SoFi: Lighting a Path to Financial Success For Generations to Come
|Jake Storm, Sandy Miller, Todd Chaffee
Today, we are thrilled to congratulate CEO Anthony Noto and the entire team at SoFi on a successful public listing. SoFi has carved out a place in the world of financial services to help a demographic still underappreciated by traditional banks and lenders, women and men who have started their careers and are looking for a better way to manage their finances in one place.
Stemming from a successful student loan refinance program founded by students attending Stanford’s Graduate School of Business, SoFi launched as an alternative to traditional banking in 2011, and was the first to offer refinancing of both federal and private student loans. Today, SoFi has become a leading financial services firm, especially in its key demographics; the company projects its adjusted net revenues will grow 43% annually from $621 million last year to $3.7 billion in 2025.
Stanford is my alma mater (M.B.A. and J.D.), so the company was on my radar in its early days, but at first it was too soon for IVP to invest. We kept close tabs on the company and when they were beginning to scale rapidly we quickly stepped in to put together the next financing round.
Entering the Hypergrowth Phase
IVP first invested in SoFi in February 2015, participating in a $200 million equity financing round, and I joined the board of directors. At the time SoFi was still a single product company, helping recent college graduates refinance high interest student debt, but it was clear they had a vision to go much further. We joined another $1B round in September 2015, which was led by Softbank; Silver Lake, Qatar Investment Authority (QIA) and T. Rowe Price led later equity rounds.
What excited us early on was that SoFi saw an incredible opportunity for not just helping an underserved but attractive demographic, but that their formula for winning the hearts of new customers included a playbook that should make SoFi stand out as a financial services company for new generations to come. Starting with millennials ten years ago, and now serving Gen Z and consumers of all ages, SoFi is in the position to grow their service offerings among a growing customer base as they look for one-app, mobile friendly banking options for money management, investing, personal and home loans, credit cards and rewards programs.
At the helm since 2018, Anthony has led the company brilliantly, enhancing the team, diversifying its business and securing strong capitalization to lay the foundation for long term success. To IVP, he was already known and trusted since he had served as COO at our portfolio company Twitter since November 2016, after joining as CFO in 2014. We had also worked with him when he co-led TMT investment banking at Goldman Sachs. Earlier, Anthony served as CFO for the NFL, an interesting coincidence given that his company now has the naming rights for SoFi Stadium, home to both of Los Angeles’ NFL teams, the Rams and the Chargers, and the host for Super Bowl LVI in February 2022. But that’s another story!
The team at SoFi has built a powerful technology platform that leverages a ‘financial services productivity loop’ strategy, meaning that the way its products are architected, they improve continuously when used together across multiple offerings. These synergies were further enhanced both in terms of product and customer reach after SoFi’s acquisition of financial services API and payments platform Galileo in April of last year. By the end of 2021, SoFi estimates 775,000 of its customers will be using multiple products, a 95% uptick over last year.
A Loyal and Self Perpetuating Base
Fast forward to today, and this thoughtful strategy by the SoFi team has played out well; and SoFi has begun to attract an increasing number of customers beyond the millennial generation. It’s a repeatable process – win new customers looking to save money on student loans, then introduce them to a suite of other products for enhancing their financial health as their careers and personal lives progress. SoFi also provides career support and connections to its community of like-minded, ambitious people. So it’s no surprise that SoFi benefits from a strong referral network that’s fed by members’ positive outcomes.
SoFi is on track to exceed three million members by the end of this year, up 75% after six consecutive quarters of accelerating growth. And there is plenty of room to grow – the top 10 legacy banks hold about 50% of consumers’ 500 million bank accounts in the US, and more than half of Americans use more than one bank for financial services. 80 percent of consumers cite inadequate one-stop shops as why they typically work with more than one financial institution. Today’s consumers are looking for a broad base mobile-first, user friendly offering like SoFi.
Adding Credibility to the SPAC option for Exit
SoFi went public today at an equity value of over $19 billion on a fully diluted basis and raised approximately $2.4 billion in cash proceeds from the transaction to fuel growth, market expansion and development of new product offerings, as well as accelerate their plans to expand geographically and build the first digital one-stop-shop for members to borrow, save, spend, invest and protect their money.
SoFi is IVP’s 122nd portfolio company to list publicly. Historically most of our portfolio companies executed traditional IPOs when going public, but times have changed. In June 2019, Slack (WORK) was our first portfolio company to complete a direct listing and Coinbase (COIN) had a record breaking direct listing in April. Hims & Hers (HIMS) was our first investment to go public through a SPAC back in January of this year. It’s great that now the best companies have options when going public. We’re thankful for the tireless work by the SoFi team to execute this difficult process and help to validate a new going public model for premium companies.
Building a Financial Services Company to Last for Generations
As far as SoFi has come, it still feels like the company is just getting started. Today’s public listing is important but just one milestone, and demonstrates the impact SoFi will have on improving how future generations manage their finances. As SoFi graduates to become a public company, and continues to introduce new state of the art products for a growing demographic, they stand to benefit from a huge opportunity set that will be renewed generation by generation. We’re honored to work with the SoFi team and look forward to further collaboration in coming years.
Sandy Miller and Jake Storm are Investors at IVP, a later-stage venture capital firm based in Menlo Park, CA.
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