May 26, 2017

Wealth Matters: Upstart Matches Young People With Investors

Without venture backing and unwilling to ask her family for help, she used money from her day job as a music composer and singer to pay people to create the app, a process she found frustrating.

Then, last summer, after introducing the app in early 2012, she realized she needed to rewrite all the code herself. The only problem was she didn’t know how to do it or have the money to learn.

That was when she stumbled upon a new site called Upstart that pairs investors and people who finished college or graduate school after 2008. The Upstarts, as they are called, are looking for relatively small amounts of money, about $25,000 on average, to finance their idea or even pay off debt.

Ms. Kumar Friesen, whose father is an inventor, wanted to raise $70,000 through Upstart to learn to write code, pay legal bills from an offer she ultimately turned down and push through her patent application.

Last week, I wrote about how parents should think about lending to their children. But for many young adults, parents are not a source of financing. This is where a site like Upstart comes in.

The investors, or backers as they are called, receive a percentage of the young person’s income for 10 years, regardless of whether the idea they backed is successful. If the person is paid less than $30,000 a year, the period extends for a year to a maximum of 15 years. If the person tries to avoid repaying the investment – as opposed to earning too little money – that investment converts into a loan with a staggering annual interest rate of 15 percent.

Dave Girouard, founder and chief executive of Upstart, said that to ensure borrowers do not regret the deal, the amount a person could borrow is limited to 7 percent of future earnings and the payback is capped at five times the loan amount. That limits the upside on the few people who succeed financially.

“People might be paying more than they would on their fixed-rate loan,” Mr. Girouard said. But, he added, the people who have gotten financing so far were comfortable with the possibly of paying back a higher amount than on a loan because it would mean their idea had succeeded.

What I wanted to know was: What did investors want to get out of this and how did they select young people who would agree to give them a percentage of their income for a decade?

Backers on Upstart have to be accredited investors, which means having an annual income greater than $200,000 or a net worth above $1 million. They can invest any amount they want, though their offer has to be accepted. They can also sign on to be a mentor.

For connecting borrowers and lenders, Upstart takes 3 percent of the money young people raise, and 0.5 percent annually of the amount a backer has invested. Mr. Girouard said the company is close to signing an agreement with a student loan processor to act as a backup if Upstart goes out of business and can no longer collect payments owed investors.

David Croson, a professor of entrepreneurship at the Cox School of Business at Southern Methodist University, said he had invested between $100 and $10,000 in about two-dozen young entrepreneurs over the last month through Upstart. He did so after talking to his wife, also a business professor, about how hard it was for young entrepreneurs to get started.

“We were discussing the problem of people who had been relieved of all of their money by educational institutions,” he said. “That doesn’t matter much for people going into traditional professions, but it does for an entrepreneur who has a negative $100,000 net worth.”

He said he does not have high expectations for a return – — about in line with his bond portfolio – — but he was hoping there would be the additional upside of one or two people succeeding wildly. “It’s almost like being on the board of directors of these companies,” he said. “All it takes is for one of these people to succeed for it to work out.”

(Mr. Girouard said he projected about an 8 percent annual return after fees.)

Article source: http://www.nytimes.com/2013/06/08/your-money/upstart-matches-young-people-with-investors.html?partner=rss&emc=rss

Economix Blog: Out of Harvard, and Into Finance

11:29 a.m. | Updated to include more detail on Yale’s definition of “industry” employment.

Given the efforts at some of the top schools to guide their students away from Wall Street and into public service, I’ve been wondering whether the career choices of the nation’s young elites have changed much in the last few years.

I’ve gathered some data from three elite schools known for sending a lot of students into finance: Princeton, Yale and Harvard. Each school categorizes the jobs of its graduating seniors in different ways, so we can’t compare them to one another. But we can look at within-school trends to see how student choices are changing over time.

Note: The percentages below refer to students who actually had jobs, and so for the most part exclude students who were unemployed or in graduate school.

Since I’m a proud Tiger, let’s start with Princeton, which sent me data going back to 2000. The share entering finance jobs is in yellow, and I’ve included exact percentages for some of the more popular industries:

DESCRIPTIONSource: Princeton Office of Career Services.

Of Princeton seniors who had jobs lined up after graduation, 35.9 percent went into finance in 2010 (the most recent year available). That’s a very large share, but still lower than the peak of 46 percent in 2006.

The steady flow of Princeton students to Wall Street has caused the university some P.R. (and legal) problems in the past, since the school’s motto is, “In the Nation’s Service, and in the Service of All Nations.”

The share of newly minted Princeton grads going into public service jobs — either at nonprofits or in government — was 25.6 percent in 2010. That’s higher than it had been; in 2006, before the recession officially began in December 2007, it was 15 percent.

Now onto Yale, which releases information about where graduates end up a year after commencement.

