A groundbreaking new business, upstart.com, built by a group of ex-Google employees, allows you to invest in the future endeavors of promising college graduates for as little as $100.
Upstart allows you to become a venture capitalist, from your own home, using just your computer and an Internet connection.
That's because, as the graduate you back embarks on a career or starts their own business, you receive a portion of their income for a set time.
Investing in startup businesses is highly risky. The vast majority of startups go to zero. If you invest in a startup, chances are good you'll lose your money.
But if you invest in a promising college grad, chances are good that you'll reap a high return on your investment as they pay your loan back through a small portion of their future income.
As I've written before, the U.S. education system — with its sky-highs costs — is broken and saddles young people with unpayable debt.
Upstart.com gives promising, motivated young grads a forum to advertise themselves and collect backing from investors — people like you. And unlike the broken college loan system, Upstart borrowers have to start paying back their loans only once they start making money. (Upstart borrowers must pay back a percentage of any income over $30,000 for at least a decade.)
Upstart spends a lot of time ensuring that the grads you invest in have strong earnings potential in the future. It verifies a student's identity, academic record, creditworthiness, work record — and even test scores — before that student can seek funding. So you don't have to worry about vetting whom you are loaning your hard-earned cash to.
Upstart uses what it calls a "pricing engine" to project each applicant's future income over the expected lifetime of an Upstart loan contract. This engine uses data from other graduates with similar backgrounds and achievements.
Upstart targets an average annual 8% return for investors. This is certainly tempting, with the yield on the 10-year Treasury note languishing at 1.8%. But be aware that Upstart does not have a long track record of returns. So your actual return could be higher or lower than 8%.
Of course, no investment is risk-free. And Upstart allows you to start diversifying your income streams outside the stock market — which carries its own risks.
Even better, Upstart also allows you to use your saved capital to support the idea leaders of tomorrow's business world.
Let me give you some real-world examples.
Chris S. will graduate from the University of Chicago later this spring. He's already started a business called Maroon Collegiate Sportswear. The company makes high-quality clothing inspired by university history.
Chris is looking for backers on Upstart.com to build his business and take it to other schools. Chris is graduating from college debt-free and wants to focus his full attention on taking Maroon as far as it can possibly go.
Ian S. from Stanford's Graduate School of Business recently reached full funding at Upstart.com for his project to build a health care-specific application for the new Google Glasses device.
And Brodie Y. from the University of Washington recently reached full funding to launch a startup that he believes could revolutionize online grocery shopping.
Right now, you need to be an accredited investor to start supporting grads through Upstart. That means having a net worth of more than $1 million or an income that has exceeded $200,000 for the past two years. But I expect this to change, as Upstart and other peer-to-peer lending businesses gain acceptance.
If you are an accredited investor, this could be a great way to pick up an extra income stream outside the stock and bond markets. If you are not an accredited investor, keep an eye on developments. My bet is that in two to three years, this kind of income-generating opportunity will be open to all.
And when that happens, it will fully replace the broken college loan system young Americans are saddled with today.
Check out upstart.com for full details.
P.S. If you are not yet an accredited investor, there are plenty of other unconventional ways to pick up extra income outside the stock and bond markets. For instance, you can turn an obscure law signed by President Ford into three ultra-safe "off market" streams of income. Click here to learn more.
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