Dave Girouard is the co-founder and CEO of Upstart which leverages machine learning to price credit and automate the borrowing process. The company has raised $160 million from investors such as Kleiner Perkins, NEA, Google Ventures, Mark Cuban, CrunchFund, Eric Schmidt, Marc Benioff, Khosla Ventures, or Founders Fund.
In this episode you will learn:
- When is the right time to go from corporate to startups
- Lessons learned from working at Google
- The idea of management and planning
- Cofounder issues
- Bouncing back from near death experiences in business
- How choosing the right investors could save the company
- How to go about growth vs profit
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Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).
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About Dave Girouard:
Dave Girouard is the co-founder and CEO of AI lender Upstart.
Dave was formerly President of Google Enterprise and built Google’s billion-dollar cloud apps business worldwide, including product development, sales, marketing, and customer support.
He started in Silicon Valley as a Product Manager at Apple and was an associate in Booz Allen’s Information Technology practice.
Dave’s career began in software development with the Boston office of Accenture.
He graduated from Dartmouth College with an AB in Engineering Sciences and a BE in Computer Engineering.
Dave also holds an MBA from the University of Michigan with High Distinction.
Connect with Dave Girouard:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. I’m excited about the person that we have today because it’s a really, really interesting trajectory going from corporate to really becoming an entrepreneur and doing something meaningful. So without further ado, Dave Girouard, welcome to the show today.
Dave Girouard: Hello, Alejandro. Great to be here.
Alejandro: Dave, your profile is really interesting. I see that right out of college you went into consulting. Is that right?
Dave Girouard: Yeah. That’s right. I did consulting because I had no idea what else I wanted to do, so I figured that would be a good way to try a whole bunch of things.
Alejandro: That’s something interesting because you were more on the engineering side, so typically you would go to a startup or something like that. Why did you think a place like Accenture would be the first good step for you?
Dave Girouard: Honestly, when I graduated college was a long time ago in the 80s. Doing startups was kind of a French thing. I didn’t go to Stanford. I went to Dartmouth which is in New Hampshire. Honestly, it probably didn’t even occur to me at the time, the idea that you might start a company. Probably like radical would have been going to work for Microsoft or something. Anyway, I chose the consulting path because it was a combination of being able to write code and do technical things, but more on the business side, which I found compelling.
Alejandro: Then right after that, you did a little bit more computer engineering before you started at Allen & Hamilton. Is that right?
Dave Girouard: Yeah. I kicked around in consulting a bit more. Again, it’s just a little bit trying to figure out what really interested me. I’d say generally, the other thing about consulting is you can make a lot of money. You don’t spend any money because you don’t have a life at all, and you get to pay off a lot of your student debt, which is what I did during those early years.
Alejandro: One of the things that I see is some of the best entrepreneurs have actually had some form of experience at a consulting firm. From your experience and from what you’ve seen others that have a similar past, why do you think that’s the case? What is that takeaway that you get from being in a consulting firm for a few years?
Dave Girouard: Certainly, consulting firms depending on who they are, they’re not all the same. You have to think on your feet. You have to be able to walk into some sort of client business that you don’t have prior exposure to and provide some kind of hopefully useful analysis. You’re usually interacting with fairly senior people at the company if not the CEO. If you’re a 20-something person getting that level of exposure is pretty awesome and pretty challenging. That’s why at least historically a lot of people out of great schools with interesting backgrounds do a few years in consulting because you get fairly broad exposure and with super senior people. That’s not a bad way to spend two or three years.
Alejandro: I hear you. Then finally you make the switch to tech, and you started at Apple. What triggered that move?
Dave Girouard: I became over time, pretty quickly, less enamored with the consulting lifestyle of living on planes, wearing suits, doing PowerPoint presentations. At some point, you want to actually be in the business and doing things. Apple was actually a client at my last consulting firm. I had done some work there, and I had some friends there, etc. It just at the time felt like a great way to jump off the consulting thing, be in Silicon Valley for real, sleep in my own bed at night at least most of the time. All of that just made it a great move even though, frankly, back in those days this was early to mid-90s, so it was the dark days of Apple, so it wasn’t exactly precision timing.
Alejandro: Was there something around culture, creativity, or innovation that was like a big takeaway for you during this time?
Dave Girouard: Yeah. Even though it was not the best years of Apple, it was frankly the worst years of Apple, it still just felt like an amazing place to be. When I went to college, I had the very first Mac. In 1984 when I started college, my entire freshman class had the 128K Mac. It’s kind of born and bred in the Apple culture. That was really rewarding even though, again, it was not the best years of Apple. It just felt like, at least for me at the time, it was a great place to start. I would say generally, I was somewhat risk-averse. Even again at this time, I wasn’t quite thinking, “What’s the startup to jump into?” It wasn’t even something at least at that time really occurring to me.
