January 25, 2021

SoFi set to go public via merger with Palihapitiya’s fourth Spac

SoFi, the personal and student finance lender which branched out into payments and banking infrastructure last year with its $1.2 billion Galileo acquisition, is going public.

The fintech, last valued at $5.7 billion, plans to execute its initial public offering (IPO) via a merger with a blank-check company run by venture capital (VC) investor Chamath Palihapitiya.

Palihapitiya runs Slack-backer, Social Capital, out of Palo Alto and was an early executive at Facebook.

Photo by TechCrunch, CC BY 2.0

Palihapitiya speaks onstage at TechCrunch Disrupt NY 2013 in New York City

The special purpose acquisition company (Spac), Social Capital Hedosophia Corp V, values SoFi at $8.65 billion. This includes $2.4 billion of new capital, contributed as part of the transaction.

Palihapitiya’s $800 million Spac had climbed 30% on Thursday noon following the announcement.

Popularity of SPACs

SoFi will mark the fourth company taken public by one of Palihapitiya’s Spacs. The fintech follows in the footsteps of Virgin Galactic (late 2019), Opendoor Technologies (last month), and Clover Health (this month).

The Spac route to an IPO is becoming increasingly popular – particularly in the US. In 2020, some 445 total IPOs took place in the US. Roughly half, or 248, were Spacs that returned on average more than 5%.

Comparatively, there were 213 IPOs in 2019, but just 59 of them were Spacs.

In the last two months alone, the likes of eToro and TransferWise have considered a Spac as a way to go public this year.

Paysafe, the Isle of Man-based multinational payments company, announced in December it was merging with a Bill Foley-backed Spac to list at an impressive $9 billion valuation.

Later that month, it emerged that SoftBank plans to raise up to $525 million with the IPO of its own Spac, according to a regulatory filing.

­­Why SoFi?

Palihapitiya tells CNBC: “What I did was systematically try to figure out what was broken in banking. And try to figure out which company was the best representative of the solution people wanted.”

He adds: “SoFi was the top of the list when I looked across all the companies.”

According to CNBC, Palihapitiya likened SoFi’s disruption in banking tech to Amazon. He notes SoFi’s focuses on mobile-first consumers and lowering the technology costs of banking as key reasons for the deal.

Founded in 2011, SoFi is led by Anthony Noto, Twitter’s former chief operating officer.

Last year, the fintech took the decision to diversify its consumer-led offering with business-to-business (B2B) components.

The additional revenue streams added by Galileo to SoFi’s already-established financial suite – which includes personal and student finance loans, investment and insurance products, as well as cash and wealth management tools – makes the fintech an attractive proposition.

If SoFi was ever to become a licensed bank, then having Banking-as-a-Service (BaaS) capabilities through Galileo would also give it a potential stream of deposits.

SoFi last raised capital in 2019 of half a billion. The round was led by by Qatar Investment Authority, a Doha-based private equity and sovereign wealth fund.

Noto tells CNBC that the choice to go public via a Spac is based on the “deal certainty” of such an arrangement.

Read next: Paysafe to list via Bill Foley-backed Spac at $9bn valuation