Online lender Social Finance, Inc. (SoFi) has clearly decided to embrace the “go big or go home” mantra with its latest push for funding in the face of generally waning enthusiasm about the whole tech-backed lending concept.
SoFi is is hoping to buck a recent trend by raising a whopping $500 million in equity to fund new growth initiatives among mass-market borrowers and international markets. That news comes care of internal sources and a fundraising presentation viewed by The Wall Street Journal. According to reports, that big funding round should be finished up in the next week or so — thus far, the proposed valuation and lead investor remain a mystery. But whoever it is — and whatever valuation goes with it — a $500 million round would count as one of the bigger FinTech blockbuster deals of the year.
More than a ruling on how investors feel about SoFi, however, the latest round will also be a chance for investors to signal confidence in alt-lending as a format. Or lack of confidence, which has been the norm during the summer of 2016, as the markets watched in fascination while Lending Club performed a fairly high-speed come-apart over the course of a couple of weeks.
And even before Lending Club’s drama, there were concerns in the alternative lending markets that default rates were increasing as buyer quality was declining. It also led to higher interest rates for borrowers and shelved many international expansion plans.
SoFi, however, is daring to be different in its segment and is looking to grow past its roots in student lending to prime borrowers — what the firm refers to as “Henrys” (high earners not rich yet). SoFi is considering setting its sights a bit lower. A bit. These are still good credit borrowers — just not great credit borrowers.
“With [Lending Club] and others lending less and moving rates higher, there is a tremendous opportunity to expand,” according to the SoFi corporate presentation from June.
A SoFi spokesman followed up on that thought, noting the firm is “always looking at how to better help great people achieve success with their money, career and relationships, but we don’t have anything to announce at the moment.”
But the moment may soon be changing, as SoFi is looking at a rapidly changing international picture and realizing its unique expertise and market niche might be ready for the international crowd.
“Between Brexit impacting U.K. student loans to the insatiable demand for [euro]-denominated assets, the macro-tailwinds support European expansion,” according to the presentation, referring to Britain’s vote in June to leave the European Union.
SoFi is different in one other — very key — metric. It actually makes money. This year, SoFi is one of the few startups that will actually be turning a profit.
And SoFi soon could pass Lending Club in revenue if current projections hold.
But that hold is not something that can easily be counted on. SoFi is still one player in a field that is crowded with aggressive competitors. WSJ noted the fact that those competitors can leverage long histories in certain verticals and better rates, setting up hurdles that SoFi will have to overcome as it encroaches on ground already staked out by others.
Plus, SoFi wants to get into the really big competitive pool by someday expanding into the full-tilt boogie world of bank services, including credit cards, deposit accounts, insurance and wealth management.
A half-billion dollars would help in that goal, and it wouldn’t be the biggest fundraising grab for the firm. Last year, the firm bagged $1.2 billion in funding. That left the company at a $4 billion valuation.