In one of the most eagerly anticipated fintech deals of 2021, online lender SoFi plans to go public through a merger with a special purpose acquisition company (SPAC) backed by billionaire VC investor Chamath Palihapitiya. The deal, announced Thursday, would value San Francisco-based SoFi at $8.65 billion.
SoFi plans to merge with Palihapitiya’s publicly traded SPAC, Palo Alto, California-based “blank check” company Social Capital Hedosophia Corp. V. Shares of the SPAC soared more than 50% after Thursday’s announcement. Reuters first reported the deal. Palihapitiya has taken several companies public through SPACs, including Virgin Galactic and Opendoor.
Last year, SPACs accounted for 57% of the 407 IPOs in the U.S., according to professional services firm PwC.
The SoFi deal, set to close in the first quarter, is expected to supply $2.4 billion in gross proceeds to the combined company, including $805 million in cash from the SPAC’s IPO in October. Another $1.2 billion will come through a $10-per-share PIPE deal with commitments from Palihapitiya-controlled entities, along with money from BlackRock, Altimeter Capital Management, Baron Capital Group, Coatue Management, Durable Capital Partners and Healthcare of Ontario Pension Plan.
Palihapitiya told CNBC that SoFi is an attractive bet based on its mobile-first approach and its low-cost delivery of financial services. He likened SoFi’s disruption in the fintech space to Amazon’s impact on the retail sector. In October, SoFi received preliminary approval for a federal bank charter.
SoFi forecasts revenue this year of $980 million, which would be a 38% increase over 2020. Revenue is projected to climb to nearly $3.7 billion in 2025. The company expects to grow to more than 3 million unique members by the end of 2021 — 10 years after the company was founded.
SoFi started in 2011 with an initial focus on student loan refinancing for millennials. It now offers stock and cryptocurrency trading, personal and mortgage loans, and wealth management services.
SoFi’s CEO is Anthony Noto, former chief operating officer of Twitter and former managing director of Goldman Sachs. He said “deal certainty” was among the reasons SoFi chose to go public through a SPAC, instead of a traditional IPO.
As the economy increasingly moves online during the pandemic, Noto highlights SoFi’s strategic advantage of building a mobile-first financial company. He said that since the mortgage crisis, the financial services industry has been “handcuffed” by legacy technology.
SoFi is “systematically dismantling” more than $2 trillion of market capitalization controlled by traditional players in financial services, he said. “In fact, many of these companies are forced to fight with one hand tied behind their back through a combination of a lot of regulatory oversight” and outdated technology, Noto said.
Other recent fintech related SPACs include BNPL player Katapult Holding and Billtrust.