Succes Story of SoFi: A Student Loan Company of $8.6 billion

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Succes Story of SoFi: A Student Loan Company of $8.6 billion

Today we are going to explore the story of Mike Cagney, Co-founder of SoFi and how he and his three partners Dan Macklin, James Finnigan, and Ian Brady built a $8.6 billion company.

SoFi website

California-based Social Finance Inc., or better known as SoFi was founded by four students of Stanford Graduate School of Business namely, Mike Cagney, Dan Macklin, James Finnigan, and Ian Brady in the summer of 2011. Stanford Graduate School of Business has a great resume of companies started by their students, to name a few Google, Nike, Yahoo, Capital One, HP, and more. SoFi has proven its worth being included in this list. In 2021 SoFi made $985 Million.

Every business has to solve a problem to sell its products and services. The products and services they are offering should solve a problem for which the consumers will buy their products or services. The founders worked on the problem which was faced by students all over the USA i.e., taking on debts to fund their education, and at the time they were stepping into the industry the student loan reached $1T. Most of the students are still paying these debts even after five decades. With SoFi the founders hoped to solve this problem and provide more affordable options to students. The idea was to approach the school’s alumni network to get financial help to the students in need. What SoFi did differently at that time than the peer competition that was already in the industry as they were offering peer to peer system, focusing on a group of people and pooling funds that will be distributed by the college financial aid offices. SoFi student loans were at a fixed rate of 5.99% which was lower than the federal student loan which was 6.8%. This system was cheaper and much more reliable than federal loans. On the other hand, the alumni that were the first investors could expect a return of at least 5%. Starting with this one problem today SoFi helps its users to borrow, save, spend, invest and insure their money in a better way and it did not happen overnight it took SoFi 11 years of struggle, sacrifice, and hard work to be at this position.

Initially, SoFi received the investments from Baseline Ventured, a venture capitalist firm that was investing in companies like Twitter and Instagram. Apart from these investments, Ron Suber who played a big role in developing the financial tech companies at that time also invested in SoFi.

In May 2012, SoFi became the first company to refinance federal and private student loans by introducing the Student Loan Refinancing system. They focused on student loans in the upcoming years to pool money and get more schools on board. By the end of the next year, SoFi surpassed 2500 borrowers at 100 different schools, and to put the icing on the cake a deal between SoFi and Barclays along with Morgan Stanley cracked which originated a financial bond backed by the peer-to-peer student loans. It was the first-of-its-kind loan to get a credit rating. The road ahead was looking clear and bright for SoFi.

In October 2014 SoFi launched mortgages for new homeowners and attracted Peter Thiel, co-founder of PayPal and the first outside investor on Facebook to invest in SoFi. Today his investments resume includes SpaceX, Airbnb, LinkedIn, and more.

In 2015, SoFi started offering personal loans and reached the milestone of reaching a $1 billion funding round. And it was the first company to do so. They also crossed the mark of $2 billion in distributing loans to people in need across the whole country in that year. Till then they were offering mortgages in 20 US states.

In September 2016, SoFi announced SoFi at Work program for its employees to get benefits like student loan contributions and refinancing. The company funded more than $12 billion in total loans and the total number of members crossed 175,000 in the same year.

In 2017, SoFi introduced student loan refinancing for medical residents and fellows. Apart from the earlier investors, SoFi also took money from Third Point Management, SoftBank, and Silver Lake between 2014 and 2017. Till now everything was going as planned for SoFi. But it did not last long. The fall nearly caused the whole company everything they build in the last 6 years.

SoFi felt the ground tremble for the first time since they started and it was strong enough to take down everything they built. “It was a frat House” said one of the employees when asked to describe the environment inside the company. The employees raised their voices with accusations of sexual assault and misbehavior. The company was called a 4-billion-dollar frat house because the company was valued at $4 billion and all of this happened during the peak of the #MeToo movement. From R. Kelly to Harvey Weinstein everyone getting the spotlight for their abusive and sexual misconduct. Mike Cagney, the CEO of SoFi was accused to discuss the size of his genitals with staff and employees of the company. He glorified his sexual conquest with people within the company just like one will do in a frat house. Not only this but he was also alleged to have fired employees for the slightest mistake and doing that in a frat-boy fashion. There were reports that the executives used to throw and break telephones when they got angry. Women employees accused Cagney used to sexually harassing younger women and sending flirtatious and sometimes sexual messages.

Mike Cagney had to resign from SoFi. The official announcement was made in September 2017. It was SoFi’s weakest moment and the legacy stock brokerage institution Charles Schwab was considering buying the company but the deal did not land. The startup that was winning in every situation saw a decline so sharp and sudden that it seemed there was no chance of surviving the fall.

Instead of giving up and selling the whole company off SoFi did what no one expected. Started with replacing the executives and at the same time, Anthony Noto the COO of Twitter resigned from Twitter and accepted the CEO position at SoFi. The new CFO joined named Michael Gill came from the Goldman Sachs executive position. Anthony Noto had a lot on his plate to finish. Firstly, Anthony and his team needed to settle with the Federal Trade Commission. The FTC accused SoFi while Cagney was the CEO of misrepresenting their number and making false promises. Also, they were accused of hiding the truth about the claims in the fine print and in fonts so small it was unreadable. At last, it was settled after SoFi told the FTC they will clearer and more transparent about the claims they are making and the FTC asked to back up their claims with reliable evidence.

In 2018 SoFi completely rebuilt its mortgage department by bringing the engineering and product teams from Clara Lending, a mortgage startup. They also started offering credit cards totalling 500,000 at that point. By May 2018 they had issued $25 billion in loans and raised $2.1 billion in funding. The total revenue for the year was $269.4 million but they were still far from making any profit.

