One Time Only: UPST

Greetings Warriors,

With all the discussion regarding UPST, it should be obvious that without new facts and increased transparency, there is not enough information to build any type of consensus in a group of sharp investors such as those here on Saul’s board. The most I can do is to share thoughts on why I hold UPST and some reasons to consider for passing on holding.

For me they have earned (barely) the right to stay on my radar and in a small way, my ports. I’ll try to explain why, but my thoughts are general, kind of like UPST’s reporting.

  1. UPST is a potentially huge disrupter IMO. FICO scores have historically been very biased and have even been shown to work against certain classes of people, including racial minorities and “working class.” Along with all the big banks that use FICO exclusively, it’s time for that to end and I think UPST may lead the way.

  2. As far as landing one of the gorilla banks, consider first that the gorillas would rather chew off their foot than take a big cue from one another. For better or worse, consider if UPST lands one gorilla bank, the others would be strongly inclined - IMO - to steer clear of UPST, and if their entire system boosts the profits of said first gorilla, they would look for alternatives or try to build a similar program in-house, long before joining the UPST team.

  3. Not all big banks are pressing hard to gain market share of personal loans. Many are geared toward huge projects and selling packaged loans on the second-tier markets. They are into volume, and selling to only those people and institutions that are obvious slam-dunks. They often fight over the right to service them. This is NOT UPST’s strength by any means.

  4. Given #2 and #3 above, UPST’s forte does not match with many gorilla banks–yet. I believe it will someday, when their algorithms are consistently proven to be better than existing methods, and more time-tested. Until then, gorillas have less use for UPSTs benefits.

  5. Think what would happen when/if - granted, a big if, but it will happen if UPST continues to succeed - UPST lands a gorilla, let’s say for the sake of argument, a Wells Fargo. What next? Would you expect USB or JPM to follow suit and jump on the band wagon? While they might, of course, I think that’s quite unlikely to happen for a long time, many years at least.

  6. On the other hand, what if UPST chooses to keep their focus on personal loans instead of trying to fund the next development of Manhattan sky scrapers in order to entice gorillas? What if their system works quite well over time, improves profits and serves a broader class of clients (not that gorillas care about that for the sake of fairness)? Employing just a bit of imagination, it’s not hard to imagine many gorillas slowly moving much of their loans to individuals and smaller companies, to UPST, even though by that time UPST will likely have a considerable and growing number of regional banks on its client list.

My view is not all roses, however. First off, I grant you, UPST’s transparency into finances and operational goals is not ideal (okay it absolutely sucks) and I have to wonder if the reason is their short experience in the markets (both finance and stock) or simply management’s fumble. This is my biggest concern with the company, and normally that alone would be enough to keep me on the sidelines until improvements are made to their reporting.

What keeps me interested and invested in a small way, is the possibility of all the above happening over a shorter-than-expected timeframe. I think the possibilities are incredible. But I’ve invested in possibilities before with mixed results, and because of those experiences, I plan to keep my position in UPST rather small. I would never stake a large percent of my wealth on them at this stage, but I also choose not to pass on the current opportunity.

IMO only, UPST is worth holding in a small position in a broad-ranged portfolio. But if one were to put everything into a super-concentrated portfolio of hyper growth? For me UPST would so far have no place in that port. Maybe it would in the future, but transparency and investor communications would have to improve considerably before it would even be considered.

My Grades (Alternative views welcome!)

Execution       	B+        	So far so good, need more history
Bus Plan        	A+        	Great timing and totally unexpected by the finance industry, potentially huge diruption
Management      	C         	Unknown/preliminary, weak communication
Transparency    	D-        	Needs major improvement!
Bottom Line     	B-        	Excellent plan and potential, must prove the value of product over time
Growth Potential	A+        	Starting small with huge TAM
Conviction      	7/10      	~Lowest acceptable in our ports
Price           	B+        	Quite the bargain if successful, duh
Current Pos Size	1.5 - 2.0%	Short Leash
When to Add     	          	Slowly, only after incremental progress
When to Sell    	          	Ay relevant stumble or continued lack of transparency

There is so much disagreement and confusion over UPST that this is likely my only discussion of the company. To each her own and we all have to make our own decisions.

I can see why UPST might easily fit in the “Too Hard” stack for many of us. As always, I reserve the right to put it there in the future.

Thanks for the discussions. Good luck all!


Hi Raptor

Thanks for your thoughts. Was wondering what specifically you would like them to improve on ito their disclosure and communication as well as your rationale for giving management relatively poor grades.

I have not found specific metrics lacking so would like to hear what you miss, and to me Paul Gu and Dave Girouard seem to me to be the real deal hence your reasoning for putting them in the penalty box would be very interesting.

Would agree though that a position in upst needs to be kept relatively small, although mine is a bit bigger.



Deep misunderstanding of Upstart continuing on this board as well as Twitter etc. But this is the first time I’ve seen an analyst issue a sell on a bank because they’ve signed up with Upstart. Strong suspicion here that if one were to question analyst, it would unveil laziness in terms of bothering to even attempt to look into Upstart’s business.

This attitude is pervasive and seems likely to be what is driving the investment opportunity of a lifetime for UPSTART.



Strong suspicion here that if one were to question analyst, it would unveil laziness in terms of bothering to even attempt to look into Upstart’s business.

Status quo is hard to dismantle. I went through this with EV / Tesla several years ago. It is hard to stay with it unless you have conviction.
It is and will be a 2 steps forward and 1 step back story for next several years and in fact good for UPST and management to go through this grind.

Upstart models are getting incrementally smarter every day. I work in the ML space and understands its value, hype and potential.

Fasten your seatbelts. It is going to be bumpy and trust management.
UPST will come out shining but the wait will be a few years.