Yale has numbers going back several decades, and they show that young Bulldogs are weathering the job market just fine. Of all classes Yale has surveyed since 1968, the class of 2010 had the largest percentage of its graduates employed in the first year after college. Despite the weak economy, 75 percent of all members of the class of 2010 had jobs a year after graduation; in 1968, just 20 percent did.

On the flip side, the percentage of Yale college graduates who were engaged in graduate/professional study in the first year after graduation was at its lowest level (21 percent) since the school started keeping track of that number in 1960.

Here are the percent distributions for new Yale grads who were working (or actively looking for work, as opposed to study or other activities) a year after tossing up their mortarboards. The school breaks down its employed students’ career choices into more categories, so I apologize if the multicolored chart below is giving anyone seizures:

DESCRIPTIONSource: Beverly Waters, Office of Institutional Research, Yale University. June 2011. Note: Industry categories with fewer than 1 percent of employed students are excluded.

Of the 2010 graduates who were working a year out, 14 percent were in business/finance jobs, down from a peak of 31 percent in 2000.

However, the share of students going to industry went way up last year. A Yale spokeswoman said this category includes sectors like manufacturing, business/management consulting, sales and marketing, I.T. jobs of all sorts (software engineering, development, sales), engineering and real estate.

Finally, let’s look at Harvard.

When I asked Harvard about career choice data, the school said it could publicly release numbers only for 2006 and for 2008-11. So we have fewer years to examine, but they still seem to tell a story:

DESCRIPTIONSource: Harvard Office of Career Services.

Upon graduation, those Harvard grads entering jobs were more likely to enter finance than any other career: in fact, 17 percent of new grads did so. But this share is still significantly lower than it was just a few years ago. In 2008, 28 percent of employed new grads worked in financial services.

The share in consulting has also been trending downward. (As my colleague David Leonhardt wrote a few weeks ago, consulting seems to be losing its cachet amongst newly-minted M.B.A.’s, too.)

Of course, this is but a small sample of top schools, which are in no way representative of the broader job market for 22-year-olds.

Even so, these data are a nice peek at how the financial crisis may be changing elite students’ ambitions.

Article source: http://feeds.nytimes.com/click.phdo?i=86d31bfd28a119a8eb3adbdf38d1aad2

Talk: Stephanie Madoff Mack Keeps Busy

When I read about the December 2010 suicide of your husband, I remember being disturbed by the image of him hanging himself with the family dog’s leash. Does this still haunt you?

It haunts me every time I have to walk the dog and every night when I try and go to bed. What haunts me most is that he tried it with a vacuum-cleaner cord first, and it didn’t work, and he tried again. The determination of it is gruesome.

He killed himself while you and your daughter were at Disney World, but your son, Nicholas, was sleeping in the next room. Could Nicholas have discovered his father like that?

Nicholas was 22 months at the time and was never one to climb out of his crib. Initially, I was furious that he put my son in harm’s way. Mark Madoff would have thrown himself in front of a train to save his children. He just snapped that night.

How do you suppose Bernie Madoff was able to enjoy his yachts, jet and homes, understanding that his Ponzi scheme was destined to unravel?

In hindsight, he didn’t really seem like he enjoyed these things, but I just thought that was part of his quietness. I never saw him have a real good laugh, like a belly laugh.

In the epilogue, you note that, as you were writing, it had only been six months since Mark’s death. How on earth did you mourn your husband, care for two young children and get a book out that quickly?

I’ve learned that I am something called an instrumental griever. I have to be busy doing something. I had to be busy with this project, the kids, and I was even taking a class in graduate school.

You are so hard on Ruth Madoff’s decision to continue speaking with Bernie despite Mark’s wishes. You appear to feel she’s complicit in his death.

I don’t blame Ruth for Mark’s death. I think that Ruth Madoff makes disastrous choices, and my husband felt very hurt and abandoned by her.

But Ruth has known Bernie since she was 13. Some loyalty would be understandable, no?

I don’t understand. What I do understand is this: When my husband hanged himself while my son slept, all I wanted to do was get to my son.

You go to great lengths to proclaim both Madoff sons’ ignorance of their father’s crimes. But I wondered if you agreed with the Madoff victim who said that even if the brothers didn’t know, “they led lives that weren’t theirs to lead.”

My husband built a totally separate business that ran on a completely separate floor. He worked very hard and yes, it was earned legitimately.

The latest trustee complaint says Mark withdrew $18 million from a Madoff fund in which he invested $381,000. He must have known he was taking out more than he put in.

I don’t feel comfortable discussing the legalities of this case without an attorney right now.

You write that Mark’s whole life was his children — two of which are from a previous marriage — and how you hope all four kids will grow up together. Then you describe his ex-wife Susan Elkin as a borderline stalker and “a controlling bitch.” Won’t that make relations difficult?

