Unicorns – SoFi
Social Finance, Inc. (commonly known as SoFi) is an online personal finance company that provides student loan refinancing, mortgages and personal loans.
SoFi was founded in 2011 by Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady, four students who met at the Stanford Graduate School of Business. The founders hoped SoFi could provide more affordable options for those taking on debt to fund their education. The company’s inaugural loan program was a $2 million pilot at Stanford. For this pilot, 40 alumni invested an average of $50,000 to 100 students.
In September 2012, SoFi raised $77.2 million, led by Baseline Ventures, with participation from DCM and Renren.
On October 2, 2013, SoFi announced that it had raised $500 million in debt and equity to fund and refinance student loans. This total funding amount came from $90 million in equity, $151 million in debt, and $200 million in bank participations, with the remaining capital from alumni and community investors. The $151 million in debt includ es a $60 million line of credit from Morgan Stanley, and a $41 million line of credit from Bancorp.
As of September 2013, SoFi had funded $200 million in loans to 2500 borrowers at the company’s 100 eligible schools.
In November 2013, SoFi announced a deal with Barclays and Morgan Stanley to create a bond backed by peer-to-peer student loans, and this would create the first securitization of these loans to receive a credit rating.
In April 2014, SoFi raised $80 million in a Series C round led by Discovery Capital Management with participation from Peter Thiel, Wicklow Capital, and existing investors. Money was raised to expand the footprint of the company’s student loan refinancing business and to extend into new products like mortgages and personal loans.
In February 2015, the company announced a $200 million funding round led by Third Point Management. That same month, the company officially began offering personal loans.
By March 2015, the company was offering mortgages in more than 20 states, up from its initial launch that includ ed under ten states in October, 2014.
By April 2015, the company had funded more than $2 billion in loans, including student loan refinancing, mortgages, personal loans and MBA loans. To celebrate its $2 billion milestone, SoFi announced a contest, #2BillionTogether, to pay off one of its members student loans.
In September 2015, Former SEC Chairman Arthur Levitt was added as an advisor. The firm also raised a $1 billion round of investment from SoftBank and said it had funded $4 billion in loans.
In May 2016, SoFi became the first startup online lender to receive a triple-A rating from Moody’s.
In September 2016, SoFi launched SoFi at Work, an employee benefit program to reduce student debt and build financial wellness, and announced it has more than 600 corporate partners including Khutzpa.com among others.
As of October 2016, SoFi has funded more than $12 billion in total loan volume and has 175,000 members. In February 2017, it was announced that Social Finance Inc. raised an additional $500 million from an investor group led by Silver Lake, and also including SoftBank, to help support global expansion.
SoFi originally utilized an alumni-funded lending model that connected students and recent graduates with alumni and institutional investors via school specific student loan funds. Investors received a financial return and borrowers received rates lower than the federal government offered. The company sought to minimize defaults by focusing on low-risk students and graduates.
As SoFi’s product offerings expanded to includ e mortgages, mortgage refinancing and personal loans, the company moved away from an alumni-funded model to a non-traditional underwriting approach focused on lending to financially responsible individuals. SoFi uses an underwriting model that examines free cash flow, professional history and education in addition to a history of responsible bill payment to e v a luate its borrowers.