This Week in Startups - E987: The Next Unicorns: Upgrade CEO & Co-founder Renaud Laplanche is empowering users to better understand credit through his consumer credit platform, announces the Upgrade Card, shares insights on taking LendingClub public & how startups have changed since he started his first company in 2000 – E

Episode Date: October 12, 2019

0:51 Jason intros Upgrade CEO Renaud Laplanche 2:07 Renaud goes over the idea of his previous startup, LendingClub, and taking it public 9:57 What happened at LendingClub after the IPO? 11:18 What is Upgrade? How did it grow out of LendingClub? 12:40 Are credit scores an outdated metric? 14:11 What is the Upgrade Card? 15:30 Are modern credit card companies sinister in their approach? 24:54 Renaud's thoughts on Crypto 27:40 Where does Upgrade's lending capital come from? 31:22 Are we approaching a downturn after an unprecedented period of growth? 37:28 What goes into a great credit score 42:50 What has changed in startups since Renaud started his first company in 2000? 51:25 What keeps Renaud going after two successful exits as a founder?

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And NetSuite by Oracle, the business management software that handles every aspect of your business in an easy-to-use cloud platform. Get NetSuite's free guide, seven key strategies to grow your profits when you go to netsuite.com slash twist. Hey, everybody, welcome to this week in startups. This is part of our series called The Next Unicorns, or as we like to say colloquially here in Silicon Valley, Sunicorns. Companies that we believe could be the next Uber, Robinhood, com, Airbnb. And we track these things, pretty easy to track. If somebody raises over 50 or $100 million, that means some investors believe they can get to that benchmark. What does it take to be a unicorn? You have a product that people really love. You have to have strong product

market fit. Additionally, you have to have a great business model. So that strong product market fit can be monetized and that revenue can show up to help you grow and conquer the world. You also need to have a great founder. Our company today is called Upgrade.com and they have all three. They got a business model, they got product market

fit, and they got a great founder. That founder is Renaud LePlange. Yes. Did they get it right, Renault? That's perfect. All right, magnificent. And your new company is Upgrade.com. You used to run Lending Club

and you took it public. I did. You did? Yeah, in 2014. In 2014, everybody knows Lending Club. Lending Club, you started in order to do what? What was the original concept admission of Lending Club? So the very basic idea of Lending Club came to me in 2006 when I was sitting in my living room, opening up the mail, and I opened my credit card statement and realized that if I was going to carry over the balance to the next month,

I would be paying 18% interest rate on my credit card, which I thought was a pretty high interest rate. But then the next piece of mail I opened was my savings account statement. I was getting 50 basis points, so 0.5% on my savings. And the two letters came from the same bank. So I started scratching my head, thinking, okay, the bank is giving me 0.5%, but charging 18 on the other side, where is the money going?

And so it just triggered my curiosity, and I started doing some work and starting understanding that all that spread, all that difference between the two rates, was mostly going into the costs for the banks of capital transformation or collecting deposits on one side, extending loans on the other side. And the thousands of branches and hundreds of thousands of employees that go into that process. So the very basic idea of Lending Club was, okay, is there? a more cost-efficient way through an online marketplace to achieve that capital transformation and put directly in touch, directly in relation, in contact, people who have the money on one side, people who need it on the other side, and have them transact online. Without having to go to a thousand marble lobbies filled with security guards and 30-foot ceilings to make you feel like it was an important building.

Exactly. Did it work? Did Lending Club work? I think it worked beyond my imagination at the time. You know, we started in 2006. It wasn't a great time to get started. We actually launched in 2007. Oh, right time for the financial crisis and the great recession.

Exactly. Yeah. So it wasn't a perfect time to convince investors to invest in consumer credit. But at the same time, it's so help battle test the company and get us for like tough time very early on. and really prove the model in the tough environment. And as the environment got better, we kept on making the product better and kept on getting more traction.

So by 2012, I think we had done about a billion dollars in loans. And there are small loans made to consumers. So it's a lot of loans. How did you deal, I guess, the big criticism in that business, and we'll get to your new business, Upgrade.com, for people who want to take a look if they're at their computers. Don't do that way you're driving. what was the number one concern for people was defaults I would think how did you deal with qualifying

the loans and what is the proper amount of defaults to have in order to have a vibrant marketplace like Lending Club absolutely underwriting the loans is really the core of the business underwriting and servicing and so we worked very hard on it and I think the initial underwriting was putting our best foot forward and it improved from there. And as we got more data, it got better and better over time. And I think over 10 years, we made incredible progress in underwriting. What was the bad debt ballpark? 10%, 5%, 2%.

So I think what really matters is for investors to understand the risk and for us to deliver the right type of risk to different type of investors. That's, I think what we did was we started grading the loans and really creating different pockets with some loans that were very safe, made to people who had perfect credit score, perfect credit history, never went on their credit. And in that case, the interest rate was lower. The target return for investor was lower, but it's also a very predictable return. And then there's another bucket of, so the first one you would call it sort of prime plus or super prime.

Then there's another segment where it's people who have average credit or slightly better than average credit might be delinquent from time to time. Subprime. Or prime. So prime. Got it. And then there's another bucket that's near prime. So we never went into subprime. Yeah.

