Upstart just went public - CEO Dave Girouard shares why it isn't a typical success story

[00:00:00] A lot to get a team motivated and moving forward without a tremendous amount of external validation, especially when you have slack channels inside the company. And it's like X company just raised money at Y billion dollars, or this company just did this or that. And. Just companies, just for whatever reason, much bigger at making an impression on the world than we were.

I still remember the most piercing feedback we got because it was very helpful, but one of the partners had written and these guys seem pretty smart, but there are no pied Pipers. So I just don't know if they're going to gather enough following. And it was kind of like, oh, is so damn true. And frankly, it was a struggle to get the team going forward in saying, don't worry.

We're not a unicorn. Don't worry about uniform. Doesn't really mean anything. We're not measured by how much money we raised. We actually think it's a good thing. We haven't raised that much money. So these are the kinds of things I'm getting them TJF questions every week. And you just have to sustain the belief that you're building something really good.

[00:01:07] Welcome to in depth, a new show that surfaces tactical advice, bounders and startup leaders need to grow their teams, their companies, and themselves. I'm Brooke Berson, a partner at first round. And we're a venture capital firm that helps startups, like notion, roadblocks, Uber, and square tackle company building firsts through over 400 interviews on the review.

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We've got a special episode of in-depth, which is why you're hearing from me, even though it's not Thursday. Yet last week, upstart celebrated a successful IPO notching, a major milestone on their eight year company building journey. Today I'm excited to be joined by upstarts co-founder and CEO, Dave Gerard, to unpack all the lessons he learned along the way.

Aside from the timeliness, given that Dave's fresh off of taking a company public, this episode is doubly special for us here at first round, as we invested in upstart seed round, we're so grateful. We had the chance to partner with this incredible team from day zero. Before we dive into our conversation, I wanted to share some context on what Dave's achieved and how our relationship has developed over the years.

If you're not familiar, upstart has built an incredible AI powered lending platform, which they leveraged to partner with banks in order to expand access to affordable credit. But when we first met Dave and his co founders, back in 2012, they were working on an idea that was different, but still in this realm of rethinking consumer lending, given that folks who don't have great credit scores are often excluded.

They had a radical idea to combine a non-fire AI based model with an income share agreement approach, which was sort of like a crowdfunding or Kickstarter for people alternative. After our seed investment and their launch, while there were some signs of success, the ISA model wasn't landing as Dave touches on in this episode, the upstart team ended up pivoting to a direct lending model.

This pivot complicated their fundraising prospects. Dave struggled to pull together the next round of capital, but given our conviction and Dave and what he was building, we had first round made a somewhat off model move to deepen our partnership by stepping up to lead their series. After this pivot, things started to take off despite resistance to this idea and the ups and downs of FinTech companies.

Over the years, upstart has proven that they can underwrite consumers far more efficiently and accurately than traditional lenders. On a personal note, I've come to admire Dave, a great deal. Over the years, for starters, he's been an incredibly generous and active member of the first round community.

Sharing his wisdom at events, we've hosted an articles he's written for the first round review, like as classic speed as habit, we'll put links in the show notes, if you haven't read them yet. But Dave is also one of the most tenacious and focused founders we've ever backed his story, both fits and breaks.

Silicon valley norms and interesting ways. On one hand, he's a tech veteran with a deep background at Google and to apple. He's also built upstart here in the bay area. And given the recent IPO has had success at doing that. But in some ways, both Dave and upstart don't really fit the typical Silicon valley mold.

As he says, he looks less the part of visionary founder and more like the responsible CEO who investors bring in to replace the founder. When things go off the rails, he was 46 years old when he started upstart along with Anna and Paul, his 20 year old co-founder whose parents are younger than Davis.

This trio of co-founders was a somewhat random pairing, but one that stayed together from founding through IPO, which is just so unusual. It's also not the kind of startup that was grabbing headlines or carving out a sexy brand. As David Mets, they struggled with fundraising have largely spent the past eight years, quietly building in a space.

People have been skeptical of in today. This conversation, Dave and I cover a lot of ground. He gives us an insight, look at how the business was built and what other startups can learn from his early days, from how they pulled off their pivot, to how he generated internal excitement over the years, to why, as he puts it, he sucked at fundraising.

We also get into his thoughts on management and the CEO role, including assembling an executive team, what he learned and needed to unlearn from Google and the mental models that help him manage his own psychology as a founder. I think it's such a unique chance to learn directly from a founder who literally just took his company public.

