SoFi pushes back IPO plans amid financial tech sector struggles

Social Finance Inc. is taking it slow after a rough year for financial technology companies.

The online lending company known as SoFi, which specializes in refinancing student loans, is pushing back plans for an initial public offering in order to focus on developing other business lines, said Chief Executive Officer Mike Cagney. Meanwhile, the company hasn’t yet closed a $500 million funding round, an effort that has SoFi courting international investors to purchase loans and potentially take an equity stake at the same time.

The industry has been challenged this year by slower growth and waning venture funding for financial technology startups. A decline in public market valuations of online lenders isn’t encouraging for a SoFi IPO, Cagney said in an interview.

“In any industry, it’s a trying time when the market is not receptive or interested in that type of business model,” said Bob Ramsey, an analyst at FBR Capital Markets.

Cagney said in May 2015 that the company would likely go public within the next 12 months. Nineteen months later, it hasn’t and has no intention of doing so anytime soon. That’s mostly because SoFi’s newer business lines are still evolving and the company plans to add more financial products, Cagney said. Plus, it isn’t ready to undergo the scrutiny by investors that public companies face every quarter, he said. As newer offerings like wealth management and life insurance are being developed, the startup sometimes has to make changes in certain months that may cause metrics to fluctuate quarter by quarter, according to Cagney.
The problems in the online lending industry were intensified this year by disclosure issues at LendingClub Corp., a pioneer in the sector, that led to the ousting of CEO Renaud Laplanche in May. LendingClub’s shares have fallen more than 50 percent this year. Shares of small business-lender On Deck Capital Inc. plummeted about 60 percent.

“Lending Club and On Deck were the two pioneers in the marketplace to go public and those stocks haven’t worked,” Ramsey said. “That does mean investor appetite is muted. So it’s not surprising that guys like SoFi will say ’we liked LendingClub’s IPO valuation better than the current valuation so let’s wait until the market is receptive, then we will do it’.”

SoFi started out in 2011 by refinancing loans taken out by high-earning graduates from top universities. It has since pursued a much more ambitious vision, expanding into products from personal loans, mortgages and wealth-management to life insurance. Last year, the company issued $5 billion in loans. That has grown to over $14 billion today.

SoFi reached a valuation of about $4 billion last year when it raised $1 billion from a group of investors led by SoftBank Group Corp., a person familiar with the matter said in September. Cagney said that SoFi currently doesn’t need to raise cash for operations, but is seeking to raise funds to gain a strategic relationship with investors that can buy SoFi’s loans.

SoFi may benefit from developments at The Office of the Comptroller of the Currency, which regulates all national banks and federal savings associations. Earlier this month, the OCC said it plans to start accepting applications from fintech companies for a special charter that would formally subject them to federal banking rules. That would give fintech firms a set of national standards, instead of a patchwork of local and state rules that are burdensome for startups. Being designated as a national bank could help fintech firms like SoFi accelerate their growth by giving confidence to potential customers and investors.