Fintech’s Logical Next Step
To our Valued Investors:
Of all the many industries large and small throughout the course of history and around the globe, the world of finance is particularly vulnerable to disruption by advancements in digital technologies. The concept of Financial Technology, or fintech, is arguably in its infancy, having been around only for a couple of decades. The most recognizable names in fintech, like PayPal, Venmo, and Robinhood were founded in 1998, 2009, and 2013, respectively. Iron Edge VC and many of its clients witnessed the emergence of an influential privately held fintech known as Social Finance, Inc., and we profited with very healthy returns when the company went public through a SPAC merger, rebranding itself as SoFi Technologies, Inc. (Nasdaq: SOFI).
Like most forms of technology that have evolved through the internet era, advancement has been rather swift, but it hardly seems to have reached a place of finality or conclusion. It feels like we have more to look forward to, and like the best is yet to come. Much of this sense comes from the widening presence of blockchain technologies. It’s supported by a broader understanding that the network system that was invented for no other purpose than to enable Bitcoin’s functionality now has tens of thousands of applications, with new ones emerging with great frequency.
Founded in 2018, San Francisco’s Figure Technologies, at its core an online lending firm, is a great example of why the intuition that suggests a brighter future is probably spot-on. Figure is a web-based platform that manages digital assets. It can be used for completing a multitude of financial and investment transactions including, but not limited to, home equity loans, mortgage refinancing, cap table management, personal loans, commercial payment services, digital fund services, and asset management. Figure leverages blockchain, artificial intelligence (AI), and analytics to deliver innovative home equity release solutions and other products that improve the financial services they provide their customers. The blockchain protocol Figure is building, known as Provenance, is engineered to fundamentally transform how financial products are originated and transacted.
Notably, there are about seventy fintech outfits in the world that have attained “unicorn” status — private companies that have reached a valuation of more than $1 billion. Only two of those, Brex and Figure Technologies, have become unicorns in less than two years of existence.
Figure is bringing securitization, the decades-old Wall Street practice of repackaging home loans into bonds, to the blockchain. Figure recently announced that its Figure Securities, Inc. subsidiary received regulatory approval to become a federally approved broker-dealer and an SEC-registered alternative trading system (ATS). This means that Figure can begin tokenizing their marketplace of loans. In doing so, the company is comprehensively transforming the trillion-dollar financial services industry. In three short years, Figure has unveiled not one, but a series of fintech “firsts”, using blockchain for loan origination, equity management, private fund services, banking, and payments. Their protocols have brought speed, efficiency, and savings to both consumers and institutions. Last May’s FINRA and SEC approval of Figure’s ATS, known as Figure Marketplace, introduces a digital financial ecosystem that is truly built for the future. It connects buyers and sellers of private digital assets, unlocking the opportunity to trade historically illiquid assets with unprecedented efficiency. Figure’s CEO and co-founder Mike Cagney explains, “Being approved as a broker-dealer and being able to operate our ATS is a transformational event for our company that will have significant impact across the financial services sector. The ability to execute trades of securities across our technology platform will enable significant capabilities across our financial services client roster.”
If Mr. Cagney’s name sounds familiar to you, that might mean that you have been paying close attention to your weekly Iron Edge VC updates. Cagney, you may recall, is a co-founder and former CEO of SoFi Technologies as well. It’s quite conceivable that his experience in creating that company was extremely useful in the establishment of Figure Technologies. Perhaps you noticed, and understood why, lending was the first vertical that Figure decided to tackle when they were just getting started. It was familiar ground for Cagney, with many of the different kinds of loans (as we listed above) mirroring those that SoFi used to cut its teeth. The similarities and overlaps appealed to Iron Edge’s investment directors immediately, partly because of SoFi’s extraordinary success and the fruit that investment bore for our clients. When speaking to some Figure insiders, we remarked that the company sounded like “SoFi on the blockchain”. In response, one insider quipped, “Nah, it’s more like SoFi on steroids”.
The word of one enthusiastic employee alone, though, is not enough to convince us to sign on the dotted line. Figure has raised about $1.6 billion over nine funding rounds from the likes of Gramercy Ventures, Hof Capital, and Morgan Creek Digital. The most recent was a $200 million Series D, meant to further scale Figure’s business operations, last spring. Coinciding with this, Figure also entered a partnership with Apollo Global Management, one of the largest asset management firms in the world, to expand upon its blockchain initiatives. This association with Apollo and its more than $400 billion in assets under management (AUM) is a major boost for Figure. As part of the collaboration, some of Apollo’s funds will operate within and, by extension, advance the practical applications of the Provenance blockchain. The Provenance blockchain, meanwhile, will benefit Apollo since it is specifically tailored to serve the needs of the finance industry. The partnership will do much to advance Apollo’s efforts to focus more on fintech innovation and to leverage those benefits for its global customer base.
Figure has closed deals for numerous financing facilities with the likes of JPMorgan and Jefferies to bolster their conforming and jumbo mortgages. They have a continuing alliance with New York Community Bank, which has been at work minting a new stablecoin called USDF. Stablecoins are linked to an asset — in USDF’s case, the U.S. dollar — in order to avoid the notorious volatility of more commonly known cryptocurrencies like Bitcoin. The deployment of USDF on the Provenance blockchain is intended to maximize the speed and efficiency of Figure-powered transactions.
Importantly, the deep and committed involvement of highly regarded financial players like Gramercy, Hof, Morgan Creek, NYCB, Apollo, JPMorgan, and Jefferies holds very deep meaning, in our view. This collection of investors and partners is a clear sign of enormous potential, especially for such a young company. To top it off, Figure’s peerless management team places the promising fintech startup in its own league.
Figure’s shares are not available for purchase on any stock exchange. It is a private company, much to the chagrin of those who pay close attention to the breathtaking technological advancements in the world of fintech. To those who dwell in the second market and who have truly done their due diligence, Figure Technologies has been likened to the brass ring on a merry-go-round — much desired but out of reach for most riders. Iron Edge VC has recently had the good fortune of taking a considerable stake in this promising innovator, and we are confident that we will be able to furnish many more investments in the coming weeks and months. If you would like to learn more, or if you know anybody else who would, please don’t hesitate to contact us by clicking “Get in Touch” below.
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All the Best,
Founder & Managing Partner