So I hope you enjoy the episode and now conversation with Dave. Thanks for coming on the podcast, Dave. Great to be here. I thought a great, interesting place to start in the upstart journey is how you approached and what you learned from the incredibly successful pivot. And I think what's particularly unique about what you all did was there are certain companies that kind of restart, so like Odo into Twitter, but in some ways there are smaller number of companies that really kind of take the unique thing that they created and kind of turn it 20 or 30 degrees and then have a lot of success with that.

And so I thought a fun place to start might be to kind of go back in time and maybe talk about the founding of the company and maybe why you think it ultimately worked and kind of what you were thinking at the time when you chose to sort of ultimately land on the upstart model that we know today. 

[00:07:02] We started in 2012 with this product that came to be called income share agreements.

And for what it's worth, we created that name that has lived on beyond that business of ours. It was the founding idea of the company. And we got off to a pretty quick start. We were making progress. We were proving our hypothesis. We were feeling optimistic in the very early days, and we always felt that it was going to maybe start scaling next month or the month after.

And the interesting thing I found always was, there's kind of these stories in Silicon valley, and you don't know which story applies to you. There was the Airbnb story and the story about Airbnb at that time, which was already pretty successful was they landed on this business model and it wasn't working and they just kept kind of turning the knobs and fixing it and shining it.

And then finally it worked, it was taking the photos in the apartments in New York. So the Airbnb version was like, stick with it, man. Just keep shining it and fixing it. And the other one was the PayPal story, which is like, oh, they had eight business models within a year until they found one that works.

And the lesson there is like, just keep iterating and trying different things until you find something that works. So we didn't know whether we were Airbnb or PayPal or something else. So we had to kind of read the tea leaves. Was this a bear down and get it done thing, or this is a bad idea. We need to try something else.

Thing for a long time, we were on the Airbnb model. We were like, look, we just need to fix this thing. It's a great idea. People love it. It's just not scaling. But ultimately we came to the conclusion just really saying, look, I don't think those next two knobs were going to turn are going to suddenly be the magic.

We have a few months of cash left, you know? So ultimately we did go to the pivot. As you say, bribe it, wasn't a throw everything away and start over. It really was kind of like step from this. Thing. We were trying to create in the world to something closely related, which in the end was a consumer loan.

But we went from trying to create a new market whiteboard to stepping into a incredibly crowded competitive market, which is a completely different dynamic. But as it turned out a much better one for us, 

[00:08:57] if we were to go back and listen to the founding team or watch the founding team go from, we're going to buy a off all the rough edges to get to product market fit to, we are going to pivot.

This is the direction we're going to go. Can you share more about what that actually looked like from a process perspective? 

[00:09:15] Say, look, we're going to try to shave off this edge or that edge to try to make it feel a little more mainstream. Without abandoning the original concept. I had a lot of conversations with my board about it, the sharpest memory, I have that because, you know, frankly, our core issue was it just wasn't scaling.

It was working at a small level, but it wasn't scaling. And there was no signs that it was going to a very poignant board meeting. I remember in fact, Josh Kaufman from first round was there. He's in Philadelphia. So he was on the video. But I remember him distinctly saying to me, I remember you telling me there were going to be hordes at the gate for this product.

I don't sense that there's horns at the gate. Are there hordes at the gate that I said, Josh, there are no hoards of the gate. It was just an admission that we were showing numbers and this and that. And just talk away around the fact that we hadn't quite figured it out yet. And I just said, look, we have six months of cash left.

I think we need to make a radical move because I don't think we're going to discover anything in the next few months to change our trajectory here. It was that moment of just admitting to Josh and the rest of the board. We just didn't have the answer and maybe it was time to try something else. And fortunately it was a glove save.

It worked incredibly well. We were a small team. We were probably a dozen people then. And within hours of that coffee with my co-founders, we were taking action. We were making it happen. I mean, there were some subtleties to figure out and we did put a big hedge in there, but in any case, we moved very quickly and in a few months later, the business had pivoted complete.

[00:10:44] And so when you were thinking about which direction to pivot, was it intuitively obvious, there was only one other direction to go, or did you start to flesh out a multitude of directions and then landed of the options? This made the most sense 

[00:10:57] one direction, which was to go from this income share agreement to a straightforward.

Loan product. The real issue was we didn't know whether we had a foot to stand on in the lending market, a few other already big companies and winners. And we were coming out with some really different data science, but we, at that time had no idea whether that would be enough sustainable differentiation against some very well-established companies at the time.