But it wasn't appropriate at the time. Were people doing peer-to-peer loans where you wanted a loan of $1,000 and I gave you the $1,000, or were you bundling them by the end? So, yeah, it evolved over time. So the original idea was really peer-to-peer landing. So there's a lot of risk there. And it's a little bit weird and creepy, like, you owe me $1,000 and this website put us together. It's almost like being a loan shark in a way, right? It would be risky and creepy if it was really a one-on-one relationship.

The way it worked was one-to-many. So as an investor, you would come in and really take a $25, $50 portion of each loan. So a loan might be $10,000, but you would only take $25 of that. So if it goes bad, you diversify the risk over hundreds, thousands of loans. Got it. Yeah. And you got ousted, huh? You got ousted from the company?

I technically resigned. But yeah, no, so I left in 2016. So we took the company public in 2014. I was really a very proud moment in my life as an entrepreneur. Going public. All the spotlight and the big valuation and so on. It was really a big moment in my life. When we get back from this quick break,

I want you to tell me candidly about the breakup and leaving the company you started because that's emotionally very difficult, isn't it? It is. I want you to tell me everything, honestly, when we get back on this week and start us. I am loving this unicorn series. It's so great to find these next unicorns. Thanks to our friends at LinkedIn Talent Solutions for sponsoring this special series. And of course, you know, hiring is really hard.

And it's not as easy as just posting a job to a bunch of different message boards or maybe even putting an ad in the paper. If people still do that kind of nonsense. Nope, when you're growing your business, you need to reach the right candidates at the right time. And that's where LinkedIn comes in. and that's where I got Sir Charles, our amazing new producer. He wasn't looking for a gig, but he was on LinkedIn, and he saw, hey, this weekend startups, this great podcast is looking for a director.

Hey, I'm a director. I don't like the job I'm in. It's okay. But this other job seems pretty dope. And boom, he was one of those 600 million LinkedIn members. Who is there looking for connections? Passively searching? They don't know they're looking, but they just,

they pass by. Maybe they take a look. That's who you want. And those are the people on LinkedIn. So associate Presh creates a job posting for me, client success manager in Toronto. He selects the needs, the description, add some additional screening questions, and he sets a daily budget, and boom, we're on our way to finding great candidates. And it works so well, and you can pay what you want, and the first $50 is on them. That's right, $50 right now, a 5O, LinkedIn.com slash unicorn.

That's right, unicor-N-I-C-O-R-N. You know how to spell unicorn. LinkedIn.com slash unicorn, get you a 50. $50. Go find somebody great to take your startup to the next level. Thanks again, LinkedIn. Okay, Jason. All right, everybody, welcome back to this weekend.

Startups, my guest, Renaud, La Planche. You're getting better each time. I am trying to. And he is the founder of Lending Club. Took a public, so proud. And then you resigned at some point, maybe pushed a little bit. What happened? And how do you reconcile this moment in time, which a lot of founders

go through. You're a seasoned founder, so you're not like some first timer here. What was it like to leave the company that you founded and loved? So it was really, really frustrating and disappointing and sad, frankly, because, you know, you work for 10 years on a project and it grows, it gets big, it gets interesting, and one day you're in this situation where you feel you have to leave. So, yeah, it wasn't a happy moment for sure. We had some compliance issues at the time, the first quarter of 2016, and some disagreements on how to move forward and how to resolve them. And so, yeah, unfortunately, I left the company at the time. All right, let's move on because life is short.

Tell me about Upgrade.com. What a great domain name. Thank you. What is Upgrade.com? You obviously have genius ideas like Lending Club. What is your next genius idea ever know? So upgrade is sort of a continuation of the same ID. It's really building up on everything I learned over the previous 10 years.

So it's still about consumer credit. But I think it's essentially applying the same mechanisms of marketplace landing, of online lending, of using technology to lower cost and deliver a better experience than the banks, and applying that to multiple products. So Lending Club was about making personal loans, to refinance credit card. Upgrade. So started that way, but branched out into lines of credit and now into card since this morning.

And the plan is to continue to apply the same mechanism, same concept, to all types of loans, including mortgages, including car loans. So really be more helpful to more people and bring that notion of affordable and responsible board credit to as many people as we can. Is the credit system, credit scores as they were, is the credit score a good indicator of people's creditworthiness or are there better ones? Because as an angel investor, I get pitched on a lot of people who say like, oh, we could use your friend circle and who your social graph is. Or we could use your online behavior and reputation, whatever it is, as a

better indicator. Are there better indicators than the credit score? Is that outdated? So I think it's, answer is it depends. I think when you're like in the middle of the fair way, you make loans to people in that prime segment. The credit score is a fairly predictive attribute. It's not enough. You need a lot of data that's not incorporated in the credit score. So credit score does a good job at being a reflection of the length of your credit history, the quality of your credit history, your current credit situation, it doesn't incorporate financial attributes, right? So it doesn't tell you what the income is or what the debts to income might be.