Apart from the mortgage department, they tried to rebrand the whole SoFi. They launched two new products, SoFi Invest and SoFi Money in January 2019.

SoFi Money is a mobile-first cash management account from SoFi. It is a brokerage account that allows you to securely deposit your money, earn interest and spend money through bill pay, checks, and P2P transfers. All this happens through Bancorp Bank.

SoFi Invest is a brokerage account that offers you to trade stocks, crypto, and other financial products such as ETFs some of which are created by SoFi itself.

SoFi got a deal with NFL and bought the naming rights to the now SoFi stadium in Los Angeles, California. The Los Angeles Rams and Los Angeles Chargers play at the SoFi stadium currently. It was a massive deal and had a positive impact on the rebranding strategy. The average viewership per nationally televised game from SoFi stadium is more than 20 million. Anthony Noto understands the importance of social media and social engagement. The branding strategy is getting a good response from the targeted audience. From the TV spots, SoFi has gained 500 million impressions during the fall sports and an additional 400 million impressions and 775,000 engagements from the content across social media like YouTube, Instagram, and Twitter. On TikTok, a hashtag challenge campaign by SoFi #SOFIMONEYMOVES has more than 8 billion views and more than 1 million uses of their branding hashtag.

SoFi stadium

And it did not end here. SoFi struck another massive deal with Qatar Investment Authority for more funding. They invested $500 million in SoFi. This deal was an announcement to the world that SoFi is still in the race of growing financial tech space. Just two years after the scandal the revenues were growing massively. The revenues in 2019 increased by 64.31% year over year growth from $269.4 million in 2018 to $442.66 million in 2019.

In 2020 SoFi reached 1,000,000 members and made another great move. SoFi acquired Galileo. Galileo is referred to as the AWS of financial technology. It helps anyone to easily build a Fintech company by building blocks just as SoFi built its empire. Galileo has thousands of commercial customers. Fintech leading companies like Robinhood, TransferWise, Dave, Chime, and many other companies depends on Galileo to provide essential services to their customers. Some of the customers are making their debuts on the stock market proving their maturity in the industry. Galileo contributes almost 15% of Sofi’s total revenue and it is expected to grow to 25%. With Galileo leading in building the infrastructure neo-banking the competitors of the Fintech industry will either have to choose between utilizing Galileo’s infrastructure and buying the services offered by SoFi’s owned Galileo or building the same infrastructure that Galileo has perfected already. The same dilemma is faced by the AWS competition among the various industries and in this battle, Amazon won. The revenue of SoFi grew by 27.76% in 2019 i.e., $565.53 million.

Galileo Accounts reached 124 million
Galileo Accounts reached 124 million

SoFi also raised $2.4 billion at a valuation of $8.6 billion. The pitch deck influenced investors to invest even with a not-so-professional presentation of their mission and vision. Some key points helped them to raise this capital.

The first thing to take from their presentation is how to tell a story more effectively. One should start with their mission and vision short and straight. Everyone should have an idea about what they are seeing or getting into. Then explain a few key points of your story backed by facts and the whole story should revolve around your mission. Another important thing to note is repetition. Your tagline or anything that resonates with your mission and vision should be repeated throughout the whole presentation. SoFi did this with their tagline “Get your money right” it was repeated 7 times throughout the deck and they also stated their mission “to help our members achieve financial independence to realize their ambitions” was repeated throughout. This helped SoFi in emphasizing their point and effectively spreading their message.

The next thing to note is showing a trend and applying that to your own story. The trends help in convincing the investors that your story is legit and the risk of investing in the company is worth it. SoFi showed a graph of opportunities in the industry. It showed a $2 trillion opportunity on a plate served for investors to feast on. SoFi communicated the opportunity they are after and how it is worth the risk for investors.

The last thing to notice is presenting your strategy and how you have the edge of getting successful. The first should include your Unique Value Proposition (UVP) and the key points that makes your company different from others. SoFi presented its strategy by showing the products that work together but with different Cost acquisition costs (CAC) and Lifetime Value (LTV). They further explained their strategy that they will try to bring in the customers with the lowest LTV products and cross-sell them into higher LTV products at a lower CAC. And how this will happen? By gaining trust with the first product.

The slides which they were presented had some sloppy mistakes like poor formatting, overstuffed slides, and some unnecessary use of exclamation points. But these things did not matter. The investors were looking for the opportunity to invest and SoFi showed them the opportunity and many reasons to invest. That was more important than the professional PowerPoint slides.

SoFi is the one-stop-shop for 2 million users for all of their financial needs. SoFi aims to become the answer for all the financial needs that a high earner expects from traditional banks and other neo banks. Also, Anthony Noto said once “We are the only one-stop-shop to do all your financial service needs at one platform. Many people talked about broadening the suite of products, but only SoFi has done it on one mobile platform.”

In an interview with CNBC Anthony Noto said “I’d say the demand for our products has stayed really consistent and once people use our products whether they are investing or they are spending with a credit card or spending through their checking and savings account its remained consistent” on a question on how the consumer of SoFi has reacted to the under pressured market.

In 2022 the quarterly results are still reaching heights that were not touched before by SoFi.

Galileo Quaterly results

Although SoFi is still far from making any profit. 83% of the SoFi total revenues come from lending services and products which makes the investments a bit risky. The road ahead looks bright and skeptic for SoFi which makes it more interesting to watch.

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ADITYA

Experienced Entrepreneur with a demonstrated history of working in the internet industry.

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