Last Friday, David Girouard posted an opinion piece on Wired discussing why he sees the future of crowdfunding going towards investing in people over projects. Girouard is the co-founder and CEO of Upstart, a company that allows investors to back both college grads and up-and-coming grads for a portion of the money they make in the next ten years. So naturally, this idea is one he is very passionate about.
The main argument of the article describes the difficulty in predicting the outcome of a start-up, and if a VC firm struggles with its predictions, how can someone with no prior investing experience hope to get a good return? The answer, according to Girouard, is investing in people.
While the idea of investing in people is a fascinating one (Read: The Man Who Sold His Fate to Investors at $1 a Share), the limitations of what Upstart offers in investment seem to drag the fledgling philosophy down.
I love the idea of putting money into a person over a business. It gives your investment more reach. If one project fails, the next could gain traction and vice versa. However, it could be argued that an individual has much more variables to consider than a standalone project.
If you invest in a project, you invest in a team that has assembled itself because they think their strengths and weaknesses accent one another in a positive way. With only investing in a single person, you get all their strengths, but also all their weaknesses — they don’t get distributed into a collaborative group.
This may work for some individuals, such as Steve Jobs, Bill Gates and even Mark Zuckerberg, but the majority of startups are formed by teams and collaboration from the get-go.
The other problem is the way Upstart determines how much income an individual will eventually make. The article describes the process like this:
“It’s not unlike the logic used by big companies or universities faced with countless candidates, by recruiting firms and talent agents, and others. By using data and algorithms — in this case, a sophisticated regression model that considers variables like school, area of study, standardized test scores, internships, job offers — we can statistically predict a person’s future income.”
To me, the idea of entrepreneurship and what makes an entrepreneur is to cross over these statistics and create your own path to success. For example, what would Bill Gates’ estimated income be when he dropped out of college? Would Upstart’s process have truly predicted the success of Microsoft?
To compare entrepreneurship logic with that of logic used by big companies is to miss the point entirely. The algorithm shouldn’t rely on standard forms of success, because no successful startup has followed the exact same path. And likewise, no individual pursuing entrepreneurship finds success in the same way.