5e98963121e5969a898f5a3a Sofitoon

SoFi is Worth Revisiting

On May 16th, Iron Edge profiled an exciting company called SoFi. Ordinarily we like to keep the rotation of featured companies brisk and varied, but this one deserves the extra attention a mere nine weeks after that May email. The article explained that in 2011, the brand-new company was merely an experimental $2,000,000 student loan program benefiting 100 students, but within a few short years it grew to become a financing powerhouse making $30 billion in loans to its more than 600,000 members. We then discussed how SoFi spread its wings, extending its services into home mortgages, mortgage refinancing, and personal loans. Then, SoFi reached beyond these conventions to build a variety of outside-the-box financial products — Sofi Money, Sofi Invest, and Sofi Insurance. With these new ventures, SoFi provides 21st Century solutions for age-old needs ranging from debit cards and cash management, financial advisory (with robo-advisors as well as live financial advisors for those new to investing), insurance, and all-encompassing financial and budgetary planning for individuals. Last spring, SoFi rolled out its own S & P 500 Select Exchange Traded Fund (ETF), and they are at work creating a second ETF. Best of all, access to all these conveniences can be found in one easy-to-use app!

In implementing these aggressive innovations, SoFi has not only mastered the winning combination of one-stop shopping and cutting-edge technology but also provided demonstrative evidence of the revenue-generating power of scaling a successful business.

The name is a mashup of “Social Financing”, which itself is a concise but accurate description of what the company does… It extends loans to those who need them, and then sells those loans to investment entities that hadn’t been previously known for getting involved in the lending business. These investors might be pension funds, insurance funds, or other asset managers. The value of a total loan might be, as an example, 125% of the original loan amount (5% APR x 5 years in interest; 100% in principal). SoFi then sells the loan to investors for 105%. Investors, then, earn 20% over five years, and SoFi gets 5% upfront to cover its costs. Put another way, think of SoFi’s operations as the “Uberization” of financing. The concept makes so much sense it seems almost too obvious. The entire scope of how SoFi is revolutionizing the personal finance industry is too bulky to squeeze into a newsletter that aims to get to the point, so if you have eight minutes to spare watch this clip from CNBC’s “Mad Money” with SoFi CEO Anthony Noto summing it up nicely.

And speaking of CNBC, or any of the other major financial news networks, if you watch them you have seen many SoFi commercials lately. Ditto for major sporting events. Such thunderous advertising budgets do not exist for sweet little mom and pop shops with no meaningful future… SoFi is playing for keeps. Although Noto told reporters earlier this year that an initial public offering isn’t a priority for the company in 2019, he also emphasized that it remains the company’s long-term goal to go public. Keep in mind that 2019 is more than half over!

A review of SoFi’s financing rounds featured in the company’s Pitchbook profile shows that the Series H financing, completed last May, was a “down round”. The implied value of the shares lowered from $17.18 to $15.44 (post money valuation $4.808 billion). This is good news, and it is not to be misconstrued as a devaluation of the company. It shows committed fiscal conservatism under Noto’s guidance, and it suggests that when an IPO does take place, SoFi will likely avoid the pitfalls that have complicated the debuts of other recent high-flying companies with lofty IPO expectations.

5f6e0d464e388c4975685025 Paul Min

Paul Maguire

Founder And Managing Partner