For former SoFi staffers Stephen Sikes, Aaron LaRue and Albert Cheng, an operator-led investment organization became a way of offering more value to founders than just a check.
The group, called Socially Financed, seeks to offer hands-on advice to founders from operators’ points of view on an ongoing basis.
Socially Financed has grown from an informal idea to a network of 796 limited partners in a year.
The group includes a couple of hundred SoFi alumni and others in the fintech and angel investing community. Other firms that are co-investors in deals in which Socially Financed is participating include Andreessen Horowitz, Y Combinator, 8VC and Mucker Capital.
“We were seeing a lot of interesting deal flow and a lot of checks we wanted to write, and a lot of founders and entrepreneurs we wanted to support,” said Sikes. “We saw that as an opportunity and said ‘hey, we can enhance our impact, we can write bigger checks and we can write more checks if we bring together a broader group.’”
The founding trio moved on to new jobs from SoFi last year. Sikes, the former vice president and business lead at SoFi, is now a chief operating officer at Public; LaRue, a former director of product management, holds the same position at Zillow; and Cheng is director of product at Duolingo, after holding a similar position at SoFi. Founders said they established Socially Financed to build on their formative experiences at SoFi, developing early-stage products from the ground up.
“We still wanted to stay connected to that [experience],” said Sikes. “I think we all see ourselves as future founders, if not present founders … it’s fun and certainly where we have gotten the most energy out of our careers,” he said.
The idea initially grew out of a desire to create a new avenue for thought leadership, including published content, but eventually evolved toward a vehicle to invest in companies, noted Sikes.
“Instead of publishing our thoughts for the world, we found more of that same sort of thought leadership and discussion inside the community, and we’ve had that sort of thought leadership outlet through community discussions and working directly with founders,” he said.
Socially Financed founders worked at SoFi at different times (with some crossover), but they share the experience of working at a fast-paced, entrepreneurial environment where new products were developed and brought to market quickly.
“It was an incredible time to be at SoFi because we’ve launched so many products from zero to one, you get to see all of the different fintech business models, and you learn all the unit economics and the constraints with the existing models,” said LaRue. “You get to see every vendor in the space [and] the amount of effort that it takes to go through the regulatory compliance challenges.”
According to Sikes, what makes early-stage product experience at SoFi unique is the number of products the company released in a relatively short time, including lending, investing and banking.
“SoFi uniquely launched nine businesses in the course of three or four years, and that idea of having to go through the structured process of how to enter all of these predominantly consumer verticals – SoFi did more of that than any single business over the last five years,” remarked Sikes.
The total amount invested through Socially Financed is $5.1 million, according to the founders.
How it works
Socially Financed investors can make bets through two vehicles: a rolling fund and syndicate deals.
The rolling fund is a pool of committed capital from limited partners who commit to contribute set amounts over set time frames. In turn, the general partners (Sikes, LaRue and Chen) decide on the investments.
“It’s similar to a venture capital [fund] in terms of the decision-making and the way we run our investment diligence, [and] the money is raised quarterly,” said Sikes.
For syndicate investments, groups of investors participate on a deal-by-deal basis. Since its inception, the group has made 19 investments in the rolling fund, of which nine have also been syndicated. Ten deals were not syndicated because of allocation size.
Socially Financed has a strict minimum syndicate investment size ($80,000) because of the platform and administration fees associated with syndicate investments.
Socially Financed said it supports broad-use cases in fintech and covers business-to-consumer and business-to-business product propositions.
“Fintech has such a small share of the market relative to existing incumbents and financial institutions, and we’re at this point where there are a lot of options to build really interesting companies,” said LaRue. “The tools are getting a lot better and the infrastructure is getting a lot better [and] so you have this rush of interest and rush of people who can build in a space, and we want to support them.”
Socially Financed portfolio companies include banking startup for teens Step, payroll data sharing startup Wage, home inspection marketplace Inspectify and LGBT+ banking platform Daylight. When asked whether Socially Financed aims to back underserved segments, Sikes answered in the affirmative, but suggested the focus could be broader.
“One of the themes that we’re most excited about is the next leg of fintech, as the infrastructure gets easier and less expensive to build new businesses on top of,” he said. “There are novel financial products that haven’t been created yet for specific groups of people. Some of those groups of people might be genuinely underserved today, but some of them might be underserved and they might not even know they’re underserved because there hasn’t been innovation in the space like there has been in many other industries.”
Sikes pushed back on the perception that building products for specific groups may not be a viable business model.
“There’s some public skepticism on the ‘neobank for X’ [business model] that I think is a little overplayed,” he said. “There is a lot of opportunity in specific financial services for unique segments, and it’s getting to a place where it’s cheap enough and easy enough to build those businesses that you can justify doing it for segments that are only hundreds of thousands and not tens of millions of people.”
Portfolio companies that spoke with FinLedger noted that one advantage of working with Socially Financed is access to a brain trust of operators with experience building, growing and testing new product propositions.
“What Socially Financed offered to us was not only cash — which is always very valuable — but the ability to tap into the operator network,” said Rob Curtis, CEO and co-founder of Daylight. “For example, Albert [Cheng] is head of product at Duolingo, and we’ve introduced gamification design. We can pick his brain and ask ‘what do we need to be doing around gamification in order to take all those great principles that you’ve learned at Duolingo?”
Josh Jensen, CEO and co-founder of Inspectify, told FinLedger that the relationships forged through Socially Financed have helped the company build important partnerships, including one with real estate brokerage Compass.
“We started partnerships with Compass because one of the [Socially Financed] investors is a high up executive at Compass [and] we have partnerships with other brokerages because a limited partner had a connection to that brokerage,” said Jensen. “Due to the fact that a lot of folks that are members of Socially Financed in one way or another are connected to the proptech and real estate [ecosystems], it’s very applicable in terms of how we do business development.”
Future plans for Socially Financed include expanding the kinds of support mechanisms it offers founders as companies scale, said Cheng.
“As some of these companies scale and get a lot more traction, there are different ways that we can help, particularly when it comes to hiring,” he said. “We had one of our first executive placements [of a limited partner] at a portfolio company. I think we’ll have a lot more of that, and I’m very excited about that.”