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Neo-bank Dave’s CEO thinks traditional banks are ‘in a pickle’

November 19, 2021, 4:07 PM UTC

Good morning—this is Fortune reporter Rey Mashayekhi, filling in for Lucinda.

Despite its unassuming name, the fintech startup Dave has garnered plenty of attention as one of a wave of so-called “neo-banks” that have sought to disrupt the traditional banking model. Armed with branchless, tech-enabled platforms, these firms aim to provide a smoother, more considerate customer experience—whether that involves lower (or no) fees, paycheck advances, or socially conscious offerings.

Though many of these young companies have found traction, they still have their work cut out for them. Legacy retail banks continue to dominate their sector, and even if customers aren’t “loyal” to their banks per se, they’re usually reluctant to switch providers. (A common adage goes that people are more likely to get divorced than change their bank.) It’s a reality inherent in Dave’s name—which alludes to the “David vs. Goliath” dynamic that many Americans feel in their financial lives, but may as well refer to the startup’s own dream of supplanting Wall Street’s banking giants.

Not that any of that is holding Dave back from pursuing its goals. The Los Angeles-based company was launched in 2017 by serial entrepreneur Jason Wilk, who despite his success in previous tech ventures was a novice to the world of financial services. But as the 36-year-old Wilk told Fortune recently, he personally “knew that pain of paying a $34 overdraft fee for buying a cup of coffee,” and felt there had to be a better way than the one being offered by traditional banks.

Dave initially pitched itself as a financial planning app that helped its customers manage their bank accounts, and overdraft fees were its primary target. For a fee of $1 per month, Dave’s platform connects to users’ bank accounts and forecasts their future income and expenses, warning them of when they’re in danger of overdrafting. In the event that they are about to overdraft, Dave fronts its customers up to $250, interest-free, to cover their expenses. 

The startup’s offerings have grown to include a credit-building service that factors in rent and utility payments, a gig-economy job board called Side Hustle, and Dave Banking—a checking account of its own that launched last year, which Wilk calls “the future of the business.” (He said that Dave may soon require users to become Dave Banking customers in order to access its other products.) Like many neo-banks, Dave isn’t a chartered bank or depository institution, and so it holds its customers’ deposits with an outside bank (in its case, Tennessee-based Evolve Bank & Trust). But that hasn’t stopped it from attracting nearly two million customers to Dave Banking, as well as roughly 11 million users to its platform overall. 

In launching Dave, Wilk leveraged his pre-existing relationship with famed entrepreneur and investor Mark Cuban to receive Cuban’s backing for the startup (the Dallas Mavericks owner now sits on Dave’s board). But as it looks to further scale its business, Dave is now turning to the public markets. This past summer, it announced that it would be going public via a merger with a SPAC sponsored by Chicago-based Victory Park Capital. The SPAC deal values Dave at around $4 billion and is expected to raise up to $254 million in fresh liquidity for the company.

When Wilk spoke with Fortune earlier this month, he said that Dave had just finished going through its second round of comments from regulators at the Securities and Exchange Commission. He noted that it’s not unusual for the SEC to now put companies through three or more rounds of comments before allowing a SPAC deal to proceed—a more deliberate pace than was previously the case, and likely the result of regulators casting a closer eye on deals after last year’s SPAC boom. “The process has definitely slowed down,” Wilk said.

But Wilk is optimistic that Dave will be able to go public no later than January, and insisted that the SPAC structure—which has faced criticism for allowing companies to bypass some of the more stringent requirements of the traditional IPO process—is the right route for his company. He mentioned that the SPAC came about as Dave was preparing to raise private capital from investment giant Tiger Global, which suggested that it would be willing to anchor a private placement that would pave the way for a SPAC merger. Tiger Global subsequently led a $210 million PIPE deal that gave Dave a path to the public market.

“The way SPACs work, you get a guaranteed amount of capital through a PIPE, and it gives you a lot of certainty around valuation and the amount of capital that you’re able to raise,” Wilk noted. “Whereas with an IPO, there’s quite a bit more uncertainty around how much money you’re going to raise and where you’re going to price at. And where we are in our stage as a company—we’re not even five years old yet—we’re a lot more comfortable going public via SPAC, with a preeminent investor valuing us and giving us the capital at a price that we thought was fair.”

The capital will further fuel a company that’s operating an exceptionally lean business by tech unicorn standards; Dave generated a $75 million profit on revenues of $122 million in 2020, according to securities filings. Wilk acknowledges that his roughly 200-person firm is able to operate on margins that would be unthinkable for a major bank with thousands of employees and a sprawling branch network—a reality that leads to those banks passing down costs to their customers, in the form of the very fees that Dave is looking to eliminate.

“If you look at the big banks, I don’t believe they want to charge these fees. I just think they have such huge cost structures that they have no choice—it’s just a function of how their business is,” Wilk said. “I just think they’re in a little bit of a pickle.” (He added that, in lieu of overdraft fees, Dave allows its customers to voluntarily “tip” the neo-bank for its services. “I can never imagine anyone tipping JPMorgan,” Wilk quipped.)

Dