Sivo: Debt-as-a-Service for Lending Startups
Sivo: Democratizing Access to Debt Financing
A new company, Sivo, is aiming to revolutionize the debt market, mirroring Stripe’s success in the payments sector. Their goal is to simplify access to debt facilities, making it as straightforward as integrating an Application Programming Interface (API).
Just as Stripe facilitated the growth of numerous businesses by streamlining payment integration, Sivo intends to enable a new wave of innovative lending products.
Significant Early Traction
Initial results for Sivo have been remarkably encouraging. Within approximately three months of its launch, the platform has seen around $4 billion in requested funding.
Furthermore, Sivo has successfully finalized $1.5 billion in term sheets with originators eager to utilize its debt-as-a-service platform.
Expanding Network of Originators
According to Kate Hiscox, Sivo’s founder and CEO, the company is currently onboarding a substantial number of potential partners.
Currently, 600 originators are in the process of joining the platform, seeking to access Sivo’s programmatic debt lines.
Sivo is positioned to become a key enabler for a new generation of lending solutions.
Establishing and Validating a Lending Framework
Traditionally, a startup initiating a new credit or lending service would be required to fund loans from its own assets. This necessitated securing capital through equity investments, which were then utilized to test lending strategies and accumulate operational data.
Following the accumulation of sufficient data, the company would then approach a bank or alternative financial institution to secure a debt facility. This procedure often involved a lengthy timeframe, potentially spanning several months, as the bank would request extensive data submissions, negotiate loan terms, and formulate intricate legal agreements governing the funding.
Conversely, Sivo’s debt provision is characterized by the absence of warrants, advance rates, arrangement charges, facility fees, or complex contractual arrangements, as noted by Hiscox. Instead, Sivo functions similarly to a secured credit card. Upon registration, businesses establish a business banking account via Sivo’s platform and provide collateral to guarantee the initial credit limit.
Platform originators have the ability to customize their credit lines to align with their specific business requirements. Sivo then assesses the performance of their lending programs through its banking product. Should originators demonstrate the viability of their models by achieving predetermined Key Performance Indicators (KPIs), Sivo will subsequently extend additional leverage against which they can borrow.
“A clear pathway is provided. Originators are fully aware of the criteria for securing increased lending capacity, beginning with a secured foundation,” Hiscox explained.
Sivo participated in the Y Combinator W21 program and, mirroring many YC ventures, has actively utilized the accelerator’s network for recruitment and initial customer acquisition. However, the company is also experiencing organic interest from both nascent startups and established, expanding businesses.
“Our smallest credit line extended to date was $250,000, but we have also executed a term sheet for a transaction valued at $500 million,” Hiscox stated. “Therefore, Sivo caters not only to emerging companies but also attracts established lenders with substantial portfolios who appreciate the transparency of our credit lines and the speed of our pricing responses.”
The automated nature of its offerings is a key factor attracting interest from established lenders, alongside early-stage startups, seeking to utilize Sivo’s debt facilities. Hiscox indicates this is due to the difficulties often encountered when attempting to expand an already successful lending program.
“Requesting additional funding from an existing provider can be as challenging as securing the initial debt facility,” she clarified. “The process does not become simplified; it still involves numerous meetings, associated fees, and a lack of automation in reporting – requiring extensive spreadsheet management.”
- Sivo offers a novel approach to debt financing for lending companies.
- The platform utilizes a secured credit card model, requiring initial collateral.
- Expansion of credit lines is tied to achieving pre-defined KPIs.
Benefits of Sivo's Approach
The Sivo model provides several advantages over traditional debt financing, including increased transparency, faster response times, and a programmatic approach to scaling lending operations.
Sivo and the Future of Lending
Sivo functions as a connecting platform, bridging the gap between companies seeking new debt financing and institutional investors aiming to allocate capital. While the advantages for lending startups or firms wanting to launch new loan products are readily apparent, the benefits for larger banks may not be immediately obvious.
According to Hiscox, Sivo also addresses a crucial need on the supply side by granting financial institutions access to potential customers and attractive yields. By aggregating a collection of early-stage originators, Sivo facilitates the deployment of appropriately sized debt investments, linking investors with businesses that might otherwise be too small to serve.
The Appeal of Yield and Fintech Exposure
“Currently, we are experiencing a period of historically low interest rates, leading all investors – banks, mutual funds, insurance companies, and others – to actively seek yield,” Hiscox stated. “However, beyond simply seeking returns, these institutions desire exposure to fintech companies and smaller businesses.”
The primary challenge, she explained, lies in the minimum investment size. The due diligence and effort required for a $5 million debt facility are comparable to those for a $500 million deal.
Sivo overcomes this hurdle by grouping multiple fintechs under parameters established by the financial institution. This allows partners to gain access to a diversified portfolio of originators that would be impractical to engage with individually.
Scaling Deal Flow and Targeted Investments
“We are currently onboarding over 600 originators and lenders,” Hiscox noted. “Banks typically don’t encounter this level of deal flow on their own.”
However, they possess substantial capital and specific investment criteria. Sivo connects these resources with suitable opportunities.
If an institution is focused on merchant cash advances or the “buy now, pay later” sector, Sivo can identify fintechs that align with those parameters.
Real-Time Performance Data
Beyond facilitating investment, Sivo provides institutions with valuable insights into the performance of originator lending programs. Since all transactions flow through business banking accounts, Sivo delivers real-time payment and performance data to capital providers.
This transparency ensures investors can verify borrower payments and assess risk effectively.
Early Stages and Potential Impact
While still in its initial phases, Sivo has a significant path ahead to validate its business model. However, if the platform can streamline the process of launching lending startups or expanding lending capabilities for existing fintechs, it could accelerate innovation within this relatively underserved area of finance.