By: James Carter, a Special to Overdrive
It was called indentured servitude in Renaissance Europe, but today college graduates are willing to give up a portion of their future earnings for startup capital now. Several companies are offering aspiring entrepreneurs human capital contracts. These agreements allow high-potential graduates to start the business they’ve always dreamed of right out of college, as opposed to working a corporate job to pay off student loan debt.
The contracts generally require the recipients to give up a certain percentage of their future annual earnings for a specified time period. The terms and conditions vary between companies, but graduates unwilling to fund their business ideas with an American Express card or bank loan can look into these alternatives.
Launched in August of last year, Upstart.com has the advantage of name recognition, with Dallas Mavericks owner Mark Cuban being one of its investors. Upstart, founded by former Google executive Dave Girouard, began by accepting applications in the form of online profiles from graduates of Arizona State University, University of Michigan, Dartmouth, and three other institutions. It now accepts applications from any student in states that do not require a lending licenses, according to Bloomberg.com. Once potential entrepreneurs create their profiles, Upstart calculates their approximate future earnings based on the field of study and labor statistics. You then choose how much of your income you’re willing to give up per year for repayment, up to 7 percent, for the next 10 years.
Similar to Upstart, Pave allows potential “prospects” to post a profile and ask backers to support their endeavors. There are currently nine prospects listed on the website, with more than half involved in some sort of art or sports. Pave says it pre-screens vital information of all backers and prospects, but says it is ultimately up to the backers to choose whom to fund. Backers often provide advice to prospects, and most have experience in the field you are pursuing.
Though one blogger referred to Cumulus Funding’s program as “glorified pay day loans,” the company says repayment is based on your yearly income. Cumulus describes itself as the first company to invest in U.S. workers, placing more emphasis on ability rather than a credit score. The company also claims its ideas have been advocated by Nobel Prize winners Gary Becker and Milton Friedman.
Applicants provide all the information necessary for Cumulus to determine how much funding it can offer, along with repayment terms. Once the offer is accepted, the company says it wires funds or sends a check within five days. The biggest difference between Cumulus and the others is that the funds can be used for just about anything that is legal. You can pay off student loan debt, go back to school after a long layoff, or even renovate your home. There are currently seven states where Cumulus can accept applications.