Aven has hit a $1 billion valuation and is backed by big-name investors. But is it a good idea?
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Read the full story on Forbes: https://www.forbes.com/sites/jeffkauflin/2024/07/17/inside-fintechs-newest-unicorn-a-credit-card-backed-by-your-home/
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LifestyleTranscript
00:00Today on Forbes, inside Fintech's newest unicorn, a credit card backed by your home.
00:08In 2019, Saadi Khan was in his mid-30s, had been rising through the ranks at Facebook
00:12for six years, and felt ready for his own startup.
00:15He began looking for market inefficiencies that someone with tech smarts could profitably
00:21exploit.
00:22One that caught his attention related to consumer borrowing.
00:25For years, annual interest rates on credit card debt had been stubbornly high and rising,
00:30with the average now nearly 23%, or 14% over the current 8.5% prime lending rate.
00:37Meanwhile, the interest rate on home equity lines of credit, known as HELOCs, which treat
00:42a borrower's home as collateral, were averaging less than 1% above prime, according to data
00:48from Intercontinental Exchange.
00:51Why didn't more consumers tap into low-rate HELOCs instead of carrying high-rate credit
00:55card debt?
00:56A big reason, Khan concluded, was convenience.
01:00It took a, quote, ridiculous amount of paperwork and time, often four weeks or longer, to set
01:05up a HELOC.
01:06What if he could use technology to speed up the HELOC approval process and then inject
01:11that borrowing power into a credit card, making home equity lines easier to both obtain and
01:16draw down?
01:18Five years on, after painstaking product development, Khan's brainchild, Avon, has 33,000 customers
01:24for its HELOC credit card and has issued $1.5 billion in credit lines.
01:30Revenue has more than tripled over the past year at the 53-person startup, and is now
01:34running above $100 million on an annualized basis.
01:38Avon's home card is already available in 32 states, and Khan plans to reach all 50
01:44by the end of this year.
01:46Just as notable, in a currently depressed market for fintech funding, the Campbell,
01:50California startup just raised $142 million in Series D venture investment at a $1 billion
01:56valuation.
01:58Backers in the funding round include big names, Kosala Ventures, General Catalyst, Caffeinated
02:03Capital, Electric Capital, Founders Fund, and The General Partnership.
02:09Along with dollars, Avon is attracting some outsized Silicon Valley hype.
02:13Former venture capitalist Vinod Kosala, who first backed Avon during its second funding
02:17round in November 2020, says, quote,
02:20I was an early investor in Square, Stripe, and Affirm.
02:24Five years from now, I'll be saying Square, Stripe, Affirm, and Avon.
02:30While his startup isn't yet profitable, Khan says Avon is burning less than $5 million
02:34a month in cash and expects to be cash flow positive in about six months.
02:39Until now, Khan himself has never done a press interview about Avon.
02:43He says, quote,
02:44Frankly, we were just very focused on building the product.
02:48We tried to stay heads down.
02:50But in conversations with Forbes, he opened up about his company's history and prospects
02:55and offered a spirited defense of why his novel product is good for borrowers, despite
03:00doubts by some consumer advocates who worry folks will be tempted to borrow and spend
03:04recklessly against their home equity, putting their houses at risk.
03:09Khan's main response to the consumer protection crowd is as follows.
03:12Avon caters to high-earning, responsible borrowers, with the typical customer having
03:17income above $100,000 and a so-called super prime FICO credit score north of 720.
03:24In return for putting their equity and homes on the line, these customers are getting lower
03:28interest rates and convenience.
03:30Avon's current rate, which fluctuates based on the federal fund's overnight interest
03:34rate, ranges from 7.99% to 15.49%.
03:39Khan claims these are among the lowest rates for HELOCs available in the U.S. when comparing
03:44borrowers with similar FICO scores.
03:47Khan insists his customers don't typically use the card for gas and groceries, but for
03:51home improvement projects, debt consolidation, or big expenses like kids' summer camp.
03:57In other words, the sort of major expenditures traditional HELOCs are tapped for.
04:02Merchant categories where the Avon card can't be used include casinos, lotteries, gambling
04:07websites, and crypto brokerages.
04:09But those restrictions can be circumvented if customers take cash withdrawals.
04:14When Khan is asked about whether customers could gamble away their home equity, the 39-year-old
04:18CEO declares, quote,
04:20If you're irresponsible, this is not the product for you.
04:25For full coverage, check out Jeff Kauflin's piece on Forbes.com.
04:30This is Kieran Meadows from Forbes.
04:33Thanks for tuning in.