And the truth is we had to decide what to do with this thing we had already built. The part I'm semi ashamed of is we went through a period where we decided to keep both. We still so love the original idea that we were going to say, look, when a consumer comes to us, they can get either an income share agreement or alone.

And we spent a few months. Building that. And of course, having both at the same time means there was a lot of energy that went into trying to make them coexist. When we launched the loan product, the interest and volume of that was so dramatic that three days later we end of life, the ISA product. And it was literally a week after we put a blog post out saying, Hey, we got both now.

And then seven days later turns out we're getting rid of that income share agreement. That was the hedge. That was the thing where we didn't quite burn the boats in the end. It would have saved some time, but we got where we needed to. It all happened within a period of just a few months. Unfortunately the loan product just started taking off right away.

[00:12:22] And when you were working to ship the new direction loan product, how would you describe your conviction or the psychology of the founding team? Was it, Hey, we got six months. Let's try to make the most of it. Maybe this'll work or were you tremendously convicted in the new direction and we're sort of running full force towards it.

[00:12:40] I think we were convicted and confident. I don't have any recollection that this was like hail Mary desperate, last shot. Before we all go look for jobs, it was a high wire act in terms of restructuring the company and in all the legal issues around having a loan product, a bank partnership, we had to establish, but I remember just.

Fast fast activity. And over a Christmas holiday, I remember talking to 20 different banks about which one might want to work with us and just smiling and dialing. And it just happened with intensity. I think we felt confident through it. We had this moment where we had a little Christmas get together at a ski house and debating how to go forward on this.

And we hadn't quite figured out what we wanted to do, and it was just time for everyone to go to sleep. And everyone just sort of turned the lights out to go to sleep. And we ended up having this conversation that struck up in the complete darkness that ended up being the defining moment where we said, we're doing this, we're doing this tomorrow.

And we're going, and it was just for some weird circumstance of the way this evening played out that we were literally standing around in total darkness, uh, deciding the fate of the company. 

[00:13:43] Another area to explore in some of the early days before starting upstart, you spent a decent chunk of your career at Google.

And I'm curious what you found in the Google experience that helped you in building upstart and maybe what are the things that you found that either held you back or you have to relearn there's many people that have been at Google that have gone on and built really wonderful companies. I think it's a smaller list of people who have really spent time at Google and become an executive and then left and started something from scratch.

And you obviously did an amazing job at that. And so I'm curious how you think about what you learned, the way you were shaped by Google, the way that Google approach things. What are the things that translated and what are the things you had to relearn. 

[00:14:31] I'm not the youngest founder in the valleys I had been around for quite a while.

Even when I went to Google, I had been an apple a long time, even the priest, Steve jobs era, if you can believe that when I got to Google, I had a fair bit of experience and thought I knew what startups were about and how to do this and that. And Larry and Sergei were just so out there in terms of just questioning and challenging, every assumption you had about how the world is supposed to work, it was just mind boggling.

Honestly, particularly in the earlier days, everything you learned about how to do a product roadmap, how to specify the requirements, how to listen to customers, you could just tear up the playbook because Larry and Sergei just didn't make any sense to them. They had complete confidence in their intuition and their ability to ask questions and just do things entirely differently.

That's the magic of why Google is Google. So certainly during my time at Google, I just absorbed that. It took me a while because now it's easier. If you're 22 and showing up at Google and you just go, damn, this is amazing. This is how it works. I was 30 something or other for me, it was like, wow, I need to unlearn a bunch of things.

It didn't take me long. I was there early enough and long enough that I really began to just appreciate the genius of Larry and Sergei and the idea of starting with first principles on things, questioning things, not really accepting anything as the way something should be done or is done. You have freedom, particularly as founders to go with your gut when I decided to leave Google.

And I think back to your point, Brett is I guess when you get to a certain level of Google and Google is really successful and you can make a lot of money being a senior executive Google, that's just be honest. All the reasons to stay are there. And I just think not enough people are willing to walk away fat and take the leap.

Honestly, I made enough money at Google that I had the freedom to do it without putting my entire lifestyle at risk, if you will. So to be honest, I don't pat myself on the back other than to say I'd done well enough for enough years there that I could do it again without feeling like I was taking a giant financial risk.

Of course I was walking away from a lot. Somebody said something to me once, which was. To look at your life in landscape mode and it's something I've really taken to it. It sort of means each big part of your life. You can just think of going from left to right. And it's a period of time and it means something to you.