Alejandro: Was this your first I would say experience or really being hands-on when it comes to product?
Dave Girouard: Yeah, that’s for sure. I joined the PowerBook Group and was really starting off like an analyst who was helping the product managers decide what to do next and what the competitors were doing. So, it was like a first step into being part of the machinery that builds new products, makes the decisions, etc. That was a pretty exciting place to be compared to making PowerPoint slides for executives. Even though it wasn’t ultimately the best outcome, certainly in the time I was there, it was a great transition for me.
Alejandro: Got it. I believe like literally three months, you left on April ’97, and in July ’97, that’s when Steve Jobs came back. I can imagine that this was like when he was nearing a potential bankruptcy. For you, David, what triggered the switch to Virage?
Dave Girouard: You know, Apple was on a down-bound train during the time I was there. You’re right. It was a lot of people questioning whether the company was going to survive. During my time there, I did start to really see what was happening. I had some friends leave Apple almost when I got there, and they went to Netscape. I was like, “Wow. That’s super interesting.” During that time, the internet was really taking hold. I was at Apple which certainly at that time was not in the center of it. So, it finally just occurred to me that I really should think about moving on. Even if I had known what would happen at Apple, even if I had known what would happen with Steve Jobs coming back, it doesn’t necessarily mean it would have been great for me. I did finally get the bug to go into a startup and see whether I could move the needle and make a startup go. So, finally, in 1997 I made that move. For better or worse, it was a mere two or three months before Steve Jobs came back and became the CEO.
Alejandro: What was this experience because you were there for almost seven years. What was this experience for you on the next one, Virage?
Dave Girouard: Yeah, the next one I started was called Virage which most people wouldn’t remember at this point, but it was super interesting technology around image recognition and video recognition. So, it was a business that started off kind of a software tools business, but of course, the internet was in full blossom. I was assigned to go figure out how to make it an internet business. It was a reasonably good success story. We actually went public in I think 2000 which was this timeframe where all sorts of companies went public that probably had no business doing so. I would definitely put us in that category. So, it was a fun ride. I don’t know if six years there was the best use of that time, but generally speaking, a great experience, great people I worked with. Not a huge financial outcome for anybody, but again, it was my formative startup experience, and that to me was pretty rewarding.
Alejandro: So, you actually went through the dot-com boom and the dot-com bust. Especially doing the whole IP experience, what kind of learnings or takeaways? Especially because there are a lot of people that say that we’re nearing a potential correction once again? Are there any takeaways or things that perhaps you learned on how to tackle the next time around when it comes to correcting?
Dave Girouard: I think for sure you have to feel super confident that your business is ready to be public. I don’t know that we thought we were, but the investment bankers were pounding the table and saying that we were, so that sounded pretty good to us. Ultimately, even if you fast forward to today, the executives, the leadership, and the company ultimately have to be the ones to make the right decision for the company. Operating as a private company is certainly a lot less to deal with and handle than being public. That’s really the lesson I learned. Honestly, our business was not predictable enough, was not at scale to be a public company. That’s not a place you want to be. I certainly have taken that to heart ever since.
Alejandro: You were here for quite a while. What do you think got you to stick around for so long just out of curiosity?
Dave Girouard: You know it’s funny, but it was just I really believed in what we were doing. I always felt like the next turn of the crank was really going to be the difference maker. To put it in a positive light, I had perseverance that I really felt that we were doing something interesting and unique, and it was going to emerge soon. I think whenever you’re in a startup, it’s a really hard question for you to figure out. Is this thing going somewhere? Because if you jump around too quickly when something’s not working, that’s not a wonderful career, and you’re not really probably optimizing for your own outcome. But at the same time, sticking around forever in a company that’s not working is also not a great idea. So, there’s no easy call in that. If I look back at that time I think, “Yeah, maybe I could have left earlier, especially since I went to Google next.” But I didn’t have a job offer from Google two years earlier than when I went. Generally speaking, I have no regrets. I feel like it was a great experience. But I think it’s a hard question for anybody who is in the startup world is how long do you hang in there, and when is the right time to jump? I tend to lean towards wanting to really make sure and invest my time, but ultimately, you’ll know when you have to jump.
Alejandro: Let’s talk about this next one about Google. How did that offer or did this transition happen because this is certainly one of the multiple highlights in your professional career, but definitely this one was a big one. You became the President of Google Enterprise. Tell us about this.