So you need additional financial data to make it work even in the mainstream segments. But I think where the credit score is insufficient is if you're trying to go into some younger populations or people who are new to credit, recent immigrants, people whose situation has changed. So in that new to credit population where you don't have a lot of credit history, for sure you need to supplement traditional credit attributes and credit scores with additional data, including some, utility bill payments and this type of other transactional data you can find in the bank account or in other sources. Tell me about this card. You came out of a card. I think we have a short video of it, and I see it over there sitting there. It's a visa card. It's a

standard type of credit card or is it a debit card it is uh so it's a card that gives you card that gives you credit it's a card that gives you credit um it's not a credit card it's not officially a credit card i think it's better than a credit card so basically so thinking back uh on like both lending club and upgrade i think what we've done is essentially helping people take credit card debt and refinance it with a sort of personal loan that's a lower It's a more responsible product to use. What this does is it makes it unnecessary to refinance it, because you can basically replace your credit card with an upgrade card.

And the reason it's a good idea to replace your credit card with upgrade is basically cards are very expensive, it's a lot of fees, very high interest rates. But I think the worst feature about credit cards is what they call the monthly minimum which barely covers the interest and the tiny portion of the principle. It's designed to manipulate poor people into being poorer. It's designed to keep people in debt indefinitely. It is the most sinister thing you could do as a finance executive is to take a person who needs money and then give them the worst option that is in

in their worst interest and put that front and center and encourage them to pay the minimum. All right. And so do you know how long it's going to take you? If you, let's say you charge $1,000 on your credit card, if you make the monthly minimum payment, do you have an idea of how long is going to take you to pay? 10 years.

Yeah, 28 years. 28 years. It is criminal. If you pay the minimum on $1,000, $28 years later, what would you wound up paying? So you'll end up paying back $2,000. $1,500. So it is more money than a loan shark.

You're going to wind up paying back two and a half cash on cash. Right, right. $1,500 equals $2,500 equals $250. So what you do is you tell them, upgrade your credit card. You got $5,000 in bad, high interest rate. What is the high interest rate now? 19%, 25%. So the average on credit cards is around 18%.

The average on the store card, you know, when you get your... Macy's card. 10% discount to sign up for a new card. So the average on that is 24%. And rates go all the way to 29, 99. But on average, they're about 18%. And then they charge you late fees if you're late and those kind of fees. And those are incredibly punitive.

So if you hit a couple of those, your rate's going to go above 30%, isn't it? And about one third of credit card issuer's revenue is fees. So you take that interest rate at your paying, you add 50%. to it and then you get to the real cost. Oh, my Lord. So they're really putting people on this crazy hamster wheel. And it's really in their best interest. And our government hasn't regulated this.

Consumers need to be their own advocate. They cannot rely on the government, can they? So it is regulated for sure. And there are lots of disclosures and so on. It's poorly regulated, do you say? I think, yeah, the regulations aren't enough to encourage credit card issues to develop really responsible products. So how are you more responsible? So that's what we tried to do as upgrade is to come up with a card.

That's really a consumer-friendly card and encourages the right behavior. Encourages the behavior that's good for you. So it's what we call an installment plan. So basically, you can use the card for any purchase. You can use it in store. You can use it online. It's a tokenized card. You can store it in Apple Pay or any digital wallet and enable mobile payment.

But however you use the card, whatever you buy, at the end of the month, the balance turns into an installment plan that you choose to pay off over one, two or three years. Got it. And then you have this discipline of paying down the loan every month, principal and interest. So you don't let them do just interest. You force them to do principal. Exactly. And it's a straight line amortization. principal and interest, equal payments over one, two or three years.

Got it. At a fixed rate. So you know exactly how much you'll be paying. So you're not variable. It's fixed. What is the fixed rate? It depends on your credit. Depends on your credit.

What's the range? The range is six and a half to 29%. Got it. So we believe the average would be of 12, 13%. Got it. So it's not going to be radically different in an interest rate, but... It's five points cheaper. Which is actually pretty radical, actually.

So it's going to be significantly less. And if you are acting against your own best interest, upgrade doesn't want you as a customer. You want the people who want a road to recovery. When you hear all these late-night commercials about debt consolidation, is that all a giant scam? I don't know if it's a scam, but I think they don't necessarily tell you everything you need to know about that debt consolidation. So if your mom or cousin or brother said, hey, I want to do this, I want a debt consolidate. I saw it's a TV commercial. What would you say to them candidly?

Well, I think what they need to understand is if they're going to put themselves in the hands of these debt consolidation companies, they might end up with less debt because these companies will renegotiate with their creditors. But they're also going to end up with a credit score of 500 that's going to stay with them for the next seven years. So they negotiate and take a piece of the difference? or the recovery for the other party? That's right. But that's going to ding your credit for a very long time. And you're going to be a customer that nobody else wants for seven years.

In your opinion, who is that credit consolidation company that's doing these late-night commercials? Who is their customer at the end of the day? The person with the debt or the person who originated the debt, the credit card company? Who are they really look at as their customer? I think it's really a person with the debt. It is. Okay. But I don't believe they're always transparent about that service,

and they might do a disservice to their customers. I think what you're trying to do with Upgrade is really bringing together a very transparent product that's fundamentally good for you because it really helps you have the discipline of paying down your debt faster. So you might use credit. I mean, there's nothing wrong about using credit, right? You're buying, you're going to a new place, you're buying a table and four chairs. whatever, a little credit's okay. It costs $2,000.

