Summary List Placement
Affirm’s much-anticipated debut as a public company was greeted warmly by public investors on Wednesday. Shares soared as high as 110%, opening at $90.90 per share, far above the $49 initial price it set Tuesday evening. The San Francisco-based provider of installment loans raised $1.2 billion from the IPO.
Affirm was founded by serial entrepreneur Max Levchin in 2012. Prior to Affirm, Levchin launched over a dozen companies including Slide, a personal media-sharing service that he sold to Google for a reported $182 million, and Glow, a women’s reproductive health tech startup where he is still executive chairman today.
He is also an original member of the infamous PayPal mafia.
As the company’s single biggest shareholder, Levchin holds about 27.5 million shares that, at $90/share, are now worth well over $2 billion.
Just before trading started, Affirm CEO Max Levchin talked with Insider’s Candy Cheng and Shannen Balogh. Here’s a lightly edited version of the conversation:
Cheng: IPO days are meant for celebrating but it’s also a time for reflection. Tell us the story of how you came up with the idea for Affirm.
Levchin: My story is kind of awful, but it’s actually true. So I got my first credit card on campus. It was like one of these free t-shirt and a credit card things. It was literally the age of balance transfers where people would be like, oh, I can do a 0% balance transfer and this bank will do this, you know, get another t-shirt.
And so all my friends were doing it in college and I was like, wow, like, this is basically a whole a new world of not having to pay your bills.
I was two years off the boat. So I came to the USA at 16 and I was just turning 18 when this sort of began. And then like a half a year in, I was living the dream on campus with a per diem of $7 a day. And it was just fine, I just had to start a company.
And, the idea that you have to make minimum payments, it was just never really clear to me. It might have something to do with the fact that I was 18 and never taken a home economics class or anything like that. When my first company went bust, I was basically broke and my family was still kind of trying to set their feet down in America so I was not going to ask my parents to pay off my debt.
So I just talked to the collection people and told them I don’t have any money. In between my FICO score tanked, and I never really noticed, cause I wasn’t going to take another credit card out. And then literally after, I bought a kind of not-such-a-wonderful car right in the beginning of PayPal. But I didn’t realize that my credit was really bad. And someone at PayPal, like one of the first six people PayPal. had to co-sign my loan because I just couldn’t get one.
Cheng: Who was it?
Levchin: I think it was Luke [Nosek]. I remember asking all these guys and some of them were like, yeah, my credit sucks, too. I think the only grown-up among us was Peter [Thiel]. He had like a real car.
And so I found out in the rudest way possible my credit was terrible and that stayed with me. And obviously I’ve done a couple of things in between, but the sort of idea that credit score is just stupid and broken and it doesn’t work the way it should was something that stayed somewhere deep in my head.
Balogh: Tell us about the road to the IPO. What were the reasons behind the delays in listing late last year and did the events of the past few weeks impact the road show?
Levchin: [There was] no drama. It just takes a bunch of work to get it right. We don’t cut corners. If we need to get something done right, we would, and we were certainly keen on getting this IPO right, just like everything else we do.
There was the filing and reviews and audits and sign-offs and underwriters and the SEC to please, and we got it all done after a while. And on January 4th, we were ready to go to the roadshow and on the 5th, I was on it. So that’s the honest version as opposed to any speculation.
The roadshow itself was really cool. It was super rewarding. I spend a lot of time preaching the gospel of honest finance. I think in 100% of my roadshow meetings people were like, ‘yeah, that’s right. That is messed up that people pay so much in fees. Someone should do something about it, and you did.’ So it was a little bit of a lovefest just from the pure investor community.
Honestly, we haven’t spoken to retail investors, but for professional investors, people that are supposed to be looking out for shareholder value first, second and last, actually buying the story for what it is. We are not just a pure profiteer. We have a social and societal mission that we are chasing and it was universally well accepted.
Balogh: You have said that credit cards have “devolved” and “become corrupted.” Given the explosion in buy now/pay later we’ve seen in 2020, should Citi or Chase or American Express (Amex) be worried?
Levchin: I think Amex, of all old financial services brands, is in many ways sort of a North star of how to comport yourself and how to be. I think they’ve done a fantastic job standing for something. You no longer have the option of showing up and saying, ‘well, you know what, it’s capitalism. So who cares what happens to you, Customer X? I wouldn’t remember who you are and you won’t remember who I am.’ Like, that’s just not true anymore.
I think 20 years ago, credit card issuing banks were perfectly happy and able to get away with this idea of, ‘yeah, but you’re not really going to believe you’re going to be late (paying fees).’ No one believes they have financial hardship. And that’s why you can borrow, borrow, borrow and see what happens.
I think that’s changed. And I think of all the financial services brands, the one I actually kind of look up to, in many ways, is Amex. They have stood for something, they have maintained control of their story, and they are actually quite a successful player. And in that sense, I think they’re probably the comparison that I’d like to look up to in many ways.
Others, if I’m allowed, ought to be ashamed. They shouldn’t be offering the products they do. I think the market is shifting away from them. I don’t think they have to be worried about Affirm. I think we need to worry about consumers saying, you know what, that’s just not what I’m going to do anymore. It’s not the players, it’s the product that need to be worried.
I think deferred interest, credit cards are awful. And I think no matter how you dress them up, that’s a product that needs to be disrupted.
Cheng: A big chunk of your revenue is tied to Peloton. Would you be open to diversifying that risk by adding another fitness equipment maker as a partner, like NordicTrack maker Icon Health?
Levchin: We have a massive collection of merchants. We have 6,500 brands and many of them are fitness makers. I think Peloton is a kind of a phenomenal story and example of a merchant that’s truly embraced who we are, and what we stand for.
They have these amazing products that are not the cheapest thing in the world, and they have leveraged our ability to build a super simple, super clean, very precise payment plan for the customers, eliminating this friction around, how do I pay a couple of thousand dollars for a piece of workout equipment? And, we’ve, I think, helped them build that business to a massive scale.
We’re very proud of the partnership and have a lot of good things to do together. That said, we serve lots of other fitness brands. So, I would like to believe we’re diversified and, and through sheer growth, our diversifying our merchant base to make sure that we meet our consumers.
Cheng: You started PayPal with Peter Thiel, Elon Musk and other famous founders. Given Peter’s involvement with the Trump administration over the past four years, do you think he has a responsibility to respond to the Capitol insurrection? He has been very quiet in the last week.
Levchin: It’s certainly not for me to tell anyone what to say, or how to say it, or what to respond. I’m certainly very open about my views and I don’t always agree with all my friends and I know they don’t always agree with me.
I think what happened a few days ago in DC is a disgrace.
I came to this country as an immigrant in a big way because of this idea that elected officials are not corrupt and democracy is representative, and rule of law transcends the idea of power ,and corruption is stamped out. And all the things that we saw happen in the capitol is a chip against those ideals.
I’m an extremely idealistic American by choice. And so that was very sad and kind of horrifying to see. And I very much hope it doesn’t happen again. I’m relatively clear about my points of view on this one, but I don’t speak for everyone and I think that’s okay. Everybody should do their civic duty and say what they believe.
Cheng: The last time we spoke was when you announced the partnership with Shopify. Affirm does not have a formal partnership with Amazon yet. Are you currently in talks. Have you been in talks?
Levchin: There’s one thing I’ve already learned in my brief tenure as a public company CEO is to never speculate on things that are not public knowledge. So that is certainly not something I’m able to comment on at all.
Balogh: What sets Affirm apart from the likes of Klarna or Afterpay or QuadPay?
Levchin: I would say three broad points come back in every investor conversation now, and every merchant conversation that we have.
One, I’ve already said it but it is central to who we are, I think the mission centricity and this refusal to cut corners and profit from consumers when they least expected is very important. I think over time you build a brand of who you are and how you treat your customers, both merchants and consumers. It’s rewarding.
We were able to win the Shopify partnerships. It’s a fne example where we had a meeting of the minds where they felt that it was inappropriate to charge their buyers late fees. We were the only business in the space that said, ‘yeah, we don’t have to change our business models to do that.’ That is important.
Two, unlike the competition, we are what I would call a universal solution. We’re able to scale from the lowest of [average order value] to the highest. Obviously Peloton and that price range is very a different type of financial obligation versus a pair of jeans. We’re able to address everything in-between.
Underneath the simple interface and clear communication with the customer, there’s actually a ton of complexity, depending on the schedule and the amount. Both from the underwriting and risk management point of view and funding point of view and just mechanics of repayment. That fairly substantial collection of tools is unique.
The majority of the players in the space, I think all the ones you’ve just listed, are primarily point solutions. They say, ‘well, we will do this, but once you go over a certain threshold in a cart, you’re on your own.’ We’re able to address every one of those.
To that point, and a little bit related to it, I believe we are the only truly engineering- and technology-first company. That’s not to to deprive my faithful sales and marketing and PR and comms teams of their well-deserved respect. But we build our products from the ground up the right way. For example, ultimately when Shopify decided, or Walmart decided, or Nordstrom or Neiman Marcus, all these fairly massive transactional brands, ask the question ‘who do we partner with,’ one of the answers they have to feel good about is that we can scale with you.
A million transactions a year, a million transactions a day, we will be there. I think we are certainly a company founded by a bunch of software people, and we build the things we do the right way. Being able to scale technically has been very important to our merchant partners. Obviously consumers expect uptime and quality, and they don’t necessarily need to get into the details, but merchants trust providers who are technology first and then when it comes to commerce.