Dave Girouard: Maybe the exit of the prior company is the interesting story. I was on paternity leave. My son, who is now 15, had just been born. Virage was acquired by a company called Autonomy which has become very famous for a different reason since then. But in any case, I was on paternity leave, and I got a phone call, and they essentially said, “We have good news and bad news. The good news is you’re going to be able to spend more time with your new son.” The bad news was “We’ve eliminated your position through this acquisition.” I went through a period with my wife where we were on a job search. Didn’t know if we would stay in the area. Moved to Seattle where she’s from. Moved to Boston where I grew up. After a long-convoluted process, I got into this discussion with Google about this thing they referred to as Enterprise which I found it curiosity at best. Like, “Google has an Enterprise business?” The recruiter basically said, “Yeah. I don’t know what it is, but if it doesn’t work out, I’m sure there’s something else going on there that would be interesting.” So, in the end after what was probably a six-month process, I ended up at Google and was asked to go figure out this Enterprise thing that Google was doing. Now, we’re talking about 2004.
Alejandro: Got it. So, you actually finalized with Virage. Of course, around August 2003. Then you started Google around February 2004. How mature was Google Enterprise? You were with Google for a year. I’m sure this was also a really cool long run. Tell us about this journey and this experience really building this up.
Dave Girouard: When I interviewed at Google, it was a private company. Other than it was a very popular search engine, nobody really knew how big it was. People were speculating. It wasn’t until we got there, and it was still at a point—I remember pulling in the parking lot and going, “Wow! This is so cool. These people work for Google.” I had never met someone who worked for Google. It was maybe 1,500 people at the time, so it certainly wasn’t a small company, but it was nothing like it would become. So, showing up there, when I got inside I all the sudden discovered, “Wow! This is like a multi-billion-dollar revenue business already, and the world just doesn’t know it yet.” This Enterprise thing which was really before Google knew that this advertising business would be the thing, it really didn’t know. It had built this thing, this really pretty yellow piece of hardware called Google Search Appliance which was essentially Google’s cool algorithms in a box that you could use in your company to search on your own information. Believe it or not, there was a time when Google thought this might be how they fund this whole thing. By the time I got there, the ad business was absolutely cranking, but they really didn’t want to kill this pretty yellow box. So, I was asked to go figure it out. Literally, on my first week they said, “By the way, if you want to just kill the whole thing, that’s cool too.” It wasn’t as if there was complete conviction around this. That’s where it started, but very quickly, a month or so after I got there, Gmail was launched on April Fool’s Day 2004, and nobody quite knew if it was a joke or not, but it turns out it wasn’t a joke. Gmail turned into what we call Google apps which was really the cloud-based application idea, and the term Cloud wasn’t used then, but that became most of my focus was taking Gmail, Google Docs, and Google Calendar, turning them into essentially a suite of products that could be used together by consumers and then by schools and businesses, and ultimately something Google would charge money for and start to build another business. That ended up being my predominant focus during my eight years at Google.
Alejandro: I’m sure that today must be like a massive piece of their business?
Dave Girouard: Yeah. Essentially, it just grew into what they now refer to as their Cloud Business. I was literally up in San Francisco this week at a lending-related conference, and next door to this thing they now call Google Next apparently had 30,000 people at it. It was really funny to walk by that and go, “Wow! That’s the business that I started, and that’s what it’s become.” It’s not just, of course, Gmail and Google Docs, it’s all about Cloud Compute and AI, and a myriad of other things that Google’s taking on both Amazon, Microsoft, IBM, and everybody else. So, it’s an enormous business at Google now. Many billions of dollars. I can just happily think I was there for the first billion.
Alejandro: This time around, especially, you were able to really see Google thrive. The other day I interviewed another guest that he was an early employee. He started on February 2003 at Google when the shares were at $2 a share. Really unbelievable, and obviously, he made a killing too. One of the things that he was sharing was also the incredible innovation and creativity and what was going and how fast you guys were moving. So, what were some of the lessons that you learned because even though you were not an entrepreneur per se, yet within Google, it was kind of like everyone was very much entrepreneurial so to speak? Is that right?
