inward looking in terms of telling our story. We really needed to tell the story from industry perspective in a way that I think we would have been better understood. And that's the hard part. I always thought I was a natural company builder.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

4. “I didn't quite appreciate the difference between a public investor and a private investor in the sense of the public investors can change their mind at any time.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

5. “The public investors aren't making long term bets. They're buying something they could decide to sell the next day. So in some sense, the venture community is just looking for sort of like, I don't know, a notion that they saw before everybody else. And we weren't the first in our sector. We weren't the first to say we were doing AI or this and that, difficulty in discerning real from fake. And so I just think it was hard for the private markets to understand whether we were really doing something different. Maybe it was also timing. We were early. We were not the largest in our industry. And once we decided to go public, I think we had the good fortune of the business really kicked in. The AI models matured. They were just at this hockey stick-like moment of how they worked. And that led to just a lot of growth in profitable growth, which in the fintech world is pretty unique. But I think the public market is much more willing to just look at that and understand it. And by the way, they can trade out of it later if they.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

6. “And even post to IPO now, you know, of course, you have earnings calls and you have callbacks with analysts and investors after the calls and you go to these bank conferences and such, it's all on Zoom. So for me, strangely, it's like different Zoom calls. That's all I can say. I think the world would be very different if it weren't for this kind of pandemic situation and it would feel very different. But I do invest a lot more time and need to invest a lot more time with analysts and investors than it does not feel normal to me to do that. It feels like a little unusual just to keep repeating the story, telling the story, answering the same questions over and over again. But I think it's just clearly part of the job to bring the market along and help them understand the company.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Went public in December 2020, so mid COVID, I guess, is maybe the way to describe it. And we would have had COVID not happened, probably would have tried to go public earlier in 2020. But in short, the decision was, I don't think the private market ever really understood us or maybe just didn't like us. I don't know. Raising money as a private company was always hard. Our numbers were getting better. They looked really great, but as long as it had lending fintech tied to it, there was just so much skepticism. We finally said, I think the public markets appreciate growth and profits and these kind of things. So let's go public and we can prove it in the public markets over time that we actually are a unique and differentiated business. So that will sort of led us to go. But strangely, we were a traditional IPO. I did the whole thing right from this room I'm sitting in right now. I mean, I didn't go anywhere. The entire thing was done in my spare bedroom on Zoom calls with the banks to prepare and the board and IPO.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Always find that there's these new different applications than I ever would have imagined. And there's one I remember, this is a bit ago, but this might have been some Google research or something, but just the idea of building a memory chip where you store what information and how fast it can be retrieved. It's sort of the hard I actually studied computer engineering. So it's this world I grew up in cache memories and first level cache, second level, all this kind of stuff. And you kind of think.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Gobble market share, just do as much as we can here. But we feel like we have to build a company with ambition enough to plant flags everywhere. I mean, we have such an advantage and it comes down to can we take this outside the US, when and how? Can we take it to more or even all flavors of lending when and how? So it comes down to companies just trying to have sufficient ambition with also some reality basis to all of it of what you can accomplish. I think risk in predicting the future may sound a little crazy, but that's the heart of what we do. AI is about predicting the future, and I think the opportunity for that to create mind-boggling experiences is unlimited.”

   2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

10. “Because we're such an AI company, we look at the world through that lens, and I just say when I feel like AI and the risk models it enables unlock an incredibly different consumer experience, that's when we get excited. I mean, risk models sound like this wonky thing that the risk committee in a bank would care about, but in reality, a model that allows you to approve somebody in a moment for a loan that would otherwise have taken days, that's what it's all about. It is really creating these breakthrough experiences where the underlying problem to be solved is risk related. That to me is just exciting stuff. So there's certainly other areas. I mean, insurance is, of course, it's like the other side of the coin from lending. It's an entirely risk-based industry. There's some challenges there in terms of the nature of the business models and insurance companies. But I think we just definitely look and we say, look, we're in a couple of sectors today. We're going to probably expand to some more. And it would be easy to just.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

