A Credit Card Backed By Your Home

Aven has hit a $1 billion valuation and is backed by big-name investors. But is it a good idea?

_{By Jeff Kauflin, Forbes Staff}

In 2019, Sadi Khan was in his mid-30s, had been rising through the ranks at Facebook for six years and felt ready for his own startup. He began looking for market inefficiencies that someone with tech smarts could profitably exploit. One that caught his attention related to consumer borrowing. For years, annual interest rates on credit card debt had been stubbornly high and rising, with the average now nearly 23%, or 14% over the current 8.5% prime lending rate. Meanwhile, the interest rate on home equity lines of credit (HELOCs), which treat a borrower’s home as collateral, were averaging less than 1% above prime, according to data from Intercontinental Exchange.

Why didn’t more consumers tap into low-rate HELOCs instead of carrying high-rate credit card debt? A big reason, Khan concluded, was convenience–it took a “ridiculous” amount of paperwork and time (often four weeks or longer) to set up a HELOC. What if he could use technology to speed up the HELOC approval process and then inject that borrowing power into a credit card, making home equity lines easier to both obtain and draw down?

Five years on, after painstaking product development, Khan’s brainchild, Aven, has 33,000 customers for its HELOC credit card and has issued $1.5 billion in credit lines. Revenue has more than tripled over the past year at the 53-person startup and is now running above $100 million on an annualized basis. Aven’s Home Card is already available in 32 states, and Khan plans to reach all 50 by the end of this year.

Just as notable, in a currently depressed market for fintech funding, the Campbell, California, startup just raised $142 million in Series D venture investment at a $1 billion valuation. Backers in the funding round include big names: Khosla Ventures, General Catalyst, Caffeinated Capital, Electric Capital, Founders Fund and The General Partnership.

Along with dollars, Aven is attracting some outsized Silicon Valley hype. “I was an early investor in Square, Stripe and Affirm,” says billionaire venture capitalist Vinod Khosla, who first backed Aven during its second funding round in November 2020. “Five years from now, I’ll be saying Square, Stripe, Affirm and Aven.”

While his startup isn’t yet profitable, Khan says Aven is burning less than $5 million a month in cash and expects to be cash-flow positive in about six months.

Until now, Khan himself has never done a press interview about Aven. “Frankly, we were just very focused on building the product,” he says. “We tried to stay heads-down.” But in conversations with Forbes, he opened up about his company’s history and prospects and offered a spirited defense of why his novel product is good for borrowers—despite doubts by some consumer advocates who worry folks will be tempted to borrow and spend recklessly against their home equity, putting their houses at risk.

Khan’s main response to the consumer-protection crowd: Aven caters to high-earning, responsible borrowers, with the typical customer having income above $100,000 and a “super-prime” FICO credit score north of 720. In return for putting their equity and homes on the line, these customers are getting lower interest rates and convenience. Aven’s current rate, which fluctuates based on the Federal Funds overnight interest rate, ranges from 7.99% to 15.49%—among the lowest rates for HELOCs available in the U.S. when comparing borrowers with similar FICO scores, Khan claims.

The lines range from $5,000 up to $250,000, and as with traditional HELOCs, it’s up to borrowers how much of a line they want to draw down. But in contrast to traditional HELOCs, customers don’t pay an appraisal or origination fee when the line is granted. Instead, they only pay a fee of 2.5% on cash they take against their line and on balance transfers; they receive a 2% cash-back reward on all purchases made with the card.

Khan insists his customers don’t typically use the card for “gas and groceries” but for home improvement projects, debt consolidation or big expenses like kids’ summer camp—in other words, the sort of major expenditures traditional HELOCs are tapped for. Merchant categories where the Aven card can’t be used include casinos, lotteries, gambling websites and crypto brokerages, but those restrictions can be circumvented if customers take cash withdrawals.

Gamble away your home equity? “If you’re irresponsible, this is not the product for you,” declares the 39-year-old CEO, who likes to wear the same thing every day—a black long-sleeve t-shirt and Patagonia vest—“to reduce daily decisions.”

Have a tip? Contact Jeff Kauflin at jkauflin@forbes.com or here.

Sadi Khan was born in Bangladesh and raised in Toronto and then Florida, the child of two immigrant civil engineers. A Canadian citizen, he returned to Canada and attended the University of Waterloo in Ontario to study quantum computing and physics, but he switched his major to electrical and computer engineering after concluding it was more practical. (Waterloo is known for its physics research as well as for producing tech entrepreneurs.)

After graduation in 2008, Khan spent a few years at Microsoft before joining Facebook in 2013. There, he worked on projects like Facebook’s search function and map features and became the lead product manager of Internet.org—Mark Zuckerberg’s effort to partner with telecommunications…