SoFi (or Social Finance) held talks with Charles Schwab about a potential acquisition earlier this year. The high-profile Fintech firm apparently discussed an $8 billion valuation following an “indicative offer of $6 billion” from a foreign bank. This is according to a report in the FT. Schwab is a both a bank and online brokerage firm. Acquiring SoFi would have further solidified its place in the digitization of finance. Unsurprisingly, neither Schwab nor SoFi commented on the industry chatter but discussions of a possible sale should come as no surprise. Other potential acquirers were added to the talks according to the report and SoFi may have been on the cusp of becoming one of the biggest Fintech successes in history.
The discussions with Schwab was said to take place prior to the downfall of SoFi founder and former CEO Mike Cagney. SoFi was rocked by controversy several months back as allegations of sexual harassment and creating a toxic work environment percolated to the top when NYT.com reported on these claims. The allegations metastasized to the point Cagney was forced out as it was reported the CEO was a prime offender. Prior to the revelations of the lawsuits, SoFi had filed for a banking charter and seemed poised to become the future of banking. That’s all been put on the back burner now as SoFi recently pulled its application for an Industrial Loan Charter or ILC.
The Bigger they are, the harder they fall
At one point, SoFi could do no wrong. Launched in 2011 as a vehicle to re-finance student loans, SoFi’s success in luring well-educated professionals to their online lending service seemed prescient. The student loan business quickly expanded beyond its Ivy League base to other universities. Additional financial services were being added like mortgages and insurance for its growing user base as SoFi easily raised capital to lend via successful securitizations. A $1 billion investment from SoftBank allowed SoFi to claim the largest Fintech investment round ever.
SoFi now paints a cautionary tale for high-flying tech companies that allow early success get the better of them to the detriment of common sense. Early investors are certainly paying a price too as a quick sale at solid premium would have validated the many VCs and other big investors that bet heavily on the firm. Now it is back to wait and see.