It's an experience you have, but at some point, no matter what it is, you put a bow on it and you go to the next one because this is a linear game and you only have so much time. For me, ultimately, Google was amazing. That's a start. What became Google cloud and build it for quite a while. But ultimately I thought another five, 10 years here could be incredible.

It would be great. Certainly would be lucrative, but I only live once. And is this the last great thing I'm going to do with myself? Being someone who built a career in Silicon valley? The idea I had never started my own company. I was at that time 45 years old and had never started a company. It was an experience, frankly, I wanted, I had done reasonably well at Google and built a pretty successful part of the company there.

And I didn't know whether it was me or whether it was Google and the Google  was so strong. Then you could argue that a monkey could have built what I built there because the company had so much strength to it. So of course I questioned that myself. Could I build something awesome? Could I build something with a billion dollars in revenue or more than that?

About the Google pixie dust around me. And that was just part of the motivation. 

[00:17:48] What are the lessons or insights that you took from Google that you found quite helpful, building upstart, and then maybe some of the ones you had to shake off. You mentioned one, the idea of first principles thinking and constantly questioning.

Why is something done the way it is? Are there parts of the toolkit that you built in those eight plus years at Google that you found were hugely helpful in building upstart? 

[00:18:13] Well, company and myself included were naturally very deferential to what Larry and Sergei thought that was the magic. Those guys were just pushing everybody.

When I left Google, I had to invert that and think like, now, frankly, I need to be the Larry and Sergei. I can't be deferential to anybody. I need to have strength of mind and opinion that I'm not exactly Larry and Sergei. I'm a different person. And I would not try to compare myself to them, but I also number founder and I need to have.

That sort of strength of will, in opinion, even if my views on the world might be different than theirs, or like Google in many ways with a bunch of ex Google people at upstart. So certainly we inherited some of the DNA and on the practices and you would definitely kind of hear the echoes of Google at our company, but it's different too.

I think Google had this thing always, which was the engineers were running the show. There was these things that were almost like everyone else is there to support the engineers. And I can remember Larry speaking to a very large sales team once at one of these sales conferences or something. And Larry gets up there and he says, I really want to thank you all because you all go out and collect the money.

And it was the funniest moment. I think I've ever experienced where he was trying to be. Respectful and supportive of the sales team at Google and upstart. We aren't that way at all. We are a very complicated multi-functional cross-functional business, and I don't feel like there's any part of the company that feels any more elite or more important than any other.

It really takes all parts coming together. So that's the part I think that I left behind. If you will. 

[00:19:48] One of the things you mentioned was in the way in which you think about decisions, where you get feedback is sort of quite different being in and around Silicon valley for so long, working with different founders.

What was surprising about the experience or maybe unexpected for you? Yeah, 

[00:20:06] one thing I'll say about being a founder relative to being a Google exec is for me, they were much more alike than dissimilar. When I left Google, I had maybe a thousand people that worked for me, some of them direct or indirect, but it was a very large team.

I had responsibility for. And with upstart, I had zero literally until I ranked my co-founders to join me, it was a team of me. So that was definitely an oddball thing. But once upstart was five or six people, it was surprisingly not different. And that sounds really strange, but we had to figure out what, what to do next.

We had to make decisions. We had to figure out how to build something. We have to be resourceful and Enbrel. I had a Google trying to build this enterprise app stuff. It felt the same way. I had some different problems to solve and I had people to convince to support us and this and that. But yeah, in many ways it is remarkably similar when I was at Google.

So I remember just to give you an example, we had this Google search appliance. If you remember this thing before there was even Google apps, we sold this yellow box. And when I got there, we decided to make a cheap and cheerful version of it. We ended up calling the Google mini. And that product was only going to be a few thousand dollars and you couldn't have salespeople selling it the way we did the bigger thing.

We had no idea how to sell it online. Despite all the Google ad words in this giant advertising business, none of that commerce technology or payments technology was available to us. We literally put the Google mini in the t-shirt store, which was really a little e-commerce site hosted by this tiny company, somewhere in Missouri funniest thing in the world.

But you could buy a lava lamp. You could buy a Google t-shirt or you could buy a Google mini. And it was literally how we made that product. So it wasn't like Google felt like I was working for general electric or something. We had to be just as creative and innovative there. It's not so different. The beauty of being at Google is you don't have to raise money.

You don't have to deal with the board of directors. But other than that, the day-to-day for me in many ways is miraculously similar. 

[00:22:04] One of the many special things about upstart is that the co-founding team has seen the company from day zero through a successful public offering. What you tend to see is the founding CEO make it through the founding team, doesn't stay intact.

