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Inside Upstart’s IPO filing

  • In the wake of Ant's massive IPO being scuttled, digital lending platform Upstart has filed to go public.
  • Its IPO documents show a company that's growing, profitable, and expanding credit to more people.

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Inside Upstart’s IPO filing

In the wake of the failed Ant IPO, another fintech has thrown its hat into the IPO ring. Digital consumer lending platform Upstart has filed with the SEC to go public.

The company has raised $144 million to date from investors like Khosla and NEA. The company was last valued at $750 million during its $50 million Series D in 2019, according to Pitchbook.

The company was founded by three ex-Google employees with the intention to bring AI tools to the lending process. Upstart models incorporate more than 1,600 variables and have been trained by more than 9 million repayment events. The company uses increasingly sophisticated machine learning to interpret these almost 15 billion cells of data.

Source: Upstart's IPO filing

Core to Upstart's ethos is expanding access to capital to more people. In 2019, the Consumer Financial Protection Bureau reported that a study by Upstart of its data using a methodology specified by the CFPB showed that its AI model approves 27% more borrowers than a high-quality traditional model, with a 16% lower average APR for approved loans.

Studies the firm completed with several large US banks suggested that Upstart’s AI-driven model could approve approximately 2.7 times the number of borrowers at the same loss rates as traditional models.

The platform benefits from what Upstart calls 'powerful flywheel effects' that drive improvements as its business scales. The platform benefits first from increasingly sophisticated models, variable expansion and rapid growth of training data. This produces generally higher approval rates and lower interest rates to consumers, which increases the number of borrowers on the platform. Ultimately, Upstart believes its tech can lead to better borrower selection, which lowers losses and lowers interest rates to borrowers.

the upstart ecosystem
Source: Upstart's IPO filing

Upstart's platform connects consumers, banks and institutional investors through a shared AI lending platform. On the consumer side, the fintech aggregates demand on, where consumers are presented with bank-branded offers. Bank partners can also offer Upstart-powered loans through a white-labeled interface on their own website or mobile app. Net Promoter Scores for Upstart's bank partners’ lending programs are approximately 79, well above published benchmarks for the largest banks.

Consumers on the platform are offered unsecured personal loans ranging from $1,000 to $50,000 in size, at APRs typically ranging from approximately 6.5% to 35.99%, with terms typically ranging from three to five years, with a monthly repayment schedule and no prepayment penalty.


On the funding side, bank partners can retain loans that align with their objectives, while the remainder can be sold to Upstart's network of institutional investors, which have broader and more diverse capacity to absorb and distribute risk. This approach gives banks the flexibility to adopt AI lending at their own pace. In the third quarter of 2020, approximately 22% of Upstart-powered loans were retained by the originating bank while approximately 76% of Upstart-powered loans were purchased by investors through its loan funding program.

Upstart is increasingly automating the loan experience. In the third quarter of 2020, approximately 70% of Upstart-powered loans were instantly approved with no document upload or phone call required, an increase from 0% in late 2016. Applying AI models to data verification and fraud detection drove these improvements, according to the company.

The company makes a fee for referring loans to bank partners that do the origination of the loans. Upstart has 10 bank partners: Cross River Bank, Customers Bank, FinWise Bank, First Federal Bank of Kansas City, First National Bank of Omaha, KEMBA Financial Credit Union, TCF Bank, Apple Bank for Savings and Ridgewood Savings Bank. Through September 2020, Cross River Bank originated 72% of the loans facilitated on the Upstart platform and fees received from Cross River Bank accounted for 65% of its total revenue.

Upstart launched by applying AI to personal loans. It has intentions of expanding into other lending products. In September 2020, the first auto loan was originated through the Upstart platform. The company sees opportunity in credit cards, mortgages, student loans, point-of-sale loans and HELOCs.

Over the last several years, Upstart has grown -- its compound annual growth rate of the number of loans transacted on its platform was 75%. In 2020, impacted by COVID-19, the company grew its volume 30%.

In a fintech environment that frequently prizes growth over profits, Upstart is focused on achieving profitability. Three out of the last four quarters (Q4 2019, Q1 and Q3 2020) have been GAAP profitable for Upstart. The company's revenue for the nine months ended September 30, 2019 and 2020 was $101.6 million and $146.7 million, respectively, representing an increase of 44%.

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