Kate Hiscox has a moment. Her company, Sivo, which was founded eight months ago, has already raised $ 5 million from investors with a post-money value of $ 100 million. She is in active conversation with others who would like her to consider accepting Series A funding from them.
Part of the attention is owed to the fact that Hiscox, along with around 350 other companies, is part of the newest graduating class of the popular accelerator Y Combinator, and if there are venture capitalists, it’s freshly made YC graduates. In some cases, fintech continues to be viewed as an extremely lucrative investment area.
But they also like what Sivo is up to, which is to sign contracts with debtors for gigantic lines of credit, which it then works with businesses large and small through its API to pay off their own loan products. Yes, Sivo earns interest from money that is simply broken down into smaller amounts. However, the real magic, says Hiscox, lies in the risk management that Sivo offers. It’s not just about distributing debt. It helps its clients who do not have their own risk management practices to find out who is earning how much a loan.
Hiscox, who has founded a series over the years, one of which was posted on the Toronto Stock Exchange in 2018, calls it a streak for debt. One question, however, is how Stripe might feel about Sivo among his other rivals. Stripe was once a YC company too, it also borrows debt to its customers, and doesn’t seem to like having its investors fund emerging potential threats. Another question is how does a company like Sivo fare when interest rates go up and the debt it borrows is no longer cheap.
Hiscox suggests she doesn’t worry about a lot of roadblocks right now. We spoke to her about the company on Friday in a subsequent conversation, which was easily edited for the sake of length and clarity.
TC: You build what you call the debt streak. But isn’t Stripe’s lending business competitive with yours?
KH: No. Sivo is the first YC company to build debt as a service.
The reason for this is that it is very difficult for fintechs, neobanks and gig platforms to raise enough capital to borrow money to their users on a large scale. this usually takes a few years. What we build gives these companies access to outside capital on the first day. Our team has decades of experience in raising risk, debt, and building enterprise technology at companies like Goldman Sachs and NASA, as well as Revolut and Citigroup.
TC: Give me a use case.
KH: We now have more than 100 companies in our customer pipeline, including Uber. In the case of Uber, they want to be able to offer their drivers financial products. Perhaps it is to finance a vehicle or to provide a payday advance. But Uber really can’t because it doesn’t want to look like an employer, nor does it necessarily want to deal with risk models, meaning who has the right risk profile in its large driver base [to rationalize a loan]. You plug in Sivo, and we’ll go through the Uber driver base to see who it makes sense to make a loan offer, all through the API.
TC: But Uber isn’t a paying customer yet.
KH: No, we’re going live next month. That’s an example of how Uber would use us. There are also many neo-banks that are three to five years old and want to start lending and really don’t know what level of risk experience they need to have access to debt, to have the money to be able to theirs Lend customers. With something like Sivo, they can integrate our service through our API and we can pretty much tell them who to loan, how much to borrow, and then we offer the leverage.
TC: Did you enter into debt deals?
KH: We signed a $ 100 million debt contract last week and we are working on another nearly $ 1 billion debt contract that will be announced next month.
TC: Who is your debt partner and how did you convince them to give so much to such a young outfit?
KH: I’m not sure I can still say publicly who we’re working with, but we draw our capital through all the usual suspects – mutual funds, pension funds, banks – and we can do it because it’s ASAP we announced that we would do this as a product, tons of customers came and said, “I want this. [Trying to do this ourselves] is long and complex and painful, and we want to be able to do it just as easily as if we were using Stripe to make payments. ‘We could, quite frankly, fill our boots with YC companies forever.
I also have a lot of experience because I had a company public and had a lot of connections to the capital markets, as did our CFO.
And there are actually plenty of banks that would be more interested in fintechs and a basket of YC-backed fintechs, especially because they can generate returns, but the check sizes are too small for a bank. There are also concerns that the fintechs don’t really have a lot of risk experience. Our team now has a lot of gray hair in terms of risk.
TC: What kind of economic agreement do you have with this lender and what percentage of each loan will you be charging your customers?
KH: I really can’t tell you, also because it will vary from fintech to fintech. Some have more complicated user models, some have a larger user base, and others work in different regions around the world. What I can say is that it is an incredible time for us to access institutional debt because interest rates are so low and even negative in some parts of Europe. You just need to have the right team to know where to go and get it.
TC They also raised $ 5 million in seed capital on a post-money valuation of $ 100 million, including from Maple VC’s Andre Charoo who says he wrote you his biggest check to date. Are you done raising equity now? That is a very high rating.
KH: We are now trying to decide whether we should go straight to a Serie A. This is our first raise, but everyone is “getting” our business model, so we had an avalanche of investors and some very large VCs have now reached out.
TC: Obviously interest rates will go up. So what?
KH: When interest rates rise, all loans become more expensive. I mean, there is a pandemic and a lot of money in the system right now and there is talk of inflation, but we don’t really see interest rates going up for a couple of years.
Of course they will eventually go up, but when that happens all prices will go up, whether you are borrowing on a credit card or borrowing from a traditional bank or fintech company.