And so obviously there was something special that happened, any sort of thoughts or reflections on why that's worked so well and how you ended up teaming up. 

[00:22:28] When I was thinking about the idea of upstarting well, before I had even decided to leave Google, I was talking to all sorts of friends, some people at Google, some friends elsewhere about both.

Did I want to do it? And by chance, would you ever consider joining me in doing this and man, the number of people that said it sounds interesting, but no thank you. And this wasn't raising money. This was just finding someone to jump on board and think about doing this with me. Definitely went through this period of, wow.

Am I the only one that thinks this is cool? So I basically decided to leave Google without any co-founders. I announced I was leaving. I had actually incorporated the company and knew what I wanted to do, but I was by myself because I couldn't really in the role I was in really go out there and look too hard.

I was running a large team at Google, so I left right when I left, I just by happenstance, got introduced to Paul, who ended up being my co-founder. I was 46 at the time. And Paul was 20. And he was this kid in New York who was building something similar to what I was thinking about, what that story. I discovered it that day, I'm older than his parents.

He's 20 years old. Peter teal won the under 20 and he's telling me his parents came from China, this and that. And I'm like, how old are they? God, I'm older than your parents. As I was leaving Google, Anna who worked in my team at Google literally came by a conference room to say goodbye to me. She was like, oh, I loved working for you.

I really didn't know her that well, honestly. And she said, what are you going to do? And I explained that I have this idea. Two weeks later, it was Paul, Anna and I sitting in a conference room at Google ventures. To answer your question. First of all, politically different people. I mean, we really couldn't be any different.

One advantage we had is I really assembled the team and I was the one that had a lot of experience and had gotten the company seed funded and started pretty clear that I was the CEO. I was going to run the show and we were never debating our questioning that it was really clear what roles we would play.

I mean, Paul was the data science guru and the technology guy and Anna was a super strong operational person. We just kind of knew the role we would play. If you sort of fast forward eight, nine years, all the way through an IPO, like how did it last. It's a lot of luck, frankly, because we happen to be people who, as different as we were, we're just appreciative and accommodating of each other just enough to sort of make it all work.

It's not to say we don't rub each other the wrong way, but we're very complimentary. Anna will always think of things that I'll forget to do. And Paul will have a true north seek the truth approach that I will sometimes waffle around a bit. And I'm the execution guy. I'm always like, why aren't we doing this?

I'm the one who's probably always probing us to push forward and do different things and reconsider like the pivot itself. So we've kind of just evolved to have roles and as different as we are. It just added up nicely. It added up to what amounts to a well-balanced company. I can't say we plan that.

Obviously we didn't think too hard through it before we decided to work together because we hardly knew each other. And that's why I say this just in the end, a huge amount of luck to at all. 

[00:25:29] The fact that you didn't have some long courtship, you kind of attribute more to luck, or was there a feeling that you were, the others were looking for or gravitated to, and that instantly made sense.

[00:25:43] Considering I had pitched this idea to probably two dozen. And these were the first two that just went, wow. Yes. This makes a lot of sense. Maybe it's not luck in that sense, but I was just very fortunate to meet Paul. We got on the phone one day, had similar ideas of companies we wanted to start.

Paul literally just emailed me his model, which he had built than an Excel macro. And he emailed it to me and I just thought, wow, this guy is really trusting me. In any case. He decides to fly out and spent half a day with me in a conference room at Google ventures. Actually that was on a Friday. He flew home to New York and he was back together with me on Monday.

It all happened super quickly and it certainly could have gone all wrong. I mean, if you were a betting person at that time, you would have had to bet that this'll never work out. These three people just coming together on the spot deciding to build this company. But here we are. 

[00:26:37] Such a cool story and yeah, I think anybody betting would have bet against the, and probably been right.

Most cases. Are there any rituals you have as a founding team in terms of the way you would get together sync with one another or run the company? 

Today's episode is with Dave Girouard, the CEO and co-founder of Upstart, an AI-powered lending platform that recently went public. First Round invested in Upstart's seed round back in 2012, so we were thrilled to chat with Dave about his lessons from this 8-year company building journey. In addition to sharing his management philosophy and what he learned as a Google exec, Dave digs into the initial idea, their business model pivot, and the fundraising challenges the Upstart team faced while they were quietly building in a space people were skeptical of.

Upstart just went public - CEO Dave Girouard shares why it isn't a typical success story

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Fresh Off IPO, Upstart’s CEO Shares Why the Startup Isn’t a Typical Success Story