June 9 BoA chat with UPST CEO

https://ir.upstart.com/events/event-details/bank-america-glo…

This is a very insightful interview with CEO of Upstart. Every minute is worth watching if you are an investor.

Key timestamp at 26:03, the CEO explains that there is no other financial institution or entity anywhere close to what they are doing with AI/ML. UPST has a true first mover advantage and moat.

Very loose quoting “There are perhaps one of every 50 software engineer in the US with capabilities to build machine learning models…they typically have a phD in math or statistics AND code in python AND know how to build models. They are mostly at Google or Amazon etc and if a bank were to build a team of them, we would know about it. Our team would know. It’s a small circle. They all went to the same schools, go to the same nerd parties - we would know about it”

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Hi Johnwayne,

There are perhaps one of every 50 software engineer in the US with capabilities to build machine learning models

Actually this can be a pinching point for Upstart, a lot more than competition or TAM at this stage. To remain competitive, it will have to recruit talent such as this, and it doesn’t come cheap. Last I checked, these people come with a middle 6-figures annual price tag. This talent is in high demand and scarce, as it is a demanding (and demanded) field.

They have at present 15 openings for machine learning specialists. I am not sure this has to grow commensurately with the company size though, as at some point adding machine learning specialists will not improve the models by much.

Good things are, (i) coming from big G the management knows that, (ii) a startup is more exciting than a tech behemoth. So Upstart has its chances to attract top talent.

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Sedibald,

Yes you are right it can be difficult to recruit further due to scarce talent and that vast majority of this expensive rare talent tend to choose the FANG companies. But this remains doubly true for banks who likely would have even greater difficulty building their own team of ML phd programmers.

Keep in mind Upstart has stellar glassdoor reviews and named one of the best workplaces that probably makes it more enticing than working at a bank behemoth. They have an outstanding company culture.

https://www.glassdoor.com/Reviews/Upstart-Reviews-E962297.ht… 4.4 star 90% recommend 98% ceo approval

https://www.upstart.com/blog/upstart-named-inc-best-workplac… Best workplace 2020 by Inc magazine

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Jon Wayne,thanks for the links. Putting faces on the people we invest in. What a happy looking bunch of people.

Bruce

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They have at present 15 openings for machine learning specialists. I am not sure this has to grow commensurately with the company size though, as at some point adding machine learning specialists will not improve the models by much.

There are two types of machine learning specialists.

a). Those that use predefined algorithms and know how to use them to build models.
These are typically software engineers with python and machine learning training.
There are many predefined algorithms and machine learning engineer needs to know which one to use and what hyper parameters to tune.

b). Then there are folks who define new algorithms for specific problems.
These are Phds with heavy duty maths/statistics. There are not many of these. This is hard stuff.

These 15 openings that you point out are for a) and is not that hard. I am one of them.

If Upstart has b) and has created a secret sauce with “new algorithms” to evaluate risk then it is a moat especially if they have the data. The CEO in the interview said that they have b) and can potentially port their algorithms to other domains like insurance if they wanted to.

It is like Google. Search algorithm → Data → Becomes smarter. Rinse and repeat.

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Dividends20,

That is great insight to hear from an actual machine specialist such as yourself.

Their cofounder, Paul Gu, is a true prodigy and Thiel fellow and was in his early 20s when he dropped out of Yale to form Upstart. I recommend investors to watch this interview with him to get a sense of the technical prowess and mindset that shaped (and still guides) the company from the start.

https://youtu.be/C2cKcXOwibA

Another side note to emphasize the excellent management team of Upstart: I recommend investors read this piece by the cofounder/CEO on “speed as a habit” from 2015. This is the kind of leadership I look for in businesses that I want to own.

https://review.firstround.com/speed-as-a-habit

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