You might not be able to pay it all at once. So spreading that over 12 or 24 months is... Do you consider upgrade a debt consolidation or a debt or... Would people do this even if they don't have credit card debt? That's right. Yeah. Yeah. It's just a better way to use credit. It's a more responsible and more affordable way to use credit.

So when you think of this interest rate, we start at 6.5%. it's much lower than what credit card companies start. If you look at the Apple Card, for example, which is a pretty high-end credit card, it starts at 13%. It starts at 13%. So we start at half the cost of an Apple Card. All right.

When we get back from this quick break, I want you to tell me what you think about young people and their use of Venmo and digital money. And if you think that, having been in this area, that crypto and this sort of peer-to-peer lending, is all going to come together because you like me probably have seen many pitches of we're a lending club or an upgrade type service, but with crypto. When we get back on this week at starters.

All right, listen, you need to have insurance for your startup. I do. And with me today, Matt Miller from Broker. He's the CEO and founder. Welcome to the pod. Thanks for having me, Jason. Tell me an insurance horror story, somebody who didn't have insurance and how bad it got for them because you must have done some customer research when you started this company. Yeah, I'd say we We see that happen a number of times. We try to prevent it, obviously, but where our company just didn't buy insurance and something goes really, really wrong. I'd say one of the worst things we've seen is a fight between founders where they actually sue each other. And rather than being able to settle it or manage it, they end up turning the company bankrupt and actually running up personal debts rather than anything else.

How would insurance have helped that situation exactly? If you have a director as an officer's policy that can cover that type of liability, it can pay for lawyers to settle the lawsuit. It can pay for damages and it can just help you manage through those type of things. Awesome. How does a startup's risk change over time from being just two people building an MVP to say having 20 employees and a million dollars in revenue as a software, enterprise software company? How would that change over that period? as you grow as a startup, the risk that you take on grows as well. So when you sign larger contracts with larger organization, the potential liability you have, if those things go wrong, also increases. You get an instant quote and the $5,000 in AWS credits right now by going to imbroker.com slash twist. And when you check out, use twist 10 to get 10% off. Thanks for coming in, Matt.

Thanks for having me, Jason. All right, welcome back to this weekend startups, Renault LaFlanche. is here backed by my friend Fred Wilson at Union Square Ventures. That's right. Is he the partner on the deal or? John But, But Union Square Ventures was an investor in Lending Club, also an investor in Lending Club. They've been very, very supportive.

Actually, a lot of my existing investors at Lending Club are now upgrade investors. When we left, I wanted to ask you, I didn't hear any crypto angle to any of this. I'm curious what your thoughts, as somebody who really was, innovating in FinTech before a lot of other people. When you saw the crypto boom, having lived through e-cash and been through all those discussions with people, and I'm assuming choosing not to pursue

it, what do you think about what we just witnessed over the last three or four years of billions of dollars and virtual money going away in literally not one single use case other than speculation coming out of this giant dumpster fire known as crypto. Yeah, so crypto currencies so far have really not been real currencies. We've been commodities that people have bid up and down in terms of price. But it's been very speculative. And that speculation has really been a sort of barrier to making it good currencies because you can't use Bitcoin as a currency if the price is going to double over a short period of time.

Or half. Oh, half, yes. I think what's been more interesting to me and to upgrade is more of the underlying technology behind crypto, which is the blockchain protocol. So we've actually developed a really interesting application that's using the blockchain that's really trying to create a better system of record for the transactions,

for every document that we generate during the application process. And so we have a process whereby we take, of every part of the transaction, so every agreement, the borrower, every aspect of the transaction, and creates a cryptographic signature of that transaction and commits that to a public blockchain every 10 minutes and to really create a timestamped, so immutable trace of proof of that transaction at a point in time. So I use my card to buy a bagel that goes on the public blockchain? Or? So not for car transaction yet.

Right. But it's something. Because that would be a privacy issue, but you could hash it, I guess. You could say a car did it, but that sounds very dangerous. Yeah, no. So this is a private blockchain that you're doing or a public? It's a public blockchain, but it's, again, it's a hash representation of the transaction. For people who don't know what a hash representation means, what would that mean to a civilian?

So it's really a cryptographic signature. So it's completely uncoded. There's no way to know what's really in that transaction. But what it does is if that record of the transaction ever changes, then the cryptographic signature would change as well. So Trudy serves as a system of record that tells you, okay, this is what the transaction was at that point in time, and it's never changed. Got it. So if I were to originate a card and pay off $5,000 in debt or something or do a loan, it would be there, but it would be locked. That's right.

But we could see if it changed and we know that something happened here. I guess you guys have the keys to it. for the customer. Yes. So are people coming to you? You mentioned mortgages. Are you thinking of or does Upgrade currently allow me as, say, somebody looking for alpha on my dollars to put a million dollars into upgrade and have you put it across a basket of

loans? Is that how you're backing these credit cards? No, we don't. So we lost sort of that peer-to-peer aspect. that was really so exciting at the beginning 12 years ago. So now all the capital is provided by institutional investors. Got it. Because they want the money.

