Posted on Friday, Dec 4th 2015
According to Inside Mortgage Finance, non-banks were responsible for 37.5% of US home loans in 2014, up from 26.7% in 2013. PwC expects non-banks to grow at a 33% annual rate to $150 billion by 2025. Social Finance Inc. is one such online lender that has seen its valuation triple in six months after it joined the Billion Dollar Unicorn Club.
Social Finance’s Offerings
San Francisco-based Social Finance Inc. or SoFi was founded in 2011 by Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady. CEO Mike Cagney worked at Wells Fargo & Co. in the 1990s before starting a technology company and then a hedge fund. He met the other co-founders at the Stanford Graduate School of Business, and together they started a student loan pilot funded by individuals.
Initially, Social Finance was a lending program for students of Stanford University and other elite colleges that used funds raised from alumni. Its basic model is that since the borrowers are socially connected with alumni, they are less likely to default on loans. It believes student loans provide a beachhead for it to sell them additional products and services in the future. Today, it has extended the model to low-rate mortgages and personal loans of up to $100,000. It targets high earning young professionals known as High Earners Not Rich Yet or HENRYs rather than people refinancing credit cards, the target market for online lenders like Lending Club and Prosper.
Social Finance calls its borrowers ‘members’ and if they default on loans, all the members and investors know about it and reach out to help them find jobs. Among student loans worth nearly $2 billion given to 20,000 members, they had only two defaults cases and that too because the borrowers had died.
Social Finance’s Financials
Social Finance does not disclose details of its revenue but maintains that it is profitable. It is venture funded and has so far raised $1.4 billion in funds from Institutional Venture Partners, Willington Management, Third Point Ventures, Thomvest Ventures, Wicklow Capital, Discovery Capital Management, RPM Ventures, DCM Ventures, Renren, Innovation Endeavors, Baseline Ventures, and SoftBank Group. Its latest round of funding led by SoftBank Group was held in August this year when it raised $1 billion at a valuation of about $4 billion. Competitors Kabbage and UK’s Funding Circle were also valued at over $1 billion in recent funding rounds.
Online lenders Lending Club and OnDeck had gone public last year but in November their shares were trading much below the price at which they went public. LendingClub’s revenue was $213.4 million in 2014, and its IPO valuation was more than $10 billion, whereas it is now worth less than $5 billion. On Deck Capital is worth about $800 million, about one-fourth of its IPO valuation. However, a recent deal with JP Morgan has seen its stock surge this week and is showing signs of a comeback.
SoFi had discussed listing on a public exchange this year, but it has now put off its IPO plans with this latest round of funding. The new funds will allow it to charge lower rates on its student, personal, and home loans and help accelerate plans to expand into areas like wealth management and deposits. It expects loan volume to exceed $6 billion by the end of 2015.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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