11. “If you have an immutable, clear, unambiguous record of the past, you can be much better at predicting the future. So the two are actually very related. And I think better products can be built that actually combine the two of them. So there's a lot of opportunities. Credit reporting agencies could go the way of crypto and distribute it. And there's just all sorts of notions of reputation and pseudonymity, if that's the right word, in the cloud that I think could be very powerful. I think creating products that cross borders, I mean, it's very hard to build financial products in lots of countries because the rules are different. The infrastructure is different. And crypto certainly at least holds up the possibility of doing things in a more global way.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

12. “First of all, the two most compelling areas, particularly in fintech, certainly are crypto and AI. So we're in one of the two, which I would take as a first step as a good thing. The attraction of crypto to a lot of the talent in the world is so strong today that we do feel like it can be a bit of a liability that we're not a crypto company today and not just about recruiting talent, but the way the industry might just go. We are crypto believers. I think we will certainly look and understand things over time. There is a relationship there. I mean, first of all, the way I think about it is crypto is recording the past immutably. And AI is about predicting the future.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

13. “The three founders should say we're going in this new direction. End of story. I think just the advantages I have and the clarity with which I, along with my co-founders, can make decisions and change directions. And just even in this COVID world, we thought we were going to go one way and then three months later we completely changed our mind. And I think if I had been a hired CEO, they would have been like, what the hell is he doing? Get your act straight. As the founder, I'm like, no, no, no, I know this company. It is me. And I think you just have enormous advantages. So sometimes when I look at public companies, I do look through that lens. I think DoorDash, for example, founder-led has incredible advantages. Uber, a little less so. I think Dara's an amazing CEO, but she's not the founder. I think there is some dynamic there that is really important.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

14. “I have a lot of friends who are CEOs who are hired in by the boards to replace a founder or something of that nature. So I haven't experienced that side myself, but I have good friends who have. And I always kind of laugh that I have such advantages over them. I mean, inevitably, if you're hired by the board, there's a lot of issues there, first of all. They didn't hire you for no reason. There's some problems to fix and some issues. Oftentimes you do have a founder who's still very involved, just enough to be disruptive to you and making it hard for you to operate with authority. And also the board brought you in. So the board wants to know how you're doing. They want to see how they did on that hire, and they're going to be very active. Whereas when you're the founder, I mean, a founder of a floundering company isn't necessarily a great place to be, of course. But once you've achieved some success and you're on the right path, you have a lot of authority. I mean, you can easily say when we pivoted, which again, we hadn't really found success yet, it was very easy for.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Raise a lot of money because you're going to need a lot of time. I mean, selling into banks is sort of the technology selling cycle in its worst possible form because banks are amongst the most regulated and conservative industries. We weren't selling a chat app to put on your website or some sort of new thing for your data center. We're selling something right at the core, an approach to lending.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

16. “There was an opportunity for us, so I think that was a big moment for us. I think when we decided we're not going to become a bank, we're going to serve banks, which was suddenly changing the nature of our product pretty dramatically to think about having one bank originating all the loans and suddenly having many, many banks from a technical perspective, it was suddenly a big redo. So a lot of challenges like that decided to go from one office, decided to go from the Bay Area only to open up Columbus, Ohio, which was a big, very big deal for us at the time. So just things of that nature. But most importantly is really having a team that's been around the block together a lot, no matter what hits us in the face. And there's something new that hits us in the face probably every week. It is really comforting to know you have a team that has already worked through a lot of things together.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

17. “First week knowing him, I discovered I'm older than his parent. And Anna was a lot younger than me, and Lasuna have her first child. So we just came from they're both immigrants. I'm not an immigrant. So just three people who happen to like the same idea came together and almost a miracle that it worked. But one of the enormous strengths of Upstart, first of all, is that we still have the three founders day-to-day active, as well as a lot of the exec team has been with us since the beginning. We survived a brutal pivot. I mean, this beautiful idea of an income share agreement so perfect on the whiteboard came up against the cruel reality of the world, which essentially decided it was a niche product. So going through that pivot, keeping the entire company on board to do that, I think was a huge proof point for us. I don't think we ever were ready to quit. I think we just felt that we were a good team. We were going to figure this out. And suddenly we found our way into a market that”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Kind of started with the notion all by myself, and then I happened into my two co founders, Paul and Anna. I mean, we couldn't be more different. It turns out I'm older than Paul's parents. I discovered that in my first...”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

