For those still in UPST

Just a quick note for everyone who is still in UPST. Used car market is experiencing a significant correction and car loan delinquencies are increasing rapidly. Majority of loans UPST holds on their balance sheet are recent vintage car loans. I would not at all be surprised if they had to take meaningful write downs on these loans. Their models may be good but I would find it surprising if they forecasted the kind of decline in collateral value we are witnessing now.


Upstart has a good idea. There are lots and lots of good ideas.

Upstart may have very good technology. There are lots and lots of very good technology.

Upstart is in a very good industry. There are not many like it.

What Upstart does not have is world class leadership. They proved this beyond a shadow of a doubt when they started holding loans on the books and then expressed surprised that the market reacted negatively to ii.

That one statement caused me to sell. Unless there is a significant change in the leadership of Upstart, think a complete replacement of the board if directors and the top three levels of executives, I am very unlikely to reconsider Upstart.

I think Upstart will fail and its tech will be sold, or it will be bought out for a very low price and will be folded into another company, or someone will create a simular model and completely wipe out Upstart and nothing will be left of it.



I continue to hold a very small position in Upstart just so I keep tabs on the company.

While I tend to agree that Upstart’s management team leaves something to be desired, it is extremely unlikely that they will be bought out. Despite the fact that they are carrying some loans on the books, they also hold just under $1B cash, even with some defaults, they are a long, long way from bankruptcy. In addition, the three founders are also the majority stock holders, they won’t be bought out unless they want to be, and there’s no indication that they they want to be.

As for someone creating a similar model, you obviously have no understanding of what kind of undertaking that is. It is not the kind of software where you can just hire a couple dozen hackers and expect them to bang it out in a few months. In fact, some companies have tried, they found it to be an enormously difficult undertaking. Partnering with Upstart turned out to be a much more economical and efficient way of employing ML/AI to assess the risk of potential borrowers.

That being said, there is no guarantee that Upstart will succeed in the long term, hence my very small holding.


I agree with Brittlerock and still hold a significant position (although the value of that position is considerably less than what it was!).

I would encourage everyone thinking about Upstart to avoid pearl-clutching about delinquencies in a given sector. Obviously in difficult economic times, loan delinquencies will rise. And that might cause some to flee any company that offers loans. But the thesis for Upstart is not that it won’t see a rise in delinquencies in a harsh economy but that their model will result in a smaller percentage of delinquencies than those using the FICO model.

The fact that used car loans are experiencing high default rates is a macro factor, and we won’t know until earnings whether Upstart performed better, worse, or roughly the same as others offering the same product.

On the last call they said they would be looking for partners who were willing to commit to purchasing $X of loans from them. I will be listening for information about how that is going on the call. They have added partners across Q3.

I don’t expect this quarter will have given them a material boost. They indicated that the most important number for them was the yield on the 2-year, and that has gone pretty much straight up across Q3. But I see their decision to hold more loans on their balance sheet as a sign of confidence that their loans will outperform.

It also looks like they have been deploying the cash they allocated for share buybacks, which also says to me that they have confidence in their balance sheet and that the share price will go up from here, once the macro-level forces shake out.

I understand why people may not want to hold the company. And I think leadership was not as prepared as they might have been for how long it would take for legacy banks to trust their model or for the ways that the demands of shareholders can run counter to the mission of a company. But I’ve seen no signs that management is failing to execute Upstart’s mission to expand affordable credit or that the recent decision to hold loans on the balance sheet has done material harm to the business.

Of course that could all come crashing down in Q3. It’s a volatile world out there. And the stock is heavily shorted. But Upstart’s mission is, for me, the most important mission of all the companies I hold. I will have to see their model actually failing before I get out.


I believe this also. I just do not see Upstarts management being the ones that succeed at this mission.

I truly wish I could be invested in Upstart. But it simply does not meet the profile.

As far as there models failing, it is easy to have a great product and fail. This is doubly so in banking.



I see management completely different. Everyone talks about it being important to be able to pivot while investing. That is exactly what management is doing. They pivoted by putting those loans on their books to help them be able to facilitate loans easier. Yes they said they were not going to do that but they thought it over and realized that was a bad decision. I like this management very much because they are not allowing people to keep them in a box. Now we will have to see how this turns out for them because I have been wrong before but having a Management group like this that is fighting so hard to become relevant, well I have to give them some of my money.



Well. . . I never thought of it that way.

I will watch and maybe reconsider. However, I have seen shifting focus like this before and it did not turn out well.