Upstart completes IPO, skyrockets 47% on debut in trading
Leading fintech lender Reached went public on the Nasdaq today (ticker: UPST) in a successful IPO that raised $ 240 million by selling 12 million shares. They valued the IPO last night at $ 20, the low end of their $ 20 to $ 22 range, but shares closed today at $ 29.47, a solid gain of 47%.
We first wrote on Upstart in 2014, shortly after the company turned away from revenue sharing agreements to focus on personal loans. They have been a market lender offering unsecured consumer loans, but over the past couple of years they have also entered the banking market as a service, offering their AI-based lending models to banks. .
They fuel the personal loan programs of several banks, including the First National Bank of Omaha, TCF Bank, and the First Federal Bank of Kansas City, to name a few. Last year, Dave Girouard, CEO of LendIt Fintech USA Upstart, spoke to Marc Butterfield of FNBO and Robert Perrelli of TCF Bank (the sound here) where they went into the details of this banking partnership model.
Upstart describes itself as a cloud-based artificial intelligence lending platform. They’ve been talking about AI-based loans ever since they started the business and for a while they were really the only ones talking about it. They have always argued that the use of AI helps expand the credit box and automate the lending process while reducing credit risk for investors. They now have eight years of experience where their AI models have continued to improve.
Dig in Upstart S-1 repository it is interesting to see how banking partnerships have become a key part of their business. While 22% of loans issued in Q3 2020 were withheld by one of the original banking partners, they certainly wanted to focus on this aspect of their business. The term “partner bank” occurs 370 times in S-1.
Upstart has seen impressive growth this year despite the pandemic. The number of loans issued during the nine months ended September 30, 2020 was 176,983, up 30% from 2019. Revenues for the period increased 44% to $ 147 million and they even increased made a profit of $ 5 million. Of course, not everything has been smooth this year. Upstart saw an 86% reduction in the number of loans issued in the second quarter, but by the third quarter they had recovered and again saw significant creations.
History has not been kind to fintech lenders in the public markets. Consumer lenders LendingClub, GreenSky, and Elevate are all trading for a fraction of their IPO price today. Upstart no doubt thinks their story will be different, citing both their banking partnership strategy and their differentiated AI-powered subscription model.
They are off to a good start in public markets. But many other fintech lenders were also successful in the early days. It will be fascinating to see if they can write a different story in the long run.
Peter Renton is the President and Co-Founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and is the author and creator of the Fintech One-on-One podcast, the first and longest-running fintech interview series. Peter has been interviewed by The Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, The Financial Times, and dozens of other publications.