Upstart vs Pave Funding

by Alex Feldman

December 25, 2013

I heard of both Pave and Upstart when they first came out in the beginning of 2012. The idea behind these businesses was ground-breaking.  Instead of investing into businesses that often fail, these sites allowed people to finance the entrepreneurs directly. In exchange, investors would receive a portion of the entrepreneur’s income for the next five to ten years. The risk for investors is lower because they get paid based on what the entrepreneurs do for the ten years, not just based on the ideas they have. Investing in the entrepreneur allows venture capitalists to diversify their portfolio with this new asset class and gives entrepreneurs the opportunity to learn from experienced mentors who are invested in their success.

 

It’s interesting that both of these companies emerged at around the same time. I guess it’s true what they say: new ideas usually come in pairs.  Upstart has an advantage at this point having received ventured funding based on the Crunchbase database.  It will be interesting to see how these two companies are able to successfully predict the individual valuation and their returns after the first entrepreneurs complete their programs in 10 years.

 

I decided to apply for this type of funding for several reasons:

 

  1. Learn More: Since I work in the crowdfunding industry, I thought it would be interesting to crowdfund for myself.
  2. Teach Better: I teach a class about different crowdfunding methods for small businesses. I wanted to experience one of these sites so that I can help my students decide which site to choose.
  3. It’s Easy: The process is relatively easy and fast.  I couldn’t afford to take three to six months off to try to raise money through investors.
  4. Future Growth: The funding I receive would help to build a team, which will then allow me to raise money using more traditional methods.
  5. Finding Mentors: These sites could potentially help connect me with mentors who are not only more experienced than me, but also financially invested in my success.

 

Pave vs Upstart

 

The first decision I had to make was which site to use: Pave or Upstart. I compared them on the following criteria:

 

Location

 

Location shouldn’t really matter since the whole process is done online. But as a resident of New York City, I initially gravitated towards Pave because it is based in Manhattan. I could not only invite Pave staff to my crowdfunding events and introduce them to other people interested in crowdfunding, but I could also come to their offices to provide an in depth presentation of my value to potential investors. Upstart is in San Francisco so there was no way for me to meet their team in person.

 

Advantage: Pave

 

Application Process

 

In September of 2013 I started reading about the two sites and reached out to them about starting my application.

 

Signing up for the application process was pretty easy on both sites.  They ask you to fill out similar questionnaires, which ask about your background and how you plan to use the money.  You also need to send in proof of your citizenship, degrees, and paystubs if you have them.

 

I reached out to both teams a few times during my application process and had a dedicated person to interact with me the whole time. The response was professional and quick for both sites. I felt that Pave responded a bit quicker to my requests and they also proofread my whole application, providing me valuable feedback on improving my profile.

 

Advantage: Pave

 

Terms

 

When I received the terms for both companies, I first read all the possible documentation online, including the FAQs for both services. I then put their terms side by side on a spreadsheet for comparison.

 

Upstart offers a 5-year and a 10-year plan. Pave only offers a 10-year plan. I compared the terms for the 10-year Upstart plan with the one from Pave. Upstart terms were much better. They offered me more for my 1% of future income. The threshold for deferment was higher with Upstart; so if I make below that amount I don’t have to pay anything. However, a year is added at the end of my 10-year contract.

 

Both sites required entrepreneurs to raise at least $10,000 but Upstart has an investor pool that invests automatically 3-to-1 until you reach the minimum amount.

 

Advantage: Upstart

 

Interviewing fund seekers

 

I talked to the individuals who ran projects on both Upstart and Pave to see what their experiences were. While individuals really enjoyed the team at Pave, they did not raise as much as people who used Upstart. Of course it may not have been a fair comparison, since the people I talked to at Upstart could have been more qualified. I did, however, talk to one person who first ran a Pave campaign and then an Upstart campaign. He raised significantly more in Upstart.

 

Advantage: Upstart

 

Winner

 

Initially I was inclined to go with Pave since they are from NYC where I am currently located. Their staff was friendly, professional, and really went out of their way to make sure my campaign looked right. On the other hand, their terms were a bit worse than Upstart’s. The key factor to my decision was who could bring the most money from accredited investors. Counting the number of investors on the sites and talking to people who ran projects, Upstart was the logical choice.

 

Here is the link of my upstart profile:

 

https://www.upstart.com/upstarts/alex-feldman