Because they find it attractive as an asset. And for us, it's also a lower cost, right? I think a lot of what we do, again, is trying to lower the cost of credit for consumers. And there are two parts to the cost of credit. There's a cost of operations and the cost of capital. So cost of operations is on us, right? It's trying to create the best possible technology platform, push automation in a way that really helps us operate in a very low cost. But then the cost of capital is really trying to get to the lowest source of capital for any portion of the credit spectrum.

So for people, again, who have really good credit, I think the best capital for that is banks and credit unions. So we actually sell the loans to banks and credit unions. and are able to access that low cost of capital that way. What should we as consumers or just people in the industry think about the global, and I know I'm going to go macro here, and listen, you're an operator of a business, but you operate that business in a system and that system is macro. What should we think about the fact that the economy's been on a huge tear and we're lowering rates and then some countries are giving negative interest rates, which if my understanding,

understanding is correct. I give the government $100, and in 10 years they give me back $95 for holding and the privilege of holding my 100 and not letting me spend it. Is that what's happening in the world today? And why? I'm very confused. Yeah, no, why is certainly above my pay grade. Okay, but this is accurately what's going on in the world? That's certainly what's going on in Japan and in parts of Europe where you see negative interest rates. Negative interest rates. Why would a government set negative interest rates? What is the thinking there?

Yeah, I think that's... We're speculating here. We don't work for the government, but let's think out loud here. Why would they do that? Well, I think they... I mean, obviously, currency and interest rates, it's all a supply and demand question. So it's like the price of...

anything, but it also bakes the anticipation of future rates. So what you're doing when you're saying, okay, I'm happy with 99% of my money back in whatever three years from now, what you're really saying is I believe rates would continue to go down and would be even more negative in five years from now. Wow. That's part of the thinking. So people are betting that inflation would be so high that 99 cents on the dollar is better than just owning the dollar. Or actually, inflation will be solo. So you're betting on deflation. Betting on deflation.

So my dollar will buy me less, much less because they're going to print more. I'm sorry, you're right. They're going to print more dollars, and there'll be more dollars in, and prices are going to rise. So my dollar will buy less in the future. Therefore, it might buy me 80 cents less. So if you just give me 99 cents and I give you that one penny, you're protecting how bad this could get. It's a very pessimistic way of looking at the world, does it not? It is, but we're not there in the U.S.

I mean, we still have positive interest rate. And I think we have an economy that so far has been doing great and it's continuing to grow. What do you think macro? Do you think that this is a healthy economy and this is the new normal that we're going to just go up into the right for two or three decades in a row as opposed to seven to ten years? Everything collapses. Seven to ten years, everything collapses. Then it goes bonkers again. Do you think this could be more steady and smooth?

I don't know. It's hard to tell. So what are you doing with your moment? I think it's been a sort of unprecedented period of growth, right? We are now in the longest period of economic expansion. The longest bull market history, yeah. And what economists would tell you is that economic expansion don't die of natural cause, seven, ten or twelve years.

They die of bad economic policy or manufactured crisis voluntarily or involuntarily. And so I think the Fed, I think over recent years, has done a fantastic job at creating the right conditions for that economic expansion to continue. And certainly when we look at some U.S. consumer balance sheet and U.S. consumer debt to income ratio and ability to make payments on their obligations, All these metrics are looking good right now. That being said, again, it's been the longest economic expansion on record. So at Upgrade, we're assuming it's going to end at some point in the next few years. And so we have a pretty tight underwriting policy that's, again, assuming a slower economy than it is now. So you're being cautious.

Being a little cautious in the longest bull run makes sense. You've been running really hot. Yeah, you don't need to double your bets. You could pace yourself here and see what happens, which means you don't want to give too much credit to people on the lower end of the subprime or whatever. Keep it in the middle. Keep it on the fair way, as it were. Right, right.

And we're really trying to generate what we call in credit positive selection. So really being appealing to people who want to do the right thing, one of them are interested in managing their credit and their personal finance in a responsible way. Yeah. And so in addition to structuring our product in a responsible way, we're also giving them information and incentive to do what we think is good for them. So we have this suite of products called Credit Health, which is credit monitoring, credit education, and credit alerts that give our customers an update on their credit score,

and also let's give them give them, give them. is the tools to better understand their credit and better manage it. So there's, for example, a credit score simulator that gives you sort of a dashboard of all your credit lines and lets you simulate the impact of things that you might be doing on your credit. When we get back from this final break, I want to know how does one build great credit? How does one build great credit? Because I've heard many different things that when people check your credit, if they check it or you check it too often, it goes down because people see that as a negative signal or getting multiple credit cards and having a

balance and paying them off, not paying them off too quickly, build your credit. Is that true? I don't know. There's so many different pieces of advice I've gotten over my life that I've just defaulted to pay cash for everything and have no debt. But let's talk about that when we get back on the swing and startup. Hey, everybody. I'm here with my friend Jason Maynard who works at NetSuite. Tell everybody, what do you do, Jason? You know, I do many things here at NetSuite, but I run the field operations for the business unit. Field operations means what? Sales, marketing, business development, all the stuff in terms of how we acquire customers,

take care of them, service them, make sure they're happy. What are the other tips for scaling your company? As people go from that 10, 20-person company to the 100-200 person, what are some tips you can share with how to scale? So I'll give you a story. When I got to NetSuite, I came from Wall Street, and I had all of these brilliant ideas. And they were just sheer genius ideas. and then after 90 days I realized I knew nothing.

