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Upstart, a San Mateo, Calif., Based startup that uses artificial intelligence to help banks make lending decisions, went public on Wednesday.
Fortune met Dave Girouard, Managing Director of Upstart, the day the financial technology, or fintech, company made its debut. The stock quickly “jumped” from an opening price of $ 20 per share to $ 35 per share – and per press hour on Friday, the price had climbed to nearly $ 48 per share.
During Wednesday’s interview, Girouard ignored the possibility of leaving hundreds of millions of dollars on the table. The price of the IPO is “somewhat inconsequential” for the future of the company, he said. (Since, Reached entered a so-called period of calm, as required by U.S. securities laws, and was unable to comment further.)
In addition to funding issues, Girouard raised the risk of racial bias in algorithmic decision making. (“There are well-founded reasons to be concerned,” he said.) Formerly in charge of Google Enterprise Products Unit, Girouard also mentioned the mega-acquisition by Salesforce of the work-chat application Slack for nearly $ 28 billion. (“I literally said to some of my former colleagues, ‘You should consider buying this business’ years ago.”)
Read on for Fortune’interview with Girouard, which has been edited for clarity and brevity.
Fortune: A number of companies have recently delayed their IPO, like Affirm and Roblox. Have you also considered delaying, given the insanity and volatility of the IPO market now?
Girouard: No. It’s like having kids, isn’t it? It’s an amazing experience, but I’m not sure I want to start over. We are ready to support it and move on as an open company and focus on 2021.
You’ve priced the offer at the lower end of the estimated range – $ 20 versus $ 22. After seeing companies like By Dash and Airbnb leave so much money on the table, why did you decide to lower the price?
Speaking of the vagaries of the market and exactly where we set the range, it doesn’t matter for the larger transition of the business. As enjoyable as this process has been, I can’t wait to focus on the business again. [Editor’s note: Fortune followed up later that day, after Upstart’s stock “popped’ to $35 per share, and Girouard added, “We’re really happy with how the process worked out and thrilled that investors who have believed in Upstart have done so well.” On Friday, the stock reached nearly $48 per share; Upstart declined to comment, citing a post-IPO quiet period.]
What has been the impact of the pandemic on your business?
When the month of April came and unemployment went from 4% to 14% in a few weeks, the banks retreated significantly. Our lending volume fell 70% more very quickly. Fortunately, it only lasted a few months. We really had a “V” shaped pickup. We literally only lost a few million dollars, which is pretty insignificant. I think this speaks to the resilience of our own business.
It seems a lot of people are waiting for the other shoe to fall when it comes to borrowers who are at risk of losing their minds and not being able to repay their loans. How does this risk affect the future of Upstart?
From our perspective, the really dangerous time – especially for a bank or a lender – is when unemployment is rising very rapidly. We are not really in this phase. We are in a phase where unemployment is hovering and perhaps decreasing, but it is certainly not increasing very quickly.
To stimulate the economy, the Fed reduces interest rates to zero. Is Upstart affected by this?
The focal point of our business is the refinancing of consumer credit card debt into lower interest installment loans. Generally speaking, regardless of what the Fed is doing, the amount people pay with credit cards is pretty obscene. People pay 20% to 25% interest rates on cards. We are offering the consumer the opportunity to get rid of this credit card debt. We are not very sensitive to the Fed rates.
I spoke to your co-founder, Paul Gu, earlier this year about some FICO credit rating changes. The changes have essentially made it more difficult for people to bounce their credit score by consolidating credit card debt. Has it hurt business?
I don’t think people usually get loans from us, the number one reason being to improve their credit rating. It’s this happy result to do, of course, but I think the main reason is to refinance the debt for a more affordable payment.
Many FinTech companies –Precautionary, Square, SoFi—Have received or are now search for bank charters. Would Upstart one day consider becoming a bank?
We believe that we can be a partner of the banks. We would rather do this than compete with them.
Earlier this year, a group of US senators called Upstart out for the potential racial implications of algorithmic lending decision making. How do you approach this problem?
There are well-founded reasons to be concerned about AI and its potential to be biased or unfair. These are very reasonable concerns. Our answer, in general, is that you need to test very rigorously, and not just every now and then. You need a mostly supervised system. This is what we built under the leadership of the Consumer Financial Protection Bureau.
As someone who once ruled Google Corporate products, what do you think of Salesforce-Slack offer?
We’ve been huge Slack fans, which is unusual because, being former Googlers, we’ve used all of Google forever. But we just started to like Slack. I literally said to some of my former colleagues, “You should consider buying this business” years ago. I am a big fan of this merger. More competition will be great for the market.
It’s strange that Google could not to release a really stuck chat product, given that their other collaborative work products are so good, like Google Docs and, of course, Gmail.
It is very painful for me that you say that. This is also quite true. We could have done some things differently. It’s a rich problem when your advertising business is so successful that it’s hard to imagine anything else, like enterprise cloud, matching it.
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