The Disruptive Tech Disruption That’s Sure to Disrupt
Hello. Iron Edge VC requests that you kindly pardon the redundant nature of this communication’s title. The committee that is tasked with creating attention-grabbing headlines for our weekly newsletters might have gotten a bit carried away, swept up in the intrigue and excitement that the word “disrupt” tends to generate. Nonetheless, you’ve read this far, so we’re encouraged that we haven’t lost you at “hello”.
Along with bootstrapped, leverage (as a verb), offline, gamechanger, and win-win, the term disrupt has been hijacked by the rockstars of the tech industry to set forth a very specific imagery, and to notify the listener that the entrepreneur casually slinging the milennialspeak is a firmly established member of the cognoscenti. It is part of a vernacular that was artfully and regularly parodied on the HBO comedy Silicon Valley. This terminally hip form of expression can grow quite tiresome. As purveyors of pre-IPO investment opportunities mostly within the technology startup industry, we at Iron Edge VC are exposed to these buzzwords with such frequency that we’ve built up a decent immunity.
For the past decade, TechCrunch has elevated “disrupt” to the pantheon of cool 21st Century words by using it as the name for its annual conference of cutting-edge innovations held in New York, San Francisco, and elsewhere. Since 2013, financial news network CNBC has published its “Disruptor 50” list of “private companies whose breakthroughs are influencing business and market competition at an accelerated pace”. Notable alumni include well-known names like Uber, Lyft, Twitter, and Peloton. There is, of course, the occasional misfire: the We Company, aka WeWork, occupied the enviable #3 spot last year right before its spectacular public implosion due to a delusional valuation. Click here for a list of the 209 companies that have graced the Disruptor 50. It’s an interesting snapshot of the recent evolution of the companies that meaningfully affect the way we live.
When used in the context of technological innovation, the term “disrupt” refers to the displacement of an existing technology and transforming its industry, or even creating an entirely new industry with an invention that addresses a previously unmet need. In this regard, CNBC uses “disruptor” appropriately and can thus be forgiven for reinforcing a somewhat hackneyed term. We’re more than happy to give CNBC a pass for this one. Then again, our willingness to look the other way might very well be inspired by our excitement that the 2020 Disruptor 50 list gives some well-deserved props to a company that we have admired for years. Going from #50 in 2018 to #26 in 2019, Social Finance, Inc. (aka SoFi) now owns the #8 slot on the 2020 CNBC Disruptor 50, released yesterday. SoFi is just over eight years old, but CNBC has singled it out as an enterprise that is poised to transform the way we manage our finances for the past six.
In 2011, four students who met at the Stanford Graduate School of Business had some serious issues with the way student loans were conducted. In response, they founded SoFi, aiming to provide more affordable options for those taking on debt to fund their education. They started with a $2 million pilot loan program at Stanford, getting 40 alumni to invest an average of $20,000 each to fund loans to 100 students. The innovative idea caught on very quickly. As of September 2013, SoFi had funded $200 million in loans to 2500 borrowers at the company’s 100 eligible schools. Seeing that they were on to something for which there was a great need in this country, SoFi continued to broaden its flagship student loan program while branching out into other financial services areas where they identified significant public demand. Although student loans are still their largest revenue stream, SoFi provides best-in-class home mortgages, mortgage refinancing, personal loans, investment advisory, money management, insurance… the list goes on. SoFi is often referred to as “the financial services vehicle for millennials”, because they provide 21st Century solutions for age-old needs by providing access to all these conveniences in one easy-to-use phone app.
As SoFi’s list of services expanded, the amount of lending they conducted grew exponentially. By 2016, the numbers ballooned to $12 billion in loans to 175,000 members. Clearly, the word was out. 2018 saw $30 billion in SoFi loans to 600,000 members. In 2020, a year that has thus far “disrupted” countless businesses worldwide in the worst imaginable way, SoFi hurtled past the million-member mark with over $45 billion in loans. Similar to how Zoom and Amazon experienced a flood of unexpected activity due to the coronavirus lockdowns and stay-at-home orders, SoFi had a substantial uptick in new member accounts in the first quarter of 2020. Even as people were asked not to leave the house, they still needed to tend to their financial matters. Many brick-and-mortar bank branches were temporarily closed, and the ones that still had their doors open to customers were often perceived as an unnecessary infection risk. Unnecessary, at least, when the same functions could be performed from the living room through a phone app. What’s more, people discovered that SoFi had dispensed with the fees that the conventional banks imposed. We will stop short of suggesting that a pandemic can be good for business, but in SoFi’s case they were once again positioned to offer a solution to a serious problem. The virus will eventually die out, but the broadened public awareness of SoFi’s usefulness will certainly endure.
SoFi’s Invest suite has breathed new life into the widespread trading of listed securities, including cryptocurrencies. On the stock market, Invest’s fractionalization of shares further democratizes the practice. For instance, SoFi’s StockBits allows a small-scale investing hobbyist to buy a third of a share of Apple, Inc. (NASDAQ: AAPL) for just over a hundred bucks. Hong Kong-based 8 Securities was also on to this phenomenon, and its services were wildly popular among local market enthusiasts. SoFi saw this as a perfect opportunity to expand overseas, so last month they bought 8 Securities and rebranded it SoFi Hong Kong. This acquisition represents a giant leap in commerce and exposure for SoFi, and it appears likely to lead to a lot more geographic spread.
It’s important to note that SoFi is led by CEO Anthony Noto. This man is a true visionary with an incomparable pedigree that includes West Point, the United States Army Rangers, the Wharton School of Business, Goldman Sachs, and Twitter. His track record is nearly flawless, and we believe that he will continue to drive SoFi’s explosive growth --- and disruption. Yes, we are not ashamed to apply that overused word. No term is more suitable for the way SoFi is impacting our way of managing our personal finances.
In May 2019, the Qatar Investment Authority took a hefty stake in SoFi to the tune of $500 million at a valuation of $4.3 billion. CNBC has recently estimated SoFi’s valuation to be approaching $5 billion. This is the kind of momentum Iron Edge VC loves to see when we evaluate investment opportunities. Best of all, our exclusive contacts in pre-IPO investments are providing us with access to SoFi at valuations significantly lower than that which Qatar was able to lock in. You cannot yet purchase shares in this company on the public markets, but Iron Edge can open the door for you today. If you would like to learn more, or if you know somebody else who would, please do not hesitate to contact us.
As always, shares are available on a first come, first served basis.