19. “The losses elsewhere in the system. So you're actually paying too much as well. So when there's inefficiencies that are that rampant, there's just a lot of room to fix. And we don't have to be perfect, by the way. No system is perfect. No model is perfect. We just have to be better. And we are, without question, a lot better than the status quo.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

20. “The centermost piece of it is that people with low FICO scores are not necessarily bad credits. There's just so many strange reasons why somebody ends up with a 580 or a 620 FICO score. And the vast majority of banks are out there will just say, hey, if you're below 680, we just don't take that risk. And it is literally, as we discussed, a 30-year-old notion that a three-digit number can represent you. We've basically said, look, everyone operates on a continuum of risk. And we can be very particularly measure that risk. And that opportunity is so vast because half a more of Americans are completely left out of the system, meaning a bank would not offer them a loan or if they offered them a credit card, it would be at terrible rate. And the strange part is even people with very high FICO scores, you might have a 750 or an 800 and think you're getting a great deal. But guess what? You're actually a sub-”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

21. “Inefficient industry. Sometimes we think about Renaissance technology coming up with these trading algorithms, trading commodities, trading stocks or bonds, et cetera, trying to shave off three basis points. And we kind of think it's laughable because we're working at something that has two orders of magnitude, more inefficiency in it. So it's that much of an opportunity.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

22. “Always picture it as these numbers just floating over your head, which is exactly what you can get at any moment. There's no process to go through. And it's adjusting to the world, it's adjusting to the reality of your financial life. And that to me is from the consumer perspective, where it has to get to. It's just maybe self-obvious that this is not that far off. And I think generally one of the things my co-founder also says is 90% of the interest paid in this world is entirely unnecessary. It's because of the obtuseness of risk models. When you think about from the other side, from a lender, just the price of credit, there's so much opportunity to just dramatically reduce the amount of interest paid to borrow money with just simpler, better, smarter models and less friction, which translates into cost. So we do think of it from the consumer perspective. We think of it from the lender perspective. And it's just such a crazy...”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

23. “From the consumer perspective, at a moment's notice, you have the very best offer of credit you have for any particular circumstance you find yourself in, whether you're considering a purchase, a small purchase, or a large purchase or up to a home. There is no process. It is just an entity associated with you.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

24. “Being in the hands of Square now, since Square acquired them, suddenly you have a two sided network that actually can really put some stresses onto that visa MasterCard model. I think there's a lot there. It is not so much about lending in that case as it is about just payments in sort of creating a payment structure that consumers like that does not go through the Visa MasterCard rails and potentially very threatening to them. Now maybe one of the open questions is Are merchants actually paying more for these services than they're actually paying for Visa MasterCard and how will that play out? I think there's some open questions about how the industry evolves, whether there's pricing power, commoditization, et cetera. But I think for sure Visa Mastercard have reasons to be concerned.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

25. “Would say my perspective on it is changing by the day as I kind of learn more about what these companies are doing, but sometimes I think of it as is it a threat to like banks lending to credit cards or otherwise? I certainly think it can be. I think, first of all,”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

26. “Individual, no collateral, his gobbling market share because of convenience and because of increasing ability to price them properly and to issue them economically. So I just say those are some of the trends out there. Consumers, of course, have zero tolerance for waiting, zero tolerance for requesting documents and conversations and this and that. So if you can solve for that, a couple percentage points of the interest rate one way or the other doesn't mean all that much.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

27. “Consumer lending, of course, is mortgages. It's another order of magnitude larger, and it has all sorts of history and disruptions to it, as we all know. And credit cards and student loans are in there as well in the sort of unsecured lending. It's a vast category. I would say a couple of things that are happening that are interesting. One is that unsecured lending is taking a lot of market share away from secured lending. People are using unsecured loans to redo their kitchen instead of trying to get a home equity loan which can take you two months. I'll get a $10,000 loan in a matter of a day. And I might be a little bit more interested, but nothing compared to the two months I'd wait to get a home equity loan done. They're also taking market share away from, as you mentioned, credit cards. Buy now, pay later is really a small installment loan. That suddenly for various reasons is appealing to consumers. And so you can think of unsecured loans that are just underwriting the”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

28. “Yeah, maybe I'll just speak to what the big categories are and then how they're shifting because I think they are in motion right now. Starting from what's known to be the smallest is what we do, personal lending $100 billion or so annually. COVID has disrupted a lot, but it's not the largest category. It was for many years pre-COVID growing faster than any other category because a simple loan you can get in a few minutes that you can use for almost anything. Pay for a wedding, pay off your credit cards, what have you, relocate to a new city. It just has high consumer utility, but most banks had not offered them historically because they couldn't do it economically. But it's a small, fast-growing sector. Moving from there, I mean, something like auto, we're moving into five or six times, 700 billion in originations. Most people who have cars have car loans or leases. It's a much, much larger category. It's been around a long time. You have things like home equity and things of that nature. But the big one.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

29. “And it just struck me that is the state of lending, which is he's looking at his crystal ball, he's nervous, and he wants to stop making loans, then we clearly have a big opportunity to make some improvements here.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

30. “Well, I'd say because there's more risk in unknowns, I mean, payments in some sense tend to be somewhat commoditized in the sense of it's a volume game. And if you look at the business models of Square or Stripe, it's a very commodized business, which of course means you want to add on other services around it, but it's so vast, of course, that you can build obviously giant, very valuable companies that are centered on payments. But lending, which just feels like this giant bespoke, scary thing. I remember before a couple years ago, Jamie Diamond said something like, he was just sensing that the economy was in a precarious place. This is a year or so before COVID. It wasn't really co-related. But he said something to the effect of, I'd be pretty happy if our loan officers are playing a lot of golf right now instead of making loans.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

31. “On it. I keep going back to Google, but it reminds me in the early days of Google, search was considered a commodity in all the sort of portals at the day were adding all these other features and just thought of search as a checkbox. And then Google showed up and said, no, actually that's where all the money is. And suddenly this company that was maniacally focused at that time on search suddenly just won the day. We think there's something to that. I mean, payments are obviously enormously important. There's so many giant companies being created in the payments sector. But lending is really where most of the profits are made. So it seems natural to us that there's great opportunity there.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

32. “Hard to say where you draw the bounds on financial services, you include insurance companies, things of that nature. So it's a little hard to say. The thing I will say that is important is if you look at the net interest income earned in lending in the US, it is comparable to all profits in the technology industry. Now, these aren't exactly apples to apples. You're comparing net interest income to a bottom line profit number, but the scale of it is so vast that people fail to appreciate how big the concept of lending is. But of course, it's why banks exist. Banks were formed as an entity to take deposits and make loans. And unsurprisingly, it's still the main thing they do. And I'd further say, if you don't want to do that, you probably don't want to be a bank. So it's just so vast that from our point of view, if you can actually make a significant improvement there, not 10 basis points, but 100 percentage points, the opportunity there is so vast. And that's why we're focused.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

33. “Feel like for a long time we operated almost invisibly because we were in a sector that prior to say 2016 the idea of online lending”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

34. “With the regulator, we're talking about lawmakers, we're talking about consumer advocate groups of different types. It's just a constant journey. I feel like ultimately, to go back to your question, yeah, I certainly would have loved to have not have invested all that time and energy. But at the same time, I think we've built a great moat. I mean, I think ultimately our business and our AI is very defensible in terms of its very proconsumer. It is helping people get into the banking system that we're not otherwise in the banking system. And that's ultimately our goal.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

35. “Think the hardest part has been convincing the world that AI can be fair. And in fact, more fair than the credit score system it's eventually replacing. There's almost this assumption where if it's a FICO score, if that's not fair, well, that's just what it is. We all use FICO scores. But the Fed put out this study that 30% of black Americans have FICO scores in the lowest decile, the lowest 10% of Americans. So that itself says, wow, is this really the right way we're going to allocate credit? There's so much sort of fear and loathing about AI and technology in general that to win that mindshare and convince people AI can actually be an equalizer is a really big challenge. We invest enormous amounts of resources in doing that every day, right now. My co-founder probably talked to the CFPB multiple times a week.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

36. “Potentially domains beyond lending, we have significant advantages. And I think that's the heart of what we're building is an AI model that can properly price almost any flavor of credit just gets a little bit better at doing that every month, every week, every month. And that's an enormous opportunity. Not easy to navigate, a lot of things you could do wrong, but I think with strong execution, it's almost unlimited addressable opportunity there.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

37. “They are centralized artificial intelligence models. So every consumer that gets a loan, every bank that works with us is both contributing to and benefiting from these centralized AI models. So we do get this advantage because the model with more data, more experience is the best one. Now, the other part is we have to teach it new tricks. We started with unsecured lending, which is a very simple form of credit. Now we've moved into auto lending, which is a secured form of credit, right? You have the consumer to underwrite, but you also didn't have this asset that's back in the loan, which in this case is the car. So now we've sort of taught the model new tricks. And instead of being backed by an automobile, it might be a home. It might be the cash flows of a small business. It might be a piece of heavy equipment. So our idea is generally centralized models that are learning as quickly as possible and then taking sidesteps to learn new tricks. We're suddenly almost any type of lending in the world.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

38. “It just means making it easier, removing all the friction and reducing the time and the weight and all that. And those are the two pillars of our value prop as a company. And fortunately, they're very intrinsically tied to artificial intelligence and what that technology can do.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

39. “Median age of our borrowers is probably the late 20s, it still trends toward younger relative to the American demographic. We serve everybody. Clearly it's broadened. And personal loans is our core product. We've just expanded into refinancing auto loans. So we're kind of expanding the types of loans we support. But it still trends towards young people online. They tend to be relatively highly educated, though not entirely. And the thing I think that shocks people about us is they come to Upstart, they can get a rate in a few seconds. And then if they like it, most of them are approved literally in the moment. No documents to upload, no phone calls to have or anything of that nature. So people are sometimes just shocked that it's actually that easy to get a 10 or 15,000, $20,000 loan, but that's part of the magic is just the beauty of lending is there's not that much to it. There's price and there's experience. The price is obvious. The experience.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

40. “Yeah, think of it as knobs. You can turn either aggressively or non-aggressively. If you want to just keep your approval rates the same, we can knock out sometimes in the range of 75% of your losses, which is pretty awesome. But that's kind of the most conservative way to turn the dials. Another way to turn them is to say we can approve two or even three times as many people and keep your loss rate constant from what it is today. Banks will land somewhere in the middle. But the ultimate value prop is you can have a more inclusive lending program. You can improve more of your customers or new potential customers at lower rates. And you can be more profitable. So what's not to like about that?”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

41. “Are kind of a two-sided business where we market to consumers on one side, we spend a lot of money, tens of million dollars every month to bring consumers to our platform, running them through our models, and then see which bank offers them the best loan. And we refer them to that bank. Almost all of our revenue, something in the range of 97% of our revenue is fees that banks pay us. It can be number one for referring somebody to them, a referral fee. Number two, what we would call platform fee, which means the cost of originating the loan on their behalf. And then we service loans for them as well in their name. Those three fees make up almost the entirety of our revenue. The reason behind that is the first few years we really just worked with one small bank as we refined this process. And then as the industry was developing, it became clear that most of the participants were going to actually pursue bank charters and become banks. And that was a viable path.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

42. “Recruiter said to me, You can't come in and interview this week because they're all at Lake Tahoe skiing. And I was like, wow, the entire company went to Lake Tahoe skiing. She said, but the funny thing is they're still making like $7 or $8 million a day in revenue. And I thought, wow, that's a great business model. We've always wanted to have the type of business that can generate a lot of revenue isn't very human capital intensive.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

43. “So we're kind of a technology player in the middle. We market to consumers, they enter a funnel, we essentially refer them to one of our bank partners that fund the loan. So we're not a lender ourselves. We're not a bank. We sit in the middle as the technology provider. But first and foremost, rates matter a lot. Our whole business tends to grow when our funnel gets more efficient. That means for every person who requests a rate might want to loan how many convert into loans. In our primary way we grow as the models get smarter, we can improve more people with lower interest rates. And we also can remove as much of the friction as possible for someone who says, yes, I want that loan today about 70% of our loans, there's no human intervention at all. It literally lights out processing, which by the way was very much inspired by Google to go back to Google again. When I was interviewing at Google in 2003,”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

44. “In a way that it was biased against any particular demographic, we could revert, we could go backwards and avoid that. But fortunately, what we've seen is our algorithms actually increase improve credit outcomes for every single demographic we can name. Race, gender, ethnic origin, et cetera, age. And that's really powerful and regulators care about that. Higher approval rates, lower interest rates for every demographic. And that's a powerful combination.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

45. “Whole notion of AI bias far beyond the industry we're in more generally is something we've been in the center of since we started. We went to the appropriate regulator, the Consumer Financial Protection Bureau, before we even launched as a company. A lot of people thought we were a little naive doing this, but we said, here's what we're trying to do and here's what we think we can achieve. With the idea that more accurate models actually going to improve credit outcomes for everybody, for every demographic. And over time, we worked on a process where we actually test every single applicant for bias. We provide that data to the CFPB, the preeminent regulator for consumer protection, every quarter on behalf of all of our banks that work in our system. So I guess maybe that's a long-winded way of saying, if you're worried about AI bias, the right answer is test all outcomes rigorously. We are set up such that if somehow moves”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

46. “Wow. So it became obvious that there's more things you can know about somebody to inform the right price of a loan. And education was the thing we were known for in the early days. And it was because we did start focused on younger people. But there's so many other things. The industry that you work in the company, you work for, just a myriad of other things. And that's the idea is we're trying to create a 360 degree view of the individual, but we aren't judgmental about the data in any way. We really are letting the software interpret performance. It's not that upstart thinks this school is better than that school or that this job's better than that job or anything else. It's really the software interpreting and learning based on the performance of the loans.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

47. “When we started early, based on where we had pivoted from, we were very interested in young borrowers post-college, people with little to no credit history, what in the industry they would call a thin file. So we kind of said, well, look, there's a lot of other data you could use to understand more about this person. For example, the level of education obtained or what they studied in school, because these things are predictive of, if not income, stability of income over time. So it seems self-obvious. And my co-founder at the time, who was only 20 when we started the company, he would go out to a few websites and apply for loans. And he would get rejected. And I was like, wow, this guy went to Yale. He had a perfect SAT score. He was earning a six-figure income. He had zero debt. He was getting rejected all around because he didn't have three years of credit. And I was like, wow, I think one website gave him a 24% interest rate on a $10,000 loan. And I was like”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

48. “Comes down to data and algorithms. And what that really means is you go from a three digit number to maybe 12 different variables or maybe 20 or 40 or 60. And the thing about AI or machine learning in general is the more data you have, and we like to think about rows and columns. The columns are like the things we know about every person applying for a loan. The rows are kind of like the repayment data of all the loans we've ever done over time. Every month there's 40 or 50,000 repayments or delinquencies that happen. And that's just a bit of training data. Now, what you have is machine learning algorithms that are interpreting that training data and then predicting what's going to happen to the next applicant. But there's a weird interaction between them where if you don't have enough training data, you can only use a fairly simplistic algorithm using more sophisticated algorithms.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

49. “Industry. 30 years later, it still is the centerpiece of how credit decisions for consumers are made, whether that's a credit card, a mortgage. The government uses it to decide which mortgages can be sold to the government-sponsored entities, Fannie Mae and Freddie Mac. And it just became encrusted into how the world of credit works. But when you think about it for a moment, a three-digit number is never going to capture all the subtlety of a person and whether they would pay back a loan and when and what size loan and what type of loan. And so this is just a myriad of things that it naturally can't be encapsulated in a three-digit number. So we had a huge palette of opportunity to improve on that.”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source

50. “May be interesting to start just before the credit score. So the credit score was invented about 30 years ago, 1989-ish. And before that, I mean, there was nothing. If you were going to try to get a loan, you would sit down across the table from somebody, a loan officer at a bank, and they'd ask you a bunch of questions that have a bunch of rules that want to know where you work and what you paid for your mortgage, et cetera. And that obviously was a very bespoke process with all sorts of problems, problems of fairness, problems of accuracy, of performance. And when Fair Isaacs came out with the VICO score in 1989, suddenly there was this universal three-digit number that gave us sense of how creditworthy you are. So at the time, it was a radical leap forward for any particular type of bank or lender trying to make a credit decision to actually have a number that means something based on your prior use of credit. In a weird way, it became a crutch for the”

    2021-09-30 · Invest Like the Best · Dave Girouard - Making Better Loans - [Founder’s Field Guide, EP. 52] · IDENTIFIED FROM THE TRANSCRIPT · source