Launching as an alternative source for sourcing student loans, SoFi has grown its marketplace lending business into other sectors such as mortgages and personal loans. Profitable since 2014 and having transacted over $4 billion of loans on its platform, the firm has just announced the achieving of yet another major milestone; closing the largest funding round in the fintech sector.
In a deal led by SoftBank, SoFi has raised $1 billion in Series E financing. Alongside SoftBank, existing shareholders including Third Point Ventures, Wellington Management Company LLP, Institutional Venture Partners (IVP), RenRen, Baseline Ventures and DCM Ventures also participated in the deal. According to SoFi, the funding “will accelerate SoFi’s growth as the primary financial services partner for high achieving consumers disenchanted with traditional banking.” This includes advancing its member services, growing headcount and investing in its proprietary lending platform.
Multi-Billion Dollar Valuation
With the closing of the funding, SoFi enters the multi-billion dollar valuation space, rivaling that of publicly traded Lending Club. By choosing private financing instead of going public and taking on additional regulatory burdens, SoFi joins a growing list of tech unicorns led by Uber, SnapChat and Pinterest, as well as Credit Karma in the fintech space, that have elected to stay private longer.
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For SoFi, the $1 billion in funding provides it a treasure chest to compete against traditional banks to convert new borrowers to its platform. In addition to banks, the funds will also help SoFi as it competes against fellow marketplace lenders.
Like SoFi, many of the largest marketplace lenders have focused on niche sectors such as personal loans or small and medium businesses, before expanding to new markets. Among the results of this heightened competition has been an increase in acquisition costs to convert new customers, with many firms securing referral partnerships with companies and websites that service potential borrowers.
In this regard, the most recent example of the scramble among lenders to find sources of customers was last week’s announcement that personal finance app developer, BillGuard was being acquired by P2P lender Prosper. While there were various business rationales for the purchase, Prosper specifically cited lowering its costs of acquisition.
Commenting on its investment and SoFi’s potential, Nikesh Arora, President & COO of SoftBank Group Corp stated, “SoftBank seeks to invest in large industries or geographies that are ripe for change. This investment gives SoftBank exposure to the financial services sector, which is one of the largest and most important industries in the world. SoFi is clearly a game changer in the fintech space.”