Dave Girouard: Yeah, it was an eye-opening environment. You’d walk in there, and almost every aspect of building a business or company or culture was challenged. It was just extraordinary. It wasn’t just about the product and the search engine; it was just like how we hired people, the types of people we hired, what the idea of management or planning was. Just all these notions you had of how to properly run a company were essentially thrown out the window, and Larry and Sergey had their own definitive ideas about how to do something different. They were confident enough in their views that they would dismiss classic management thinking. Fortunately, they were both extremely brilliant and able to actually do this. I think probably the singular lesson I learned more than anything is your ability to bring amazing talent into a company is ultimately the predictor of your success. What Larry and Sergey really did is they just with supreme confidence knew the types of people they wanted to hire, and they found them. It kind of grew on itself because great people really want to work with great people. Over time, it just accrued into this enormous advantage of the quality of talent that was there at Google in these years, and since then, of course. I just think that’s probably the biggest takeaway. They had an advantage of an enormously successful business. First the search business, and then the ad business that funded it all, but those even ultimately came together because of some brilliant minds at the right place at the right time. You really have to go back to Larry and Sergey in both their insight and their confidence and their ability even as fairly young people both of them in effectively their first job to dismiss the guidance of many more experienced people who would have turned Google into a much more conventional and frankly much less successful company.
Alejandro: From a talent perspective, Dave, how did things shift for you before you were at Google and then after being part of Google. When it comes to now thinking about recruiting and talent and onboarding, how are you thinking about that?
Dave Girouard: For sure, there’s no more formative experience I could have had than being at Google in those years and seeing the caliber of talent around you. You’d walk into a room, and you’d just realize like, “Wow. I’m used to being a reasonably smart person in the room.” I don’t know if I was ever the smartest, but I feel like I could always hold my own. When you walk into a room at Google, and you just feel like, “Wow. I’d just better really shut up until I figure this out because these are really brilliant people around me.” I think I just heard that again and again. People would be astounded with the caliber of people around them in the mid-2000s at Google. When I left Google to start my own company, it certainly informed how I thought about things. Of course, you have to be a little more realistic. Not every company is Google, and not everybody can go hire Jeff Dean, one of the most brilliant computer scientists in the world. So, you have to adapt a little bit to the reality of you’re no the magnet that Google certainly was in those days. But at the same time, I think I have a deep appreciation that a single extraordinarily-talented person often can do a huge multiple over what even a solid, talented person can do in your company.
Alejandro: Got it. Let’s talk about Upstart. Your entrepreneurial journey starts. How did the incubation of the idea of Upstart happen? Here you are killing it. You’re the President of Google Enterprise, and anyone would have thought, “Why would you think about giving everything all up when you’re at the top, and you start all the way from the bottom?” What happened?
Dave Girouard: I think I actually heard that exact statement more or less 100 times, several times from my family. Not my wife. My wife was always very supportive, but basically, I was there eight years. I had built this Enterprise SaaS thing into a billion dollars or so in revenue, but ultimately it wasn’t a priority business for Google. I don’t think at least in my perspective it ever got to the level of priorities that say AWS did at Amazon. Bezos kind of latched onto AWS as a super-high priority very quickly. For whether it was my issue or whether it was just Larry, Sergey, Eric, etc., it was always a good but not super-high priority, and maybe not chalking why given the success of AdWords and the profitability of AdWords. But in any case, I got to a point where I said, “Look. This is awesome. I could push it another five years and probably build it from 1 billion into 5 billion, etc., but I was very curious, frankly, just internally about whether what I had done at Google, the success that I had had, was it a function of me, or could you have just put a monkey in there. Because Google was such a runaway train, almost anybody could have done this. So, it was certainly a bit of a personal challenge. I had never started a company. I felt I had some pretty good skills to offer, but I didn’t know, and I really wanted to test it. Again, at the time, I was in my mid-40s, so I was not the 25-year-old entrepreneur. I was someone who had been around the Valley quite a while. Ultimately, I had this openness to ideas that I might want to start, and I went through a period where I considered several different random things, and ultimately settled on something that became Upstart. Again, it was just sort of a Venn diagram of openness to leaving Google, starting something new with the right idea that came into my head. Again, whether it was the right idea or not is a different question.
Alejandro: How did this idea come into your head and how did you actually end up in bringing this idea to life? What was that process like?
Dave Girouard: Through some random conversations, I was talking to my nephew and a couple of others. People who were recent college grads had a lot of student debt who really wanted to do entrepreneurial-like things, but were saddled with fixed debt payments that just made the idea of starting a company problematic. I had this simple notion of “Wow. These people are really smart. They’re likely to earn a lot over their lives, but they are cash-poor right now. Why not let them in effect monetize their future earning potential and pull some of that money forward in a way that would allow them to pursue something that’s more interesting to them? This thing which became known as an Income Share Agreement was what Upstart was founded on. We actually were not a lending company when we started. It was a related product, but basically, a person would receive some money through a bunch of contributors almost in a Kickstarter-like model and would pay them back over a period of time, based on a fraction of their income. It was a very radical notion, super-interesting notion. Ultimately, a notion that didn’t scale particularly well for a lot of reasons, but that was what Upstart was. I explored it for several months while still at Google. Explored it behind the scenes to see whether I felt it could be a real company, and ultimately at some point, I jumped off and said, “I want to do this and pursue it.” That came about early in 2012.