They were all wrong. I had all these expansion plans. You should do this, we should do that. And one of the things I realized is that you've got to stay focused as a company. And too often than not, I think founders lose interest in their core mission faster than their customers do. So I think it's saying. So that's such a great way to say it. They lose focus faster than their customers.

The customers want more. Yes. And the founders are like, okay, I did that already. I'm going to go on to my next thing. It's always sort of, I got to find the next adjacency, the next of this or that. Shiny new object syndrome is going to kill a company. So even a company like our size, we have to say no more often than we say yes. And you could say, well, you're mature.

No, we're less than 5% penetrated globally for the ERP market. We need to stay focused. And I think when you're in those early stages, it's so easy to think about this extension or that extension and just putting all your wood behind the main thing. All right, right now, NetSuite is offering you valuable insights with a free guide, the seven key strategies to grow your profits. So go to netsuite.com slash twist, netsuite.com slash twist and get that free guide. Seven key strategies to grow your profits. We appreciate the work you're doing in the startup community. It's great stuff.

Thanks, pal. All right, we'll be back one more. See you, JCP. Three, two. All right, everybody, welcome back to this week in startup. Startups, plural, this week in startups. We're back. Renaud, what is the nature of building a great credit score?

You heard some of the myths that I had heard, like, get a bunch of credit cards, have some debt, pay it off slowly so that they can see. Is that true? So it's really complicated. And that's why we put together this credit score simulator to really let you simulate different things, because you're right, applying to too many loans can have. hurt your credit. So applying hurts. It usually does, except, I mean, it gets really complicated and technical. There are some hard credit pools and soft credit pools. Okay. And so you need to do

your research as a consumer and understand if you're going to make a loan application, this is going to be a hot pool or a soft pool. So a soft pool does not hurt your credit, a heart pool does. An example of a soft pool would be American Express or like Silicon Valley Bank mortgage or something. Really depends on products. So what we do at upgrade is, It is a soft pool until you actually approved and you take that loan application, or you take that loan or take that upgrade card, at which point it turns into a hot pool. Oh, I see. So that's a matter of the commitment level, like are you all in or not?

And so does having a mortgage and having credit cards, generally speaking, reasonably, improve one's credit score? And that is good advice to have a car loan or have a mortgage. You will demonstrate something? Generally, so building your credit history and continuing to show some on-time payments helps build your credit score. A mortgage is usually good. In general, revolving credit is pretty bad for your credit score. Installment credit is better for your credit score.

Okay, so revolving is bad, installment is better. Why is it that businesses, small businesses cannot get loans and big businesses can get giant? ones, it would seem that the government would be incentive to give small business loans because that's the future. And giving loans to big incumbents is the past. We know that giving loans to a big company, it's going to service the top executives of that company. But when you give loans to a small business, by default, it's a small business, so it's going to help the little guy, a little gal. Why can't the government effectively give small business loans? Or banks even. Right. So, yeah, I think it's something that's getting better now.

So the government is doing their share. There's this SBA program, the SBA administration that's really encouraging small business lending. The government could be doing more for sure. But then they, so the banks aren't doing that much because small business loans are riskier than loans to large corporations. And banks might stay on the sideline for that reason. But there are a lot of fintech companies that really stepped up to the plate. So you have companies like on deck, like funding circle, like cabbage, PayPal, Square, Square Capital. They're doing advances against your revenue because they have data.

That's right. So Square, PayPal and Cabbage are doing so because they have the payment business and they can make advances and get paid back on the receipts. Ah, so when you take one of those cabbage loans, take a PayPal. loan, the receivables or future payments come out first to pay it down. So they've lowered their risk. That's right. You would have to have the business just fall off a cliff, which is possible, but not probable, for them not to get paid. So in a way, it's almost like revenue-backed bonds where they have a revenue stream that is backstopping it. Right. It's secured by future revenue. Sature by future revenue. And that, and those, are those loans really expensive or

medium or fair? I think they're pretty fair. What is the fair number? In your mind for a business, what's fair? I think it's competitive enough that the market adjust itself and they get to the right price. So I think it's around, it's between 8 and 20%, usually based on the risk. And you feel that's fair? I think it represents the risk taken. Mortgage rates used to be the same as credit card rates, 12 to 20%, during high inflation. During the 70s and 80s. But that hasn't existed for a really long time. Why?

Well, I think it's a matter of inflation. So if you look at real interest rates, adjusted for inflation, then you see a different story. But I think the government is also helping keeping mortgage rates low with Fannie and Freddie, that are also buying so many mortgages from the banks and offloading a lot of the risks from the banks. it keeps mortgage rates very affordable. Fascinating. You've been starting companies since 2000 or so? That's right.

