Upstart CEO talks major IPO ‘pop,’ A.I. racial bias, and Google

December 18, 2020, 5:08 PM UTC

Upstart, a San Mateo, Calif.–based startup that uses artificial intelligence to help banks make lending decisions, went public on Wednesday.

Fortune caught up with Dave Girouard, Upstart’s chief executive, on the day the financial tech, or fintech, company debuted. The stock quickly “popped” from an opening price of $20 per share to $35 per share—and by press time on Friday, the price had soared to nearly $48 per share.

During the interview on Wednesday, Girouard shrugged off the possibility of leaving hundreds of millions of dollars on the table. The IPO pricing is “sort of inconsequential” to the future of the business, he said. (Since then, Upstart entered a so-called quiet period, as mandated by U.S. securities laws, and was unable to comment further.)

In addition to questions of financing, Girouard touched on the risk of racial bias in algorithmic decision-making. (“There are perfectly well-founded reasons to be worried,” he said.) Formerly in charge of Google’s enterprise products unit, Girouard also talked about about Salesforce’s mega-acquisition of the work-chat app Slack for nearly $28 billion. (“I literally told some of my former colleagues, ‘You should consider buying that company,’ years ago.”)

Read on for Fortune’s interview with Girouard, which has been edited for clarity and concision.

Fortune: A number of companies recently delayed their initial public offerings, like Affirm and Roblox. Did you, too, consider delaying, given the craziness and volatility of the IPO market right now?

Girouard: No. It’s like having children, right? It’s an amazing experience, but I’m not sure I want to do it again. We’re ready to get it behind us and just move on as a public company and focus on 2021.

You priced the offering at the lower end of the estimated range—$20 versus $22. After seeing companies like DoorDash and Airbnb leave so much money on the table, why did you decide to lowball the price?

Speaking to the vagaries of the market and exactly where we set the range, it’s sort of inconsequential to the larger transition for the company. As enjoyable as this process has been, I very much look forward to just focusing on the business again. [Editor’s note: Fortune followed up later that day, after Upstart’s stock “popped’ to $35 per share, and Girouard added, “We’re really happy with how the process worked out and thrilled that investors who have believed in Upstart have done so well.” On Friday, the stock reached nearly $48 per share; Upstart declined to comment, citing a post-IPO quiet period.]

How has the pandemic impacted your business?

When April came around and unemployment went from 4% to 14% in a few weeks, banks pulled back significantly. Our loan volume dropped by 70%-plus very rapidly. It only lasted for a couple of months, fortunately. We very much had a “V”-shaped recovery. We literally lost only a few million dollars, which is fairly immaterial. I think it speaks to the resiliency of our own business.

It seems like a lot of people are waiting for the other shoe to drop when it comes to borrowers potentially going belly up and not being able to repay their loans. How does that risk affect Upstart’s future?

From our point of view, the real dangerous time—particularly for a bank or a lender—is when unemployment is going up very quickly. We’re not really in that phase. We’re in the phase where unemployment is hovering and maybe coming down, but it’s certainly not going up very quickly.

To stimulate the economy, the Fed essentially slashed interest rates to zero. Is Upstart affected by that?

The sweet spot of our business is consumers refinancing credit card debt into lower interest rate installment loans. Generally speaking, irrespective of what the Fed does, the amount people are paying on credit cards is fairly obscene. People pay 20% to 25% interest rates on cards. We offer the consumer the chance to get rid of that credit card debt. We’re not super sensitive to the Fed rates.

I spoke to your cofounder, Paul Gu, earlier this year, about some changes to FICO credit scoring. The changes basically made it more difficult for people to rebound their credit score by consolidating credit card debt. Has that hurt business?

I don’t think people generally get loans from us with the first reason being to improve their credit score. It’s this happy outcome of doing it, for sure, but I think the primary reason is to refinance debt to a more affordable payment.

A lot of fintech companies—Varo, Square, SoFi—either have received or are now pursuing banking charters. Would Upstart ever consider becoming a bank itself?

We think we can be a partner to banks. We’d rather do that than compete with them.

Earlier this year, a bunch of U.S. senators called Upstart out for the potential racial implications of algorithmic decision-making in lending. How are you tackling this issue?

There are perfectly well-founded reasons to be worried about A.I. and its potential to be biased or unfair. These are very reasonable concerns. Our answer, generally, is that you need to test very rigorously, and not just once in a while. You need a system that is essentially supervised. That’s what we’ve built under the guidance of the Consumer Financial Protection Bureau.

As somebody who previously led Google Enterprise products, what do you make of the Salesforce-Slack deal?

We’ve been enormous Slack fans, which is unusual because, being ex-Googlers, we used everything Google forever. But we just began loving Slack. I literally told some of my former colleagues, “You should consider buying that company,” years ago. I’m a huge fan of that merger. More competition is going to be great for the market.

It’s strange that Google hasn’t been able to come out with a chat product that’s really stuck, given that their other collaborative work products are so great, like Google Docs and, of course, Gmail.

It’s very painful to me that you say that. It is completely true as well. We could have done some things differently. It’s a rich problem when your advertising business is so crazy successful that it’s hard to imagine anything else, like enterprise cloud, matching up.

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