Digital financial services firm SoFi is going public via a special-purpose acquisition company (SPAC) and private investment combination that values the company at $8.65 billion.
Chamath Palihapitiya, who runs the SPAC, called Social Capital Hedosophia Holdings Corp V, is spearheading the deal, which also includes a $1.2 billion private investment in public equity, or PIPE, with funding from asset managers such as BlackRock, Baron Capital Group and Altimeter Capital Management as well as an Ontario, Canada pension fund. The deal is expected to provide up to $2.4 billion in cash for the company and close during the first quarter of this year.
SoFi would be the first independent digital advisory firm to go public, according to David Goldstone, the manager of research and analytics for Backend Benchmarking, which publishes The Robo Report.
Anthony Noto, SoFi’s CEO and former chief operating officer of Twitter, chief financial officer of the NFL and managing director at Goldman Sachs, will continue in the job after the company goes public. He said in a statement, that “the new investments and partnership with Social Capital Hedosophia signify the confidence in our strategy, the momentum in our business, as well as the significant growth opportunity ahead of us.”
That strategy has focused on providing investors with a full spectrum of digital financial services, ranging from student debt consolidation, which was its first offering, to investments, banking, credit cards and brokerage.
The company also perceived preliminary approval from the U.S. Office of the Comptroller of the Currency for a national bank.
“A public offering will continue to field SoFi’s growth aspirations,” said David Goldstone, the manager of research and analytics for Backend Benchmarking, which publishes The Robo Report. The challenge for the firm, according to Goldstone, is to expand user growth and become profitable.
He noted that many of SoFi’s products are free, including managed accounts, checking accounts and no-commission trading. SoFi has even waived the expense ratio on its ETFs. “Eventually, SoFi will need to focus on the profitability of its different business lines, but a public offering may extend its ability to focus on growth over profits in the near- and mid-term,” said Goldstone.
CEO Noto told Bloomberg that the company plans “to invest heavily in acquisitions and new growth vehicles.” Bloomberg reported that SoFi had $492 billion net losses in 2018 and 2019, and its net losses through the third quarter of 2020 21% higher than the comparable year-ago period. Net revenue had climbed 4% to $394 million.