A startup called Sivo wants to do for debt what Stripe did for payments: Make it as easy to access a debt facility as plugging into an API. And just as Stripe helped unlock a slew of new businesses thanks to the ease with which they could embed payments into their apps and services, Sivo wants to power a new generation of lending offerings.
Early returns have been positive: In just about three months since launch, Sivo has received about $4 billion in demand and actually signed $1.5 billion in term sheets from originators who wish to leverage its debt-as-a-service offering. And, according to founder and CEO Kate Hiscox, the company is in the process of onboarding 600 originators who are hoping to tap into its programmatic debt lines.
Securing and proving out a lending model
Historically, when a startup would launch to spin up a new credit or lending product, it would have to lend off its balance sheet, which meant raising money through equity financing and then using those funds to test out lending models and build some history.
Then, when they had enough data, they would go to a bank or some other financial institution to raise a debt facility. That process could take months as the bank would ask for reams of data, negotiate terms and create complicated legal agreements around the terms of the debt funding.
In contrast, Sivo’s debt offering has no warrants involved, no advance rates, arrangement fees, facility fees or big complex agreements, according to Hiscox. Instead, Sivo works sort of like a secured credit card. That is, when companies sign up, they open a business banking account through Sivo’s platform and deposit some amount of collateral to secure the initial debt limit.
Originators on the platform can configure their debt line to match the needs of their business, and then Sivo evaluates how their lending programs are performing through its banking product. If originators prove their models by hitting certain pre-defined KPIs, Sivo will then extend more leverage that they can borrow against.
“It’s a very transparent roadmap. They know what they need to do in order for us to lend them more. But they start off on a secured basis,” Hiscox said.
Sivo was part of the Y Combinator W21 cohort, and like many YC startups, has actively leveraged the accelerator’s community to recruit and sign up its first customers. But it’s also seeing inbound interest from a variety of early-stage startups as well as some established, growth-stage companies.
“The smallest line we’ve done was for $250,000, but we’ve also signed a term sheet for a deal that is half-a-billion dollars,” Hiscox said. “So Sivo’s not just for small companies that are just starting out, but we’re having existing lenders with big books come over to us who just like the transparency of the debt line and how fast we respond on the pricing side.”
The programmatic nature of its offering is one reason why some established lenders, in addition to early-stage startups, are interested in tapping Sivo’s debt lines. According to Hiscox, that’s because even if your lending program is successful and you wish to scale, it’s often difficult to get an additional debt facility.
“When you go back and ask for more [debt] from an existing fund, it’s almost as painful as when you first asked to get a debt facility to begin with,” she said. “It’s not like the process gets easier. It’s again lots of meetings, lots of fees and the opposite of programmatic when it comes to reporting — lots of tabs and spreadsheets that have to be filled out.”
Building supply
Sivo operates kind of like a marketplace between companies looking to open up a new debt facility and institutional lenders looking to deploy capital. The benefits to lending startups or companies hoping to spin up new lending offers quickly might be obvious, but what do big banks get out of it?
Hiscox said Sivo also solves a key problem on the supply side, as it gives financial institutions access to customers and yield. By bundling a group of early-stage originators, Sivo can help financial institutions deploy the right size of debt capsule while connecting them to businesses that might not have been large enough to serve.
“We’re in an environment right now with very low interest rates, so everyone is looking for yield, whether it’s banks, mutual funds, insurance companies, you name it,” Hiscox said. “But beyond the yields piece, these companies want exposure to fintechs and smaller companies, but the challenge is the check size.”
Hiscox went on to explain that it generally takes the same amount of time, effort and diligence to do a $5 million debt facility as a $500 million deal. By packaging a bunch of fintechs together under a set of parameters defined by the financial institution, Sivo can give its partners access to a broad and diversified portfolio of originators that would be too small for them to work with individually.
“We’re in the process of onboarding more than 600 originators and lenders,” Hiscox said. “You say that number to a bank, and they don’t see that kind of deal flow. But what they have are sources of capital and specific parameters that they’d like to land in.”
She added that if a financial institution is interested in the merchant cash advance space or in the “buy now, pay later” category, Sivo will be able to provide fintechs that fit those parameters.
While helping them put their money to work, Sivo also gives institutions insight into how originator lending programs are performing. Because all of the originators are operating out of the business banking account, Sivo can provide real-time payment and performance data to the sources of capital “so they know the borrower is making their payments,” Hiscox said.
It’s obviously early days, and Sivo has a long way to go before proving out its model. But if the startup can make spinning up a lending startup a little easier, or adding new lending capabilities to existing fintech businesses, we could see innovation accelerate in an area of finance that is still fairly underserved.