Understanding Aven's business and future potential
HELOC is a growing market and making it accessible through a credit card has been on people's minds for a while. Aven's the first to build a successful product and raised a $142M Series D.
Over the last decade, many consumer fintech companies launched to lower the cost of borrowing. From Lending Club to SoFi, all companies launched with a new way to lower the cost of borrowing using technology.
Lending Club removed the middleman banks to lower the cost of $1 trillion in credit card debt.
SoFi launched to lower student loan payments for super prime borrowers.
Upstart launched with new risk models to help near prime borrowers with lower cost personal loans.
Enter Aven.
Aven is helping consumers lower the cost of credit by tapping into home owner’s home equity value.
Aven Series D
Aven recently raised a $142M Series D at a $1 billion valuation. Khosla Ventures and General Catalyst led the round with participation from existing investors including Caffeinated Capital, Electric Capital, Founders Fund, and The General Partnership.
Aven grew ~3x over the last year and claims to have saved $100M in interest on the credit card.
Aven also launched an advisor product that has 160,000 members but there’s limited information for this product.
Multiple people asked me about the company, its unit economics, and future growth.
I did a quick analysis of the business and multiples for this round.
Aven Overview
The Aven HELOC (Home Equity Line of Credit) Credit Card is a financial product for homeowners. This card combines the benefits of a traditional credit card with the advantages of a home equity line of credit.
Below are a few key features of the Aven credit card.
Key Features
Home Equity Utilization:
The Aven HELOC Credit Card allows homeowners to access the equity in their homes. This means that the credit limit is based on the value of the home, minus any existing mortgages or liens.
Lower Interest Rates:
Typically, HELOCs offer lower interest rates compared to traditional credit cards because they are secured by the home.
Flexible Spending:
The card provides the flexibility to make purchases, pay bills, and cover expenses just like a regular credit card. Additionally, it can be used for home improvements, debt consolidation, or any other expenses that require substantial funding.
Balance Transfer:
Aven credit card offers balance transfers and cash outs for a 2.5% fee.
Revolving Credit:
The Aven HELOC Credit Card is a revolving line of credit, meaning that as you repay the borrowed amount, your available credit is replenished. This provides ongoing access to funds as needed.
Product Details:
Credit Line Amount: up to $250,000
Annual fee: None (and no notarization fee)
Interest Rate Range: 7.99% - 15.49% (variable)
Max APR: 18% (during the life of the account)
Rewards: 2% cashback, 7% on travel booked through Aven travel portal
Autopay discount: 0.25%
Late fees: $29
Approval time: as less as 5 mins
Partner bank: Coastal Community Bank
Network: Visa
Underwriting
There’s limited info available on the underwriting.
We know that Aven looks for enough home equity value and an income to support the payments.
Credit policy would have a 600 FICO cut-off, income requirements e.g. $50k/year, min home value (e.g. $500k), min. equity in the home (net of mortgage, liens, and other debt) e.g. $250k.
I expect the average borrower to be older (average 45 years old) with unsecured revolving debt, and mid-income (avg $80k).
I expect additional exclusions based on the state of residence because Aven HELOC is managed using state usury limits.
Portfolio
Total cardholders: 33,000
Total Credit Line: $1.5B
Based on this, the average credit line amount is $45,454.54 (~$50,000).
Assuming most Aven customers are near-prime to prime. We can expect credit scores to be between 670–739. I expect the credit policy would have a credit score cut-off of 600.
Based on Experian’s Nov 2023 report, the average utilization of near prime FICO score is 35%.
This means the outstanding balance for Aven’s credit card is ~$525M ($1.5 billion *35%).
Aven claims to save 50% or more on interest payments. As of July 20, 2024, the mid-point of interest rate for Aven’s credit cards is 11.74%.
Outstanding balance: $525M
Avg Interest Rate: 11.74%
Annualized Gross Revenue: $525M * 11.74% = $61.63M
Aven also earns interchange on credit card spend. Given it’s a credit bin and consumer, the average interchange is ~2%. But Aven also gives 2% cashback on all spend + 7% on travel. I expect interchange and affiliate revenue to offset rewards.
To fund the credit lines, Aven should have warehouse credit lines.
