Kate Hiscox is having a moment. Her company, Sivo, founded eight months ago, has already raised $5 million from investors at a post-money valuation of $100 million, and she says she is in active talks with others who would like her to consider accepting Series A funding from them.
Surely the attention owes partly to the fact that Hiscox is part of the newest graduating class of the popular accelerator Y Combinator, along with roughly 350 other companies. If there’s anything venture capitalists like, it’s freshly minted YC grads. Partly, fintech continues to be seen as a hugely lucrative area of investment.
But they also might like what Sivo aims to do, which is to strike deals with debt providers for gigantic credit lines that it will then, through its API, work with both big and small companies to disburse via their own lending products. Yes, Sivo is making interest off money that it’s simply divvying up into smaller amounts. But the real magic, says Hiscox, is in the risk management that Sivo provides. It doesn’t just parcel out debt; it helps its customers that don’t have their own risk management practices figure out who is worthy of a loan and how much.
Hiscox — who has founded a number of startups over the years, one of which she took public on the Toronto Stock Exchange in 2018 — calls it a Stripe for debt. But one question is how Stripe, among its other rivals, might feel about Sivo. Stripe was also once a YC company, it also lends debt to its customers and it seemingly doesn’t like when its investors fund emerging potential threats. Another question is how a company like Sivo fares when interest rates rise and the debt it borrows is no longer cheap.
Hiscox suggests she’s not worried about many roadblocks right now. We talked with her on Friday about the company in a conversation that follows, edited lightly for length and clarity.
TC: You’re building what you describe as Stripe for debt. But isn’t Stripe’s loan business competitive with yours?
KH: No. Sivo is the first YC company that’s building debt as a service.
The reason why is that it’s very difficult for fintechs and neobanks and gig platforms to be able to raise enough capital to be able to lend money to their users at scale; that generally takes a couple of years. What we’re building gets these companies access to debt capital on day one. Our team has decades of experience with risk and raising debt and building enterprise tech at companies like Goldman Sachs and NASA and Revolut and Citigroup.
TC: Give me a use case.
KH: So we have more than 100 companies now in our customer pipeline, including Uber. In the case of Uber, they want to be able to offer financial products to their drivers. Maybe it’s to fund a vehicle or provide a payday advance. But Uber really can’t do that because it doesn’t want to look like an employer, and it also doesn’t want to necessarily deal with risk modeling, meaning who in their big driver base has the right risk profile [to rationalize a loan]. You plug in Sivo, and we will cycle through the Uber driver base to figure out to whom it makes sense to make a loan offer, and we do it all this through the API.
TC: But Uber is not yet a paying customer.
KH: No, we go live next month; that’s an example of how Uber would use us. There are also a lot of neobanks that are three- to five-years-old and want to start lending and really don’t have that risk experience they need to get access to debt capital in order to have the money to be able to lend to their customers. With something like Sivo, they’re able to integrate our service through our API, and we’re able to pretty much tell them who they should be lending to, how much they should lend and then we offer the debt funding.
TC: Do you have any debt deals in place?
KH: We signed a debt deal last week for $100 million and we’re working on another debt deal for close to $1 billion that will be announced next month.
TC: Who is your debt partner and how have you convinced them to lend so much to such a young outfit?
KH: I’m not sure I can say publicly yet who we’re working with, but we source our capital through all the usual suspects — mutual funds, pension funds, banks — and we’re able to do this because as soon as we announced that we were going to start doing this as a product, we had tons of customers come and say, ‘I want this. [Trying to do this ourselves] is long and complex and painful, and we want just want to be able to do it in a simple way, like we would use Stripe for payments.’ We could fill our boots, quite frankly, with YC companies forever.
I also have a lot of experience because I’d taken a company public and have lots of connections in the capital markets, and so does our CFO.
And there are actually a lot of banks that would love more exposure to fintechs and to a basket of YC-backed fintechs in particular because they can get yield, but the check sizes are too small for a bank. There’s also concern that the fintechs don’t really have a lot of risk experience. Meanwhile, our team has a lot of gray hair as far as risk is concerned.
TC: What kind of economic agreement do you have with that debt lender and what percentage of each loan will you charge your customers?
KH: I really can’t tell you, including because it’s going to vary from fintech to fintech; some have more complicated user models, some have bigger user bases, some operate in different regions around the world. What I can say is that it’s an incredible time for us to access debt capital from institutions because interest rates are so low and even negative in some parts of Europe. You just have to have the right team to know where to go and get it.
TC: You’ve also raised $5 million in seed equity funding already at a post-money valuation of $100 million, including from Andre Charoo of Maple VC, who says he’s written you his biggest check yet. Are you done raising equity funding for now? That’s already a very high valuation.
KH: We’re trying to decide now if we’re going direct to a Series A. This is our first raise, but everybody ‘gets’ our business model, so we’ve had an avalanche of investors, and some very big VCs now have reached out.
TC: Obviously, interest rates will go up. What then?
KH: When interest rates go up, all lending gets more expensive. I mean, there’s a pandemic right now and a lot of cash in the system, and there’s some talk about inflation, but we don’t really see interest rates going up for a few years.
Of course they will eventually rise, but when that happens, everybody’s rates will go up, whether you borrow on a credit card or from a traditional bank or a fintech.
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