Recent stories in USA Today and New York Magazine put Cumulus Funding in good company, with Pave, Upstart and Lumni identified as the companies who are leading the way in future earnings exchange lending products. This consumer finance product – and its flip side as an investment vehicle – are relatively new to generalist publications. Understandably, there is work to be done in educating and clarifying just what our products are all about.
First, and importantly, USA Today and NYMag.com see the opportunity to help Americans to start businesses, reduce their debt burden from college loans, and have access to money they would not be qualified to receive from traditional banks. They speak of the Upstart, Pave and Cumulus Funding products accurately–as geared towards helping and empowering people.
USA Today correctly identifies an emerging trend.
Upstart, founded by former Google executive Dave Girouard and Thiel fellow Paul Gu, lets investors give money to entrepreneurs in return for a percentage of their future annual income, usually over five to 10 years. Other firms, including Pave and Cumulus Funding, are also doing this through what’s known as personal income contracts or income share agreements.
This represents a shift in the way startups and individuals get the money they need. With recently relaxed rules that allow more crowdfunding, there will be an uptick in the number of investors and loan applicants. It isn’t a matter of it happening – the quarter of a billion dollars funded via Prosper and Lending Club in October points to the strength of this growing trend. It’s a matter of how it happens, and how we keep these products in line with advancing people and lending practices.
With every new practice come new fears. Some people equate ‘human capital contracts’ to a feudal system of serfs and land owners. Other people have a more practical cynicism relative to the predatory nature of quick loans at the low end of the lending market. They point out that the threat is not from quality companies investing in Americans, but in the success of these companies opening up the door to more unsavory charlatans.
If you put on your dystopian glasses, it’s easy to see something suspect about the idea of young people in a downtrodden economy pledging away part of their livelihood to the investor class. If Upstart and Pave (and their competitors, like Cumulus Funding and Lumni) succeed, other start-ups could come in with even more onerous terms.
This points to the need for ongoing discussions with regulators to differentiate the positive impact from companies like Cumulus Funding, Upstart and Pave from less reputable lending products and practices.
Read the original stories.