For $10,000, Would You Agree to Give Away 6% Of Your Income For 10 Years? One Woman Did!
Don’t get too excited — these investors don’t just pick anyone to give away heaps of cash; you’ll have to convince them that you’ve got a promising future ahead of you. They will examine your GMAT and SAT scores, your resume, pay stubs, and even your photo!
If your accolades predict that you’ll have fat pockets in the future, they’ll gladly give you the money requested — and this is exactly what happened to Rachel Honeth Kim, a 2011 Harvard Business School graduate.
Kim, drowning in $60,000 of student loan debt, saw Upstart as way to pay off her loans and startup her own company. After mulling it over, she decided to offer six percent of her pre-tax income for 10 years in exchange for $10,000:
“Within a month of posting her profile in May, she raised $100,000. In June, she quit her job as a marketing manager at a San Francisco startup and started Nailed Kit, which sells art decals for nails,” CNN writes.
Besides the lump sum of cash, Kim has received advice on business strategies and “received key introductions to people in the beauty industry,” CNN notes.
Since January, 36 investors have already rationed six percent of Kim’s monthly income.
So how does it all work? Upstart helps investors choose their best bet by analyzing users’ credit, academic, and professional profile. Its algorithm then determines how much money each person can raise to see if the return is worth the investment. Users can offer between one and seven percent of their income.
As you can imagine, not everyone is on board with this idea of “human capital contracts,” CNN says:
“I can’t escape this feeling that there is this indentured servitude thing here,” Will Herman says, a Boston-based angel investor. “You’re really buying into somebody’s salary stream, and I don’t want my hooks into a person like that.”
One of Upstart’s investors disagrees: “I view this as a very safe investment with a nice return,” Brad Feld says, a Boulder-based venture capitalist. “The upside is all about helping others.”
Upstart has 14,000 applicants; just 150 have backers and have raised $3 million. The site earns revenue by charging investors a fee each year and keeps three percent of the money received by lucky users.
Would you join Upstart?