Yeah. In 1999. Yeah. So you live to the dot-com financial crisis, and now here we are in the era of the WeWork collapse. What has changed in terms of starting a company across these three-time periods? You had the dot-com period,

you had the web 2.0 period, I guess when Lending Club came up, and then you obviously have the unicorn period. Now, what's changed, what's better, and what's worse, in your mind as a founder? So, no, I'm an optimist. I wouldn't be an entrepreneur if I wasn't an optimist. But I really think that collectively we are learning a lot. And I think whether it's entrepreneurs or investors, the VC communities,

we've all learned a lot from the dot-com bubble. and the burst and then subsequent periods. And I think many of us now are a lot more efficient with capital. And sometimes, yes, there are some, there's too much money getting pushed into the system. And that creates companies like we work that feel like they can raise unlimited amount of money and therefore can run very large losses for a very long time. But I think it's not the majority of entrepreneurs. I think the very vast majority of entrepreneurs are running pretty efficient operations.

They're raising capital for good reasons to try new things, to innovate, to bring products into the world that did not exist before. If were you ever approached by the, by Masayoshi-san to back Lending Club or this company? I can't. You can't say. Well, he's not in this company, though. No, no, no, he's not in this one. Would you take the big money? Because listen, you've raised a lot of money, over 50 million, I believe, but you seem like a reasonable person.

Would you want to take that billion dollar check from him or $500 million check from Masayoshi San and the Vision Fund, knowing what you know now in the history you've had? Or would you be reticent to take that money knowing that it comes with such outlandish expectations? Yeah, I think they, I mean, too much. having too much, there's such a thing as having too much capital and too much money. So you wouldn't take it if you offered $500 million right now? I wouldn't as a current stage because I have no efficient way to use $500 million right now. Right.

But if you came with $100, maybe we open a dialogue. I mean, we've raised $150 million. We've upgraded already. So, yeah, I mean, I think we're using that capital efficiently, again, to create new products, and bring products into the world that are designed to solve big issues. Right. If you look at credit cards today, there's more than a trillion dollars in credit cards. It's a big market.

And when I started, 12 years ago, there was $800 billion. Now there's $1.07 trillion. So the problem I'm trying to solve has got worse. $270 billion worse. Yeah, the more the government theoretically tries to regulate this. It does not seem, they seem to be in the pockets of the banks. They don't seem to be regulated. so its consumers are on their own.

But again, I'm an optimist, and I think in the absence of regulations designed to create responsible and affordable product, I think entrepreneurs can step up to the plate and create really great products that consumers are going to recognize as being good for them and will eventually sort of displace the worse product. So you believe that free markets are capable because entrepreneurs see opportunities, to build better products and that those better products get rewarded by consumers who at the end of the day are savvy and will be drawn to better products. I think so. So you believe in capitalism as opposed to authoritarianism and socialism and the government deciding what consumers and entrepreneurs do, correct?

You know, that's why I came to this country. I was in born here. You clearly would. I love this country. France, great country. It is. Pretty hard to be an entrepreneur, isn't it? It is. I think that, and you see in France, there is just a weight of regulation that's designed to be overly productive of employees, of consumers, but that's really at the end of the day backfires and stifles innovation. Yeah. My understanding, and this is all secondhand, but I was told by founders from France who had left, that if you want to fire somebody, you have to go to court to fire somebody at your company, and that you may be on the hook. for a year's salary personally.

Is that true? Or is that ballpark true? It is very often true. And what it results into is people being very reluctant to make the next hire because they know that they couldn't let that person go. Got it. No risk taking. So why would I hire somebody unless I absolutely know I have more than enough work for them?

I'm not going to fire up a five-person crew on the side here to do a skunk work projects that might be some hell Mary that changes the world. Because if it doesn't work, I have to keep him paying them. And then here in America, we have the lowest unemployment in the history of the country. And a large part of it, I believe, is this gig economy as a backstop. Do you believe workers should be able to choose how many hours they work a week? Do you believe in this independent contractor concept? I think so. And you're a Frenchman. I know. And you believe this. That's why they kicked me out. I know. But I mean, if you think about it, like, I was, you know, I was an investor at Uber and people are like, you know, they're abusing workers.

You realize we're in the lowest unemployment ever. Those workers are choosing between DoorDash Lift, Uber, Amazon delivery, and Postmates, as well as the Apple Store, Starbucks, Walmart, and Target. And all of those companies have been fighting it out. And if the average now is, you know, was like, I think, $12 to $15 in, like, those retailers. And the average for the Uber and the other drivers was like, something like 19 an hour or something. So they're beating the Apple store. They're beating Starbucks by a couple of dollars.

The free market actually works, doesn't it? It certainly looks like it. I mean, you must believe in free markets if you're building these kind of companies. Let me ask you a... I think so, but I'm going to give you one more example of... why I think free market works. So again, not to be overly commercial with the upgrade card. But we're building this product that's fundamentally better for consumers,

but it does require an effort, right? It's a little bit of the vegetables of credit cards, right? Yeah. It's good for you, but you need to make that effort to say, okay, I'm going to pay the balance every month. So we don't know if people are going to make the right choice or not. So what we do is we try to give them the right incentives. So instead of doing what the credit card companies are doing,

which is rewarding you for spending more money, like giving you miles or cashback or points, we're saying, okay, we're not going to reward you for spending money. Spending money is easy. We're going to reward you for doing what's good for you, which is paying it back. We've developed a rewards program that gives you 1% cash back. Each time you make an on-time payment on your balance.

