Sofi’s IPO: Will the Time Ever Be Right?


Introduction The last few quarters were not good for IPOs, but, finally, the market has gained some momentum. In Q2 2017, 54 IPOs managed to raise $11 billion. The first two quarters of the year have surpassed IPO fundraising for the whole of 2016. Online lenders are also moving down the IPO road, and SoFi […]



The last few quarters were not good for IPOs, but, finally, the market has gained some momentum. In Q2 2017, 54 IPOs managed to raise $11 billion.

The first two quarters of the year have surpassed IPO fundraising for the whole of 2016. Online lenders are also moving down the IPO road, and SoFi is the next online lender touted for listing on the stock exchange after posting record numbers in its second quarter results. But the recent departure of CEO and founder Mike Cagney puts a major question mark on what’s next for the student finance pioneer.

Social Finance: First of its Kind

Social Finance (SoFi) is an online finance company that offers a range of lending and wealth management services. Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady founded SoFi in 2011 to provide a lending platform to students at Stanford and other elite colleges. Initially, the company was structured on a model to help students use funds raised from alumni, and since the borrowers and lenders are socially connected via alumni networks, default are less likely to happen.

The lender shifted from the alumni-based model to a more scalable underwriting approach to provide lending options to all financially responsible individuals. The underwriting model does not only evaluate its borrowers on financial parameters like bill payments and debt, but also evaluates their cash flow, professional history, and education. It has broadened its offerings from the initial student refinance to mortgages and personal loans targeting high earning young professionals.

Social Finance: Numbers

Last year has been tumultuous for the entire alternative lending space as the industry was plagued by an increase in default rates, regulatory changes, corporate governance issues, and scandals. Amidst all this chaos, SoFi still managed to generate positive results in 2016 as it funded approximately $8 billion in loans witnessing an impressive jump from $5 billion in loans in 2015. The graph below shows the growth in total loan originations to $16.7 billion (approx) from more than 250,000 members since inception.

With its vision to expand into new product segments and countries beyond the US, SoFi raised $500 million in February 2017 in a Series F funding led by Silver Lake, Softbank Group, and GPI Capital. With this investment round, the company’s total equity funding has reached a mammoth $1.9 billion.

In the second quarter of 2017, SoFi reported that it originated $3.1 Billion in loans and earned $134 million in revenues with an adjusted EBITDA of $61.6 million. The company has expanded its horizons by venturing into the lucrative insurance business. SoFi has obtained insurance license from several states such as Massachusetts, California, Florida, South Dakota, and Arkansas to act as insurance broker and has partnered with Protective Life Insurance. This could be a game changer as it allows SoFi to cross sell multiple products to its existing clientele.

Controversies and Scandals

SoFi was recently in the news as Cagney was accused of fostering a toxic culture in the company by current and former employees. In the wake of sexual harassment allegations, his resignation is not surprising. But such a reputational hit might hamper the company’s plans of opening a bank this year.

To ensure strategic continuity of its operations and to achieve its plans to go public this year, Tom Hutton, the Executive Chairman of the company has been selected as the interim CEO. He was of the view that the company is “well positioned, stable and strong enough; there is only need to build a transparent, respectful and accountable culture”.

Previous Attempts made by the company for an IPO

In 2014, SoFi shelved its first IPO plans after receiving funding of $1 billion from a group of investors led by Softbank. SoFi was developing new business lines such as wealth management and life insurance at the time and was not ready to be scrutinized by investors on a quarterly basis.

In 2015, Cagney again claimed that the company was looking to file an IPO within 12 months. But due to adverse market conditions in 2016 and regulatory challenges faced by the entire sector, SoFi decided to put off its plans that year.

The headwinds subsided in July 2017 when the US IPO market embraced Redfin’s IPO (an online real estate brokerage company which also offers mortgages) with open arms. With the offer price of $15 per share, Redfin managed to raise $138 million and closed at $21.72 on the first day of listing (45% above the listed price). Its grand show in the US IPO market broke the dry spell for fintech IPOs and gave SoFi the proverbial green signal to go public this year.

Following the Footsteps of Other Lending Platforms

2014 proved to be a path-breaking year for online lending platforms as two of the biggest players in the industry–Lending Club and OnDeck–came out with their IPOs. Lending Club’s IPO marked the first ever public offering by an online lending platform and raised $870 million. It was valued at $8.9 billion at one point. And in December 2014, OnDeck, a lending platform for small businesses also went public raising $200 million with a valuation of $1.3 billion. Since the beginning of 2016, both companies haven’t had a good run in the stock market as the stock price of Lending Club has fallen by approximately 43.4% and OnDeck’s stock price has fallen by 53.88%. Waiting out almost three years for that coveted IPO may prove to be lucky for SoFi as the market seems to have bottomed out.

Recent OCC Developments

The recent development at The Office of the Comptroller of the Currency (OCC), which regulates all national banks and federal saving associations, is surely going to benefit SoFi. The OCC declared it would accept applications by fintech lenders provided such companies would be subject to certain federal banking rules under the special charter. Being designated as a national bank will help SoFi to accelerate its growth plan and also will instill confidence in potential borrowers and investors.


With its focus on creating a community, SoFi has set the gold standard in the industry in terms of customer satisfaction and product innovation. This has enabled the company to etch its place among the elites in the industry. The only clouds on the horizon are the departure of Cagney along with sexual harassment claims. But analysts expect that the company’s IPO will receive a strong reception from the market. Investment from some of the big names in the industry goes to show investors believe in the platform’s business model, and now the stage is set for SoFi to roll out its long-awaited IPO.


Written by Heena Dhir.