I really do hope that the siblings can have a relationship going forward. That’s something that Mark would want. But I wanted to finally say how I felt. I was treated very poorly by their mom.

In the book “Truth and Consequences,” which is being promoted by Ruth and Andrew Madoff, Elkin says Mark told her you were going to leave him. The book depicts Mark telling Andrew that a previous suicide attempt largely resulted from this fear. You’ve denied this, but why would two people collude on an elaborate lie?

None of it is true. I told Mark over and over again that I was not going to leave him. I was never going to leave my husband. Never.

INTERVIEW HAS BEEN CONDENSED AND EDITED.

Article source: http://feeds.nytimes.com/click.phdo?i=ae2d116163900a983edf1bd332029c19

Corner Office: It’s Showtime, So Take That Deep Breath

Q. Do you remember the first time you were somebody’s boss?

A. My first real job where I supervised people was right after graduate school. I worked for Northwestern University and helped run its noncredit continuing education program. I was the director of it, and it was a really fun job — a little bit like herding cats because I had to hire all of these people to teach who didn’t normally teach.

I hired the best artists in town to teach painting classes, and all the best musicians to teach music classes. I hired a bunch of chefs to teach cooking classes. When I took over the program, it was about 50 or 60 courses. By the time I left about two and a half years later, it was closer to 400 courses.

Q. Was that an easy transition for you into that kind of role?

A. At that point in my life, it never dawned on me I couldn’t do something. I was 22. It was fun. I would go to bars and listen to bands and figure out which would be the best one to teach a course on how you get your band into a bar. So by the time Saturday night rolled around and I’d walk into any club, I knew every musician. I knew artists and I knew athletes. It never dawned on me that I couldn’t get access to somebody.

Q. What about in college?

A. I went to Westchester Community College, where I ended up in a theater group. That experience exposed me to a whole new world.

Q. Were you on stage or behind the stage?

A. I was the costume designer on a couple of shows, and then I had the lead in a couple of shows, too. But then I went more into the costume design side and ultimately decided I really liked the artwork and became an art major.

Q. You’re one of several C.E.O.’s I’ve interviewed with a background in theater.

A. I’m not surprised. You need to be able to get up and deliver the good news and the bad news. It’s just that same feeling before you go on stage, and you take that deep breath. In my organization now, with several hundred people working for me, I have to be that policeman and that show leader at the same time. So what better training is there?

Q. What were some early leadership lessons for you?

A. I was hired as a dean at Polytechnic University in New Yorkwhen I was 28 years old, and I didn’t know when I was hired that I was the first woman dean they’d ever had. I went into that job thinking I had to be one of the boys and act like the boys. Somewhere in there I learned that if I just stopped trying to be something I wasn’t, they were either going to like me or not and that would be O.K. But the “like me or not” part of it was a big thing for me to learn.

I think I’m a good leader now and I do a decent job of running my organization, and a big part of that is because I’ve gotten past that lesson. I am who I am, and what you see is what you get. I speak up. I say what I think. I tell the people who work for me when I hire them: “If you work for me, you’re going to hear what I’m thinking. You can push back, and I’m going to listen when you push back.” My staff doesn’t have to worry, “Is she angry? Is she happy? Is she contemplating?” They know where they stand. They know what I want. They know what makes me happy. I know what they want. You don’t have to like me. It’s O.K.

Q. When you came to the U.S. Fund for Unicef four years ago, what were your goals in terms of building the culture?

A. It was a very interesting time in my life. I’ve taught leadership development at Manhattanville College. So it was a chance to take all of this textbook learning and actually apply it. Can you do it? Can you really have a work team? And I’ve never worked with a better team than I’m working with right now, and I’ve never worked in an environment as energized as the one I’m working in right now.

And that didn’t happen by chance. We hired coaches to help make that happen. We wrote values to help make that happen. We decided we wanted to be the nonprofit you’d want to work for. We had a staff retreat and we did a blowup of a magazine cover with the senior management team on it that said, “U.S. Fund for Unicef Named Charity of the Year Five Years Out.” And we spent a weekend holed up in a hotel, and we wrote the article. If we were going to be named five years from now the charity of the year, why? What would we have done? What would we have accomplished? And we spent a lot of time on that, but also, what would we be internally? What would it feel like? What would you as an employee expect? What would I, as a boss, want from you? What’s the environment? So it wasn’t only about what will we achieve, but how are we going to get there.

Q. What other steps did you take?

A. We hired a coach who worked with us collectively but also coached us individually about process — not skills, process. He actually took us through the process of learning how to work together, and it was the most phenomenal thing I’ve ever been a part of.

Article source: http://feeds.nytimes.com/click.phdo?i=cb40d751091e04682dccff12da33db6d