SoFi Raises $1 Billion as Softbank Joins Online Lending Frenzy

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  • Other investors include affiliates of Third Point, RenRen, DCM
  • SoFi CEO: Softbank wants the venture to 'swing for the fence'

Social Finance Inc. raised $1 billion, showing that there’s still deep interest in a new crop of online lenders despite market volatility and the lackluster stock performance of the industry’s biggest player.

Japan’s SoftBank Group Corp. led the fundraising round, according to a statement Wednesday. Affiliates of Dan Loeb’s Third Point, Wellington Management Co., Institutional Venture Partners, RenRen, Baseline Ventures and DCM Ventures also participated. The final amount raised surpassed the $800 million proposed two months ago, before August’s global stock rout.

The money will help Chief Executive Officer Mike Cagney pursue his vision of making SoFi the go-to financial services firm for "high-achieving professionals." The venture started four years ago by helping graduates of top-tier universities refinance student loans at lower rates. Since then, SoFi has broadened offerings to include personal loans and mortgages, and Cagney has said he’s interested in providing wealth-management services.

“We’re trying to build something really big, really meaningful,” he said in a phone interview. “Softbank is telling us, ‘Swing for the fence.”’

Already, San Francisco-based SoFi has emerged as one of the dominant lenders among a slew of startups muscling their way into financial services. Cagney’s firm has funded more than $4 billion in debt since 2011 and should surpass $6 billion by the end of the year, according to the statement.

Market Swings

That growth rate has put banks on notice. To protect profit, global financial firms need to decide whether they’re going to battle the upstarts or join them, McKinsey & Co. said in a report released Wednesday.

Still, stock-market enthusiasm for the new lenders has been inconsistent. LendingClub Corp., the operator of the biggest of the new sites, raised $1 billion in an initial public offering in December. After a share surge pushed its market valuation past $10 billion, the company’s stock has dropped by more than half amid greater competition for borrowers and concerns that regulation may stiffen. OnDeck Capital Inc., an online lender catering to small businesses, trades at less than half its offering price last year.

Investors have remained receptive in private markets. Avant Inc., an online lender that focuses on borrowers with less-than-stellar credit, said Tuesday it raised $325 million in a funding round led by private-equity firm General Atlantic.

SoftBank was an ideal backer for SoFi because the telecommunications company and its billionaire founder Masayoshi Son are patient investors, said Cagney. As a private company, SoFi can take risks in a way that would be harder if it were publicly traded, he said.

Targeting Banks

Cagney declined to specify SoFi’s valuation, saying that it was “a meaningful bump” from its prior funding round in January. People familiar with the SoftBank investment said in July that an $800 million round would imply a valuation of about about $3 billion.

It doesn’t matter whether it’s $3 billion or $5 billion, Cagney said. “I’m looking at over $1 trillion of market cap from the banks, and I think it’s all vulnerable.”