As many venture capitalists retreat from the online lending industry, Upstart Network is hoping to find investors still willing to bet on the business. Upstart, which was founded by Google veterans, is testing venture capitalists’ appetite for an investment round of about $100 million, said two people briefed on the matter.
The San Carlos, Calif.-based startup is looking to sell shares that would value the business at $500 million to $1 billion, said one of the people, who asked not to be identified because the discussions were private. This venture capitalist didn’t pursue a deal because of an existing competitive investment.
A spokeswoman for Upstart said the company isn’t currently raising funds but does expect to complete “a final private round” over the next year. Upstart reached profitability last year, and the value of loan transactions increased threefold, she said. Gross revenue, made up almost entirely of loan-origination fees, grew fourfold, though she declined to specify the number.
Financial technology companies attracted a record $16.6 billion in venture deals last year, according to the research firm CB Insights, although the pace of deals was slowing by the end of the year. Among recent investments, SoftBank Group put $250 million into the lending startup Kabbage. However, many investors are more cautious toward online lenders after some recent flame-outs. LendingClub and On Deck Capital have each seen their share price decline more than 70% since going public in 2014.
Many lending startups promote their data prowess, saying they can discover borrower strengths and risks that banks or older companies can’t. Douglas Merrill, another former Googler who was chief information officer there a decade ago, now runs a startup called ZestFinance. It sells software to help lenders evaluate customers with thin or poor credit records. ZestFinance is backed by $70 million from Baidu, Lightspeed and others.
Dave Girouard, the former enterprise software head at Google, left to found Upstart in 2012. In addition to traditional credit reports and income, Upstart uses data like work history and whether a customer has a college degree to determine loan worthiness. It also sells loan software to banks and other lending institutions. The company last raised cash in 2016, with a $32.5 million round led by Rakuten, the Japanese e-commerce company, bringing its total cash raised to about $85 million.