Alejandro: What was that trigger that moment when you said, “I’m going to do this?”
Dave Girouard: I don’t know. You sort of have to test yourself. I just kept digging in and getting a little bit more enamored. I actually had my nephew help me do a little primary research on a few college campuses to see whether kids graduating thought this was interesting, something you would want to participate in, and that came back as, at least as far as I could tell, screamingly positive in terms of something of interest. I met with a bunch of people who were in related industries, either something like this or in peer-to-peer lending. Some of them tried to scare me off of it. They told me all the reason it wouldn’t work, and I just found myself wanting to fight them with this. I began to develop this conviction despite what I was hearing. I could make this work. Yeah, it was just this turning point where I finally said, “Look. I think if I never explore this, I’m going to regret it.” Ultimately, the trigger on leaving Google was, I came to the conclusion, really with my wife, that even if it was a complete failure, that I wouldn’t regret trying. Just having the experience of trying to make something go from scratch, just me, just an idea, was to me very appealing. And again, as long as you’re comfortable that there’s a very high likelihood of failure, why not?
Alejandro: I hear you. What was the founding team like for Upstart?
Dave Girouard: I had talked to a few people that were colleagues at Google kind of quietly. I was running a large team at Google. I wasn’t exactly able to go, “Hey, I want to start a company. What do you think?” So, I had a few quiet conversations with Google colleagues and a few others. Pretty much, they kept saying, “No. Not interested. Thank you.” So, unsurprisingly my idea was not like winning them all over. Ultimately, I decided the only way for me to form a founding team was to actually resign, so I could more aggressively go after it. When I resigned, it was literally just me and a little summary of what I wanted to do. I quickly, through my little networking activities got semi-randomly connected to one of my co-founders, Paul. I was 46 at the time. Paul was 20 at the time. A woman who I had met networking about this idea introduced us just through email, and Paul flew out to California from New York, spent a day with me, and boom, we decided to do this together because we were thinking of similar ideas. We essentially merged our ideas. As I was exiting Google, Anna, my other co-founder was someone I worked with at Google, and she essentially came by to tell me goodbye. When she came to tell me goodbye, she said, “What are you going to do?” As I described it, she said, “Wow. That is really awesome,” unlike a lot of others. So Anna, in the end, decided to join me. That’s how Paul, Anna, and Dave came together in early 2012. It was super powerful to go from just one person who has an idea to three of us who were ready to all throw in on it. That’s a big change for a founder when you’re just one person versus even the smallest of teams.
Alejandro: Really cool. Obviously, was it straightforward to divide and conquer on the responsibilities, because Paul went to Product, Anna went to Operations, and you went to more like the manager [crosstalk 28:33].
Dave Girouard: Yeah, to overhead. That’s me.
Alejandro: Did you guys already know, or was there a discussion? Why did you divide and conquer like that?
Dave Girouard: It was pretty clear. I had had the experience of building a significant sized business. I really was the one pulling the three of us together. I was going to be the CEO in this thing, and I had done a lot of product stuff in my history, etc. Paul had already built the very first version of what became our model and to exploring this idea. Anna was clearly an operational person who was exceptional at building teams and scaling operations up. We knew what we were good at, and we were fairly complementary that way. There wasn’t really, to be honest, any debate about that. It was an obvious way. Both Paul and I studied Computer Science. I hadn’t written code in forever, and I did not really other than I probably wrote six lines of code at Upstart. Paul ended up building our first website himself. He really was not desiring to be a software engineer. We really had three of us, but we didn’t really have an engineering founder per se which, of course, was a little bit of a challenge, but we resolved that soon enough.
Alejandro: For a couple of years then you guys started to execute. Then all of a sudden in 2014, you do a pivot. I’m sure that this was like a game changer. What was the process that led to that pivot? Make us be insiders for a little bit in that stage, in that really critical stage of the business.