Given the stage of the company and its performance, I expect the cost of capital to be approx SOFR + 2%.
Current SOFR is 5.5%, so the cost of capital could be 7.5%.
Given this assumption, Aven’s would earn a 4.25% spread (11.25% - 7.5%).
Because Aven is also servicing the lines, they could earn avg 1% on servicing the outstanding balance.**
Fee revenue should be negligible.
Ignoring Balance Transfer revenue because it’s one time.
Net interest margin is the biggest revenue source.
Total Net Revenue for Aven = $525M * (4.25% + 1%) = $27.56M
I’m assuming pretty low default rates for this product. But a modest .50% - 1% would not be surprising. I’m excluding losses from the net revenue calculations to keep it simple.
**servicing fee is charged to their warehouse SPV, it is earned to the operating company
At the current revenue run rate, Aven is valued at ~40x net revenue.
**Almost all revenue is from interest.
This doesn’t consider revenue from Aven Advisor. If the revenue from the Aven advisor business is material, the target multiple would be lower.
As the company matures, the cost of capital is expected to go down without any impact on interest earned.
Cross selling financial products has been a big dream for most consumer fintech companies.
The bullish view for the company is to sell multiple products to this customer base.
As Aven adds new products, customers could start using Aven from different products and Aven will try to cross-sell other high-value products.
SoFi followed a similar strategy starting with refinancing student loans, eventually offering checking accounts and other financial products.
Most publicly consumer fintech companies are traded at 2x-10x revenue multiples. Aven has a long way to grow into these multiples.
Below is the TTM revenue and market cap for a few companies:
SoFi: $3.21 billion (revenue), $7.90 billion (market cap), 2.46x
Onemain: $4.28 billion (revenue), $6.13 billion (market cap), 1.43x
Robinhood: $2.07 billion (revenue), $20.57 billion (market cap), 9.9x
Upstart: $538.43 million (revenue), $2.44 billion (market cap), 4.53x
Ally: $8.10 billion (revenue), $12.72 billion (market cap), 1.57x
Aven’s potential:
For Aven to build a multi billion market cap, it needs to grow its credit card portfolio and offer new products at the same time.
Given its target market of slightly older population, Aven advisor makes sense to help consumer manage their wealth. But most of their borrowers would have existing wealth management relationships. Aven would need to get users to switch them.
Auto-backed Cards: Aven can also offer cards backed by cars. These loans would be smaller but the customer will be on the lower end of the credit spectrum.
Mortgage Refinancing: Aven’s current relationships could also be a way to offer mortgage refinancing (that business is super competitive but rates are expected to come down and mortgage refinancing is expected to grow).
Insurance and other home ownership products: Aven could sell high margin products needed by homeowners like insurance.
Student Loan Refinancing: Many customers may have student loans that could be refinanced by Aven or their partners.
Home Services Subscriptions: New options for homeowners to have a concierge for their home services. It can be a marketplace where homeowners can use vetted providers for home services and improvements.
Missing data points
We need a lot more data to evaluate the business. Here’s a short list of the ones I’d like to see:
Retention - what’s the average life of a credit card holder
Cross sell (attach rate) - how many credit card holders became customers of advisors and vice versa
Default rates - we can make fair assumptions but defaults are a key driver of profits
Cost of capital - Aven should have low cost of capital. That’s the biggest expense.
Origination cost - underwriting a HELOC should not be cheap, I’d like to see how automation has improved origination cost
Conversion rate - what % of applications that convert to actual customers (reasons for approved applicants not taking the card)
Cost of acquisition - one of the most important metrics for consumer fintech companies
Marketing channel mix - how is Aven acquiring customers as they scale (are they leaning on direct mail, paid ads, affiliates, or partnerships)
Many other data points like these could help us get a full picture.
Some of these data points drive the valuation of the business. e.g. if the CAC stayed stable as the business grew, it’s a strong positive sign for Aven
Higher retention and cross-sell could also be additional strong points for the business.
Aven is building a strong and captive customer base. Once it has enough customers, it can sell multiple financial products and continue to increase the LTV of its customer base.
Hope you learned something about a HELOC credit card business.