Democratizing Access to Capital in Times of Need
To kick off The Higher Purpose Venture Capital Blog in earnest, I am excited to present SoLo Funds, a company that embodies solving a major problem that is driven by wealth inequality: access to capital in times of urgent need.
Company Name: SoLo Funds
Company Description: SoLo Funds provides a digital financial platform intended to efficiently conduct community marketplace lending for individual lenders and borrowers. The company’s platform, which is available on both iOS and Android, leverages technology to assess the creditworthiness of individuals, enabling users to solve emergency cash needs with low-dollar-amount micro-loans on self-selected terms.
HQ Location & Year Founded: Los Angeles, 2017
Co-Founders: Rodney Williams, Chairman (pictured left) and Travis Holoway, CEO (interviewed)
Funds Raised and VC Investors: $14.5 million from ACME Capital, Alumni Ventures, CEAS, Endeavor Catalyst, Impact America Fund, MaC Venture Capital, Techstars, West Ventures, et al.
Founder Backgrounds: Travis founded SoLo Funds alongside his best friend of many years and now the company’s Chairman, Rodney Williams. Prior to founding SoLo, Travis built his career in the financial services industry as a financial advisor with Northwestern Mutual. It was then that he discovered a major disconnect between the wealthy clients he met with daily in comparison to the 78% of Americans that live paycheck to paycheck. He felt that there were many pain points being experienced by individuals in the middle and lower ends of the financial spectrum that were being ignored and desperately needed to be addressed. Travis is a graduate of the University of Cincinnati has been quoted in various publications and websites, including Forbes, American Banker, Black Enterprise, PYMNTS, and the LA Business Journal.
In addition to his leadership position at SoLo Funds, Rodney concurrently serves as Co-founder, Chairman and CCO (previously CEO) of LISNR, an ultrasonic data platform that has raised over $55 million in venture funding. Rodney is a Techstars mentor, an Endeavor Entrepreneur, and has worked both in finance at Lockheed Martin and brand management at Procter & Gamble. Rodney holds Bachelor’s and Master’s degrees from West Virginia University, as well as an MBA in Finance and Supply Chain Management from Howard University.
1. Where did the idea for SoLo originate?
My co-founder Rodney and I met in Cincinnati while I was in college and he was starting out at P&G. In subsequent years, while I was a wealth advisor at Northwestern Mutual and Rodney was founder of his other company LISNR, we both had similar experiences that led to a realization. Friends and family of ours recognized our early career success and came to us asking for small dollar loans of typically $50 to $250 to cover gas, utilities, emergency car repairs and the like. We talked about these experiences and about the decision of whether to send money when friends or family are asking. People shouldn’t have to do this as it puts stress and strain on relationships. You are damned if you do and damned if you don’t in terms of what this can lead to between friends.
There is a lack of alternatives for short-term, small dollar loans. Payday loans, for example, are banned entirely in New York, leaving no good options for the borrower in need. If you don’t get it from friends or family, you are simply left to go without. Even if someone does have access to payday loans, they are predatory nature with 400% annualized interest rates or higher being the norm. On the flip side of this equation, we recognized that there are plenty of people with discretionary capital who are actively looking for yield. Many of those are also looking to have a positive social impact with their investments. We saw a solution in unlocking capital by pairing those who have it with those who have small cash needs. A great return potential is available to the lender side of market. The whole goal is to have an equitable solution that empowers borrowers to have more control and autonomy. We want the best of both worlds.
2. How does SoLo’s offering work?
On the SoLo marketplace, borrowers create their own loan terms. They indicate how much they need and when they will pay it back. A borrower posts the request to our mobile marketplace where another individual with discretionary capital can deploy capital directly to them. The lender can look at the borrower’s history and find comfort in knowing that they are reliable. If a borrower hasn’t paid a loan back, they are ineligible to borrow again. A lender also has the ability to look at a borrower’s SoLo score and understand their ability to repay based on cash flow, how often they are paid, spending habits, etc.
3. What differentiates the product?
One important element of how the platform works is everything is transacted on debit rails instead of ACH. This means funds can flow in real time. A borrower doesn’t have to wait 2-3 business days, but instead receives the money within seconds. The average loan on SoLo is funded in just 28 minutes. This is ideal for a borrower who is in a cash bind and needs money quickly. This is special and a big reason why we have been able to grow. The borrower sets their own loan terms within the marketplace and a stranger funds it. People hear about this though word-of-mouth as 65% of app store downloads come from direct search. Every user we get results in the acquisition of 5-6 new users. It has a strong organic halo, a key component of strong product-market fit.
4. What are the company’s key accomplishments to date?
The SoLo platform has funded over 235,000 loans. Last month alone (January 2022) we did 20,000 loans. We are accelerating very rapidly. By contrast, Lending Club funds just 7,000 per year – obviously at a very different average dollar amount, but a marketplace like this has never scaled so rapidly. Interestingly, 82 percent of transactions happen between lenders and borrowers who live in the very same zip code! People tend to live in areas where they are close by to people of different economic means. Our users like that capital is being deployed and returns are recycled into the same communities. This is quite different from payday and title loans and even the traditional banking industry. The community banking premise used to be based on last name, status and connections that get access to capital. We have lost that and SoLo Funds is about redefining what community banking truly is. One last point is that we are the only black-led certified “B Corp” in fintech in the US or Canada. We firmly believe that we are the most equitable solution in space.
5. What lies ahead in the plans for SoLo?
For 2022, we are launching neobanking services largely to make lending and borrowing on the platform more efficient. We will leverage a wallet that eases some of the strain the lenders face to issue capital. We are also looking at issuing debit cards, for example, to give faster access to capital. We intend to make our marketplace more efficient – as a wedge to neobanking services. Automated lending is also rolling out later this year.
6. What are the long-term strategic objectives?
Our goal is to build a community that enables financial autonomy for all. We’re creating a path to upward financial mobility for our members, who can be both lenders and borrowers. We don’t want people to be borrowers forever. In fact, 30% of our borrowers eventually become lenders on the platform. Our borrowers do not want to stay in their financial position forever. They look forward to paying it forward. We look forward to providing more financial services, such as credit cards, emergency savings funds, high interest savings accounts, insurance, and more. We also have lenders who deploy capital but do not have a financial plan. Like Robinhood or Coinbase, we have people who come to SoLo seeking opportunities to earn yield, but many of them are skipping the basics. They are not investing in a 401K or an index fund but are going from ground zero straight into highly speculative, trendy investments like NFTs and purchasing “land” in the metaverse. They are skipping the basics and our goal is to provide more access to traditional tools for those who come to us to generate income, as well as those who come to satisfy short-term financial needs.
Ron’s Take
The problem of having access to capital when it’s urgently required has been confounding those in need since time immemorial. Those of means have historically had access to reputable banks and moneylenders. Those without have had to rely on less reliable and regulated sectors such as payday and title lenders that offer usurious interest rates on the order of several hundred percent annually, if not greater. Hence, the vicious cycle on wealthy inequity. Those with little in the way of capital or collateral cannot achieve creditworthiness to obtain reasonable loans and must rely on tools that drive them further into a debt vortex. In more extreme scenarios, it can lead some who become desperate down even more troublesome paths.
SoLo is on the front lines of solving this issue from having identified that an efficient marketplace of borrowers and lenders is the best way to ensure fair and reasonable interest rates for both sides. No longer are schisms with families and friends needed for those uncomfortable moments in life when cash is short, and the need is imperative. The fact that 30% of SoLo’s borrowers eventually become lenders is proof that more just economic tools are critical for uplifting and motivating advancement in wealth and financial independence. SoLo’s impressive growth demonstrates that a free market, offered with transparency, fairness, and durability, can help to break the chains of economic injustice.
Disclaimer: Alumni Ventures invested in the Series A round of SoLo Funds in early 2021.
Source: https://ronlevin.substack.com/p/blog-post-2-solo-funds
