Ex-SoFi CEO's New Blockchain Startup Is Getting Into Banking

(Bloomberg) -- Mike Cagney, the former embattled chief executive officer of Social Finance Inc., has a new startup that plans to announce a $65 million funding round on Wednesday, bolstering the lending company’s expansion into other financial services, including wealth management.

With the new venture, Cagney is using some of the strategies from his tenure at SoFi -- like diversification into areas typically only occupied by traditional banks. However, the new company is focusing on different customers, and it’s taking steps to avoid scandals similar to the ones that saw Cagney step down from the SoFi helm.

San Francisco-based Figure uses blockchain technology to provide home equity loans online in as little as five days, the company says. The new investment, led by RPM Ventures and partners at DST Global, brought the startup’s total equity funding to more than $120 million. The funding round valued the company at $365 million, about double its valuation last year, according to people familiar with the matter who asked not to be identified because the details are private.

Since making its first loan last year, Figure has provided more than 1,500 home equity lines of credit in 36 states. The company is now lending more than $1.5 million per day, and expects to double that amount every few months, Cagney said. The use of blockchain technology, which creates a kind of immutable public ledger, makes its financial products cheaper and more secure, Figure says.

Figure is targeting a demographic Cagney has called CLAREs -- cash light and rich in equity. They tend to be older Americans with significant equity in their homes. That’s a contrast to SoFi, which targeted HENRYs -- high earners, not rich yet. Despite the different target markets, Cagney is using a similar playbook to expand Figure to the one he used at SoFi: launch a startup with one product that has a competitive edge, then build more financial services around that customer base.

Today, Figure is developing additional products including wealth management, checking accounts offered in partnership with an existing bank, and other credit options like unsecured consumer loans and mortgage loans, according to Cagney. "At the end of 2019, Figure should look like a robust financial platform that can meet the needs of our customers," he said. The company is already offering another product that it says is an alternative to reverse mortgages.

Figure is one of several companies and startups that are trying to make it easier for Americans to borrow against their homes, a process that’s typically paperwork-intensive and time-consuming. In addition to incumbents like Unison Home Ownership Investors, there are also newcomers like Point Digital Finance Inc. and fintech lender Prosper Marketplace Inc. Meanwhile, traditional banks are trying to make their processes more tech-enabled. San Francisco-based Blend Labs Inc. has rolled out software that allows the customers of lenders like U.S. Bank and Wells Fargo & Co. to apply for home equity loans through their apps.

Before co-founding Figure, Cagney, a former Wells Fargo trader, helped make SoFi into one of America’s largest student loan refinancers. He resigned following several workplace controversies at SoFi, including allegations of sexual misconduct and a toxic work environment. Cagney admitted that he had had consensual sexual relationships with female subordinates. At Figure, his wife and co-founder, June Ou, is the chief operating officer. She had previously held the role of chief technology officer at SoFi.

Figure now has more than 100 employees in California, Nevada and Montana. The company’s advisers include Arthur Levitt, the former chairman of the U.S. Securities and Exchange Commission and Blythe Masters, the former banker and CEO of blockchain startup Digital Asset Holdings. Of the company’s five co-founders, four of them are women. According to an internal document reviewed by Bloomberg, 55 percent of the executive team are women and 40 percent of the employees are comprised of women and minorities.

Cagney is one of several Silicon Valley executives that have stepped down from leadership positions in recent years over allegations of mistreatment of women at their companies. Though critics say that the venture capital system has too easily rewarded those men with second chances, Cagney says that he’s grown as a leader and learned to prioritize culture and diversity at the outset of a business venture.

"One of the biggest takeaways is that at SoFi, we grew so fast and we never really understood what we were going to grow into, and culture never took a front seat," Cagney said. At Figure, he added, "We have a very clear adherence to a ‘no-asshole’ policy."

©2019 Bloomberg L.P.