Oh, wow. So we're paying, you're paying 99% of the balance. We're paying the next one person. It would be like McDonald's giving you like an extra French fry for finishing your salad. You know, they're like, you know what? We'll upgrade your small fries to a medium, but you've got to finish your salad first. That's a great analogy. I have the analogy for you.

You're the whole foods of credit cards, right? And when Whole Foods came out, people said, well, it's 10% more expensive or whatever. Just like the payment might be 10% more. Yeah, it's 10% more, dummy, but you're going to be sick, 50% less. And you might live longer. And so, hey, dummy, like, spend the extra 10% on some better quality food and you don't need to drink corn syrup because we don't carry it, right? You're not allowing people to make a bad decision. And I have to tell you, that's leadership.

In my mind, what you're doing is leadership. Thank you. Let's wrap up here with the fact that you've done fabulously well. You've made a fortune. You never have to work again. You've done great. and I'm going to guess you're over 50 now I'm not

48 do I look over 50 I don't know I'm going to guess 50 you're kind of like feel like we're the same age I'm 48 I'm 49 okay you're 49 we're at the same age right we're both going to be at the same age I'm going to be 49 November so we're almost exactly the same age how do you make the decision to keep going to work and start another company knowing that this is 10 years of your life that you're going to have to put the nose to the grindstone.

You've already made the money. How do you stay in the ring? How do you stay sharp and want to get up and keep fighting? You know, it's never been about the money. At the end of the day, it's about doing something that I feel proud of. And I think bringing a product like the upgrade card is something that makes me immensely proud because I think we have an opportunity to shift behaviors away from that products into good product, do something that's really useful, that's really helpful to people.

And nobody else has come up with this product. It's been 20 years, 30 years that can't exist. So if I don't do it, who's going to do it? It's so great because, you know, it's interesting. You mentioned that. And you look at natural foods. Back to the whole foods analogy. My mom was shopping in like the late 70s, early 80s at a natural food place.

Right. You know, no sugar. I have to eat peanut butter with no sugar. All the other kids are eating Jif and they got plenty of sugar in there. But she knew that. And it just took decades for that to manifest itself in a world-class product. And this is what you're going to do with Upgrade.com. You're going to take something that's obvious to everybody.

And it's obvious to the vanguard that this is the way this should operate. And you're going to make it elegant and simple. What a great domain name. What a great concept. You're hiring. We are. So if you want to be part of the mission, to treat people, fairly and have them have a healthy financially responsible life and put them on the right track.

You want to go to Upgrade.com and just look for the job page. It's probably jobs.upgrade.com or careers or something like that. Just say careers, jobs at Upgrade.com. And what's the culture like? What do you try to build as a culture now that you've done this a couple of times? What's the important culture at Upgrade.com? You know, it's really interesting, actually. And generally in FinTech, it's really hard to get the culture, right?

right, because you're trying to innovate, do things that people have never done before. And so you really need that Silicon Valley DNA of passionate product innovation and fast iteration and understanding that it comes with the right to make mistakes. If you're doing things nobody has done before, you're not going to get it right every single time. But you're trying to combine that, and we are at Upgrade, trying to combine that with the discipline and the sort of responsible product innovation that comes with having a financial product.

Got it. It's with people's money. There's a lot of compliance, a framework around what we're doing. So you want to be risk-taking, but you don't want to move fast and break people's credit score. Exactly. It's a matter of finding the right balance between innovation, but doing things that protect our customers against.

bad decisions and bad outcomes at the end of the day and you look at what got Zuckerberg in so much trouble their greatest strength was moving fast and breaking things until maybe they broke the democracy they broke people's privacy

they broke this just basic privacy this is something that France gets right is privacy they're not allowed to keep your phone records for more than a year or something I heard they just they're not allowed to even keep them they have to purge them you guys actually care about privacy

Yeah, we do. We do. And the privacy is also a factor. But it's really when you're dealing with financial products. You can't break things. Oh, God, you've got to get it perfect. All right, listen, I'm glad that you're not in the south of France. Just having a little Cocovin.

Maybe another thing is. A little croak madame, queen of man, cafe au lait, and just relaxing. And Sam Ramee. You're back to work. you're getting it done. Congratulations. Thank you. I think it's a great idea

and we look forward to watching you growupgrade.com into a unicorn over the coming years. All right, thanks for coming on the show. Thank you, Jesse. Thank you. Emmy Award-winning producer Jackie. Thank you.

St. Nick. And let me see those guys in the control room one more time before we end the show here. Show me that one more time in the control room. Yeah, they are. Hey, shout out. Shout out to Sir Charles and Sir... I'm sorry, St. Nick.

Way to go, St. Nick. All right. We'll see you all next time. Bye-bye.