Sivo Secures $5 Million Funding to Revolutionize Debt Access

Kate Hiscox’s company, Sivo, has rapidly gained traction, securing $5 million in investment with a $100 million post-money valuation just eight months after its founding. The company is currently exploring options for a Series A funding round.

Y Combinator and the Fintech Boom

This success is partially attributable to Sivo’s participation in the Y Combinator accelerator program, alongside approximately 350 other startups. The appeal to venture capitalists is also fueled by the continued strong interest in fintech as a lucrative investment sector.

Sivo’s Core Functionality: Debt as a Service

Sivo aims to establish agreements with debt providers to secure substantial credit lines. These lines will then be distributed to both large and small companies through Sivo’s API, enabling them to offer lending products.

While Sivo generates revenue through interest on the distributed funds, the company’s primary value proposition lies in its sophisticated risk management capabilities. Sivo assists clients lacking internal risk assessment expertise in determining loan eligibility and appropriate loan amounts.

A Stripe Comparison and Potential Competition

Hiscox describes Sivo as a “Stripe for debt.” However, a key question arises regarding the potential reaction from Stripe itself, a fellow Y Combinator graduate that also offers debt to its customers and has reportedly expressed reservations about investors funding competing ventures.

Another consideration is Sivo’s resilience in a rising interest rate environment, where the cost of borrowing could significantly increase.

Interview Highlights with Kate Hiscox

Hiscox expressed confidence in Sivo’s prospects during a recent interview, the following excerpts of which have been lightly edited for brevity and clarity.

Addressing the Stripe Comparison

TC: You position Sivo as Stripe for debt, but isn’t Stripe already a competitor in the lending space?

Sivo’s Unique Value Proposition

KH: Sivo is pioneering the concept of debt as a service, representing the first company of its kind to emerge from Y Combinator.

Many fintech companies, neobanks, and gig platforms struggle to secure sufficient capital to fund lending operations at scale, a process that typically takes several years. Sivo provides immediate access to debt capital, leveraging a team with extensive experience in risk assessment, debt raising, and enterprise technology from organizations like Goldman Sachs, NASA, Revolut, and Citigroup.

Illustrative Use Case: Uber

TC: Can you provide a practical example of how Sivo’s service works?

Facilitating Financial Products for Uber Drivers

KH: We currently have over 100 companies in our customer pipeline, including Uber. Uber aims to offer financial products to its drivers, such as vehicle financing or payday advances.

However, Uber is hesitant to be perceived as an employer and lacks the internal resources for comprehensive risk modeling to determine driver loan eligibility. By integrating Sivo’s API, Uber can efficiently assess driver risk profiles and offer loans accordingly.

Current Customer Status and Neobank Applications

TC: Is Uber currently a paying customer?

Upcoming Launch and Expanding Market

KH: The integration is scheduled to go live next month. Furthermore, numerous neobanks, aged three to five years, are seeking to initiate lending programs but lack the necessary risk expertise and access to debt capital. Sivo’s API integration provides them with the ability to identify suitable borrowers, determine loan amounts, and secure funding.

Securing Debt Financing

TC: Have you secured any debt financing agreements?

Significant Debt Commitments

KH: We finalized a $100 million debt deal last week and are currently negotiating another agreement for approximately $1 billion, which will be announced next month.

Debt Partners and Investor Confidence

TC: Who are your debt partners, and how have you convinced them to provide such substantial funding to a young company?

Leveraging Experience and Market Demand

KH: While I cannot disclose the specific partners at this time, we source capital from mutual funds, pension funds, and banks. This success is driven by strong customer demand and the simplicity Sivo offers. Companies are seeking a streamlined solution comparable to Stripe for payments, avoiding the complexities of independent debt procurement.

My prior experience taking a company public and our CFO’s capital markets connections have also been instrumental. Banks are also eager to increase their exposure to fintechs, particularly those backed by Y Combinator, as they offer attractive yields.

Pricing and Economic Model

TC: What is your economic arrangement with the debt lender, and what percentage will you charge your customers?

Variable Pricing Based on Client Needs

KH: The specifics vary depending on the fintech’s user model, user base size, and geographic location. However, current low interest rates, even negative rates in some European markets, create a favorable environment for accessing debt capital.

Equity Funding and Future Plans

TC: You’ve already raised $5 million in seed equity at a $100 million valuation. Are you planning further equity raises?

Considering a Series A Round

KH: We are currently evaluating whether to proceed directly to a Series A funding round. The strong interest from investors, including significant commitments from prominent VCs, suggests a favorable outlook.

Addressing Interest Rate Risks

TC: What is your strategy for navigating a potential increase in interest rates?

Anticipating Future Market Conditions

KH: Rising interest rates will inevitably increase the cost of borrowing across the board. While the current environment is characterized by a pandemic and ample liquidity, with some inflationary pressures, we do not anticipate significant interest rate hikes for several years.

However, when rates do rise, all borrowers will experience increased costs, regardless of their funding source.