Dave Girouard: Yeah. The first year, we built the product very quickly. We got it out there. This is the original Upstart product. We saw some degrees of success, so there was reason again to believe that if you just keep turning the knobs and fixing things, this will work. So, we went through that for a year or a bit more. I’d go to my board and say, “You know, it’s getting better. A little bigger this month than last month, etc.” It clearly was off by probably an order of magnitude or more on where we really needed to be to make it a viable business. At one board meeting, Josh Kopelman who is with First Round Capital, a phenomenally helpful board member, he cut me news sometimes on the video because he works out of Philadelphia, so he wasn’t always here. I have this distinct recollection of Josh basically saying, “I have a question. I have a question.” He said, “You know when we did this investment you told me there were going to be hordes at the gate. I don’t sense that there are hordes at the gate. Are there hordes at the gate?” I said, “No, Josh. There are no hordes at the gate.” It was just this thing that we had to own up to that. It just was not really scaling and working. Ultimately, we had maybe six months of cash left. I took Paul and Anna, and I said, “Let’s go to this little coffee shop on California Ave. in Palo Alto, and let’s talk about what we want to do.” We decided to pivot toward loans, frankly, in a matter of a few hours. We had to convince ourselves that there was some opportunity there that we could go after. We really didn’t know whether we could differentiate ourselves from others that were already doing this. People like LendingClub had been doing it for years. So, we took a while to convince ourselves that this would actually be better, not worse. Honestly, it went from a conversation in a coffee shop to a little bit of socializing over a couple of days with a few other leaders to “We’re doing this,” and pulling the trigger probably within a week. There’s a part of the story we won’t probably tell when we write the book which is that we did decide to actually keep both products for a short period of time. We just couldn’t quite let go of the dream and bury the Income Share Agreement, so between the end of 2013 and early spring 2014, we were going to have both. We, in fact, launched the loan product as a side-by-side the Income Share. It worked so well. We did more loans in the first month than we had done in the entire history with the Income Share Agreement. Literally a week after launching the loan, we said, “Oh, by the way. We’re killing this other thing.” And we sunset the Income Share Agreement. So, we’ll skip that part and just say it was a bold pivot. In fact, it was a pivot with a slight edge to it that looking back on it, we can understand why.
Alejandro: That’s really amazing. For the people that are listening, I’m sure there are a ton of people listening, that they’re not yet on product/market fit and hitting their heads against the wall. What advice would you give them from this learning experience of having to do a pivot and really go after that product/market fit?
Dave Girouard: The first thing is, I think every entrepreneur has to be an optimist, but you can easily interpret false positive signals as product/market fit. You can look at when I did the little survey with my nephew. I thought, “Wow. That’s validation if I’ve ever seen it.” Or when we got the first rush of people that wanted to sign up for these Income Share Agreements, that just felt like validation. By the way, we got a ton of press. It was such an exotic story, so compelling that we didn’t even have to try. We were getting crazy press, and that brought crazy traffic. You can just take these as signs of success, but frankly, they weren’t. The fact that you get tons of traffic, unless you’re turning it into tons of business doesn’t, in the end, mean all that much. So, I think you do have to be cautious of false-positive signals, and just try to really get down to, are people adopting this product in a way that it’s going to scale? But as usual, there’s no easy answer to this question of when do you quit on the idea and move on to something else versus keep turning the nerd knobs; keep fixing it. Did we wait too long? Maybe. Maybe we should have made the call sooner, but ultimately, it’s really hard when you’re investing in something to just walk away from it. It was not as if we had zero success with the product. It just wasn’t really going to scale. Fortunately, it turned out well for us. It is probably the essential hard problem for any entrepreneur is when to throw in the towel on one thing and move on to the next.
Alejandro: That’s good feedback there that you’re providing. For the people that are listening so that they get a better understanding now after doing those shifts and those pivots, what ended up being the business model of Upstart?
Dave Girouard: We became essentially a platform to offer consumers loans using very fancy data modeling which is now generally referred to as machine learning or AI and a lot of alternative data to price credit. That’s the basic model we work in now which is very fancy math and lots of alternative data because risk modeling or pricing of credit is a fairly antiquated industry, so we felt with much better math and much better technology, you could make affordable credit available to far more people. That’s the essence of our business today. It’s not exactly where we started, but it’s obviously related to where we started. It’s a pretty awesome proposition, to be frank. I don’t want to brag about our company, so we’ve had a lot of great success in it just because it’s a market where there’s enormous opportunity just to reduce risk which equates to reducing the interest rate someone pays on a loan. That just has obvious benefits. I think one of the huge lessons here is it’s really hard to create a new market from scratch. Companies do it, but it is extremely hard. It is actually much more realistic to enter a market that exists and have something very unique and different that allows you to stand out and differentiate. We had a bit of success though not enough on the former. Then we’ve had quite a degree of success in the later.
Alejandro: I imagine as well that for building something like this, it has to be capital-intensive. So, how much capital have you guys raised to date? I also understand that you guys made an announcement on April 8th, a couple of days ago on this regard. How much capital have you guys raised to date?
Dave Girouard: We’ve raised a total of about 160 million. We announced last week that we had just raised 50 million which is our Series D. At least relative to most industries, we’re actually quite capital efficient. Having raised 160, we actually still have on hand more than 100 of that either in cash or somehow invested in our loans in some way. We have over 100 million in equity out of 160 raised. Having, if you want to put it that way, burned through 50 or 60 million to build the company we have today, I think is pretty good mark of capital efficiency. There are startups that love to raise and grow, and they burn through tons of cash, and they’re building enormously powerful businesses. You could put the Ubers and Lyfts in those categories. We’re definitely on the approach of being very capital efficient, building a business that is already generating profits as well as growing quickly.
Alejandro: Got it. One of the things that I saw is you probably have the most unbelievable Seed Round. It’s got to be one of the most unbelievable Seed Rounds in the history of startup fundraising in terms of names. You got first round, Kleiner Perkins, NEA, Google Ventures, Mark Cuban, CrunchFund. If we think about the Series A, you got Eric Schmidt, Mark Benioff, Khosla Founders Fund, [38:23]. How did you get all of these guys on board so early on?
Dave Girouard: Well, I was fortunate in that I had done some good things at Google. Certainly, that background of having built at least a fairly large business at Google gave me some advantages. To be honest, it is great, and some of those investments have been phenomenally helpful, but it’s not at all the way to measure success in a company. In many ways, those kinds of party rounds where you have tons of participants can really be bad, particularly in a Seed Round. In many ways, it actually led to problems later where we needed to raise a Series A, and it just wasn’t totally apparent to anybody. We had gotten the business far enough to warrant a Series A. When you have that many names on the list of your Seed, the natural question is, “Who else would ever want to put money in this if those seed investors aren’t ready to fund the A Round?” We went through some of these dynamics that I think startups can find themselves in fundraising. I had never raised any money before this. I was fairly naïve, and of course, I was an optimist, but the single recommendation generally is I think taking seed money from seed funds is a good idea. Taking seed money from general purpose venture funds generally not a great idea.
Alejandro: Especially because it’s probably tricky because here the Seed Round you raised in 2012, you did the pivoting in 2014. Obviously, these kinds of funds are not big fans of pivots, like they want to invest A-X and get an output of Y. Like everything a little bit more figured out on the wheel turning. So, it probably was a little bit tricky for you on this signaling in the event these guys were not coming forward with bigger checks on the next financing cycle. Did you experience that?
Dave Girouard: That’s exactly right. When we raised our Series A, we were still in the prior model that had not proven itself at all, and I had a lot of those early investors say, “Well, let’s wait and see.” I’m saying, “Wow. I’m going to run out of money.” Ultimately, First Round Capital to their credit, just a phenomenal partner stepped up and said, “This model’s not yet working, but we really believe in this team.” They led our A Round. By the time we got to the B, we had gone to loans, and the business was beginning to prove itself. To be honest, sometimes it really there’s a little luck involved or just the fact that I had gotten involved with First Round Capital, to be honest at that moment in time saved the company.
Alejandro: That’s amazing. That says a lot about Josh and the team at First Round, so kudos to them. For the people that are listening, how big is Upstart today?
Dave Girouard: We’re a couple hundred of people. We did in the range of 100 million in revenue last year. We’ve been either doubling or close to doubling each of the last few years. We reached profitability in the second half of 2018. Generally, in a business that will generate cash this year, we hope to grow high double-digits if not triple-digits this year. It’s a consumer-lending platform. It’s also branching into providing the technology to banks and other lenders. We have a fairly mature B2C business if you will and a much more nascent bud emerging B2B business all under one roof. I think we’re really pleased that we don’t judge ourselves by headcount. In fact, I think we reached something in the range of a million dollars per employee in revenue which is extraordinary, and it’s something we’re proud of. We’ve done a lot, and nothing’s ever easy in the startup world, but we’re obviously pretty happy with where we’ve gotten to.
Alejandro: That’s really interesting what you mentioned here. What is your view and your take on growth versus profit?
Dave Girouard: It’s a little different by industry. There are certainly businesses where just being the biggest kind of predicts the success more than anything. A lot of software businesses are like that? In lending, let me tell you, as long as you can raise money, you can be as big as you want because there are an infinite number of people who will take loans from you, but ultimately whether those loans perform, whether your unit economics work, etc. is a different question. We’ve always been the ones in the industry that say, “Look. We don’t have any interest in originating loans that are going to perform poorly. We don’t have any interest in originating loans where we are going to actually lose money ourselves. That means we’ve been much more probably low-key and pragmatic about improving the credit model which is Job #1, solidifying the unit economics which is Job #2, and then once those are done, we are very happy and of course, want to grow a lot. I think we’re just somewhat down to earth. Some might consider us too down to earth in that sense, but we’re building a really solid base of a company, and we do have an exciting growth rate, and I think that’s what you need to do if you want to be a public company eventually.
Alejandro: Yeah, and at the end of the day you get to control your own destiny. All these unicorns that are being called undercorns now because they’re going to do their IPOs and they’re getting hammered. They’re facing the music because of how much they’re burning. In any case, looking back, there’s no such thing as a straight line as an entrepreneur. There’s always the bumpiness happening, and you always have the sense especially at the beginning that things are going to come to a potential end. But for you guys, at what point were you able to really take a deep breath and say, “We’re going to make it, and this is going to be something big here?”
Dave Girouard: Yeah, that’s a good question. You almost never completely feel that way, but certainly, our industry went through some hiccups in early 2016. We had a lending business that was growing, we were doing well, but some of the other guys in the industry had some problems, and it all the sudden just caused an upside-down turn in our whole industry and affected everybody. All the interest in funding these loans kind of dried up. We went through a really hard time in the first half of 2016, but we emerged from it. It was no small challenge, but later that year all the sudden things were coming together again. I just think after that, having survived that, even with a model that clearly had product/market fit, we survived what was really some pretty difficult challenges. I think we gained confidence that “Look. There are more challenges ahead, but I don’t think they’ll be worse than that.” We would expect a recession to hit. We would expect certain things won’t always work as well as we hoped. But having said that, I think if you survive a few challenges as a team—we still have the three founders together. We have a management team that’s been together a long time. You really begin to have confidence that there’s no problem you can’t solve together.
Alejandro: That’s amazing. Nothing like a team. Do you guys have any special things or trades or some form or process on how you onboard people at Upstart?
Dave Girouard: We’re trying to get better at that. I think we do have some very fundamental values in the company. The co-founders all really play very different roles here, but we end up working together really well. One of our early employees who moved on to something else quite a while ago wrote me a note, and he said, “I finally figured out what makes Upstart tick, and he basically said, “Paul is all about speak the truth. Dave is all about do it quickly. Anna is all about bring everybody with you.” We all have these roles that we play. Fortunately, we get along well, we resolve differences, and I think it makes for a stronger company. Having founders that can work together, not over a year, but over many years is a very difficult challenge to solve, but I think it’s fundamental to success in a business.
Alejandro: Oh, absolutely, and I think that the founders are ultimately the ones that are responsible for the culture. Most of the businesses, I think it’s something like 65% or 66% fail because of co-founder issues. I definitely agree with what you’re saying there, Dave. One of the questions I typically ask the guests that I have on the show is if they had the change—I mean, you’ve been at it for a while, and you’ve seen a lot of things too. If you had the chance to speak to your younger self, and I know this is quite impossible, but if you had that chance, what piece of business advice would you give to yourself before launching a business and why?
Dave Girouard: First, I’d probably say don’t wait till you’re 46. I’m definitely not a liar in terms of first startup at 46. Now, having said that, I don’t think that everybody is suited to start a business at 21 right after college or certainly not leaving college. I think people should look for a mix of experience that are additive. Being in a very strong, large company—there are only a few of them that I think large companies where you can go and have amazing experiences because, at some point, they just become large companies. But that can be okay. Being in a super-high-growth company that is successful and has its feet under it is also a great experience. Diving into an early stage startup is always high risk, and you should just expect to fail. So, my advice to anybody would be look for a diversity of experience. Don’t jump in and out of things every year. Look to lock yourself in for three or four years at least, but have a big company experience. Have an emerging growth experience, and yes, take a shot at a startup. Then ultimately, before you hit your 40s, take a shot at your own startup.
Alejandro: I love it. Dave, what is the best way for people that are listening to reach out and say hi?
Dave Girouard: Certainly, if you want to reach out at Upstart, you can sign up there, connect or reach out to us by our website, www.upstart.com. I’m relatively active on Twitter, @davegirouard is a good place to find me as well.
Alejandro: Amazing. Dave, thank you so much for being on the DealMakers show today.
Dave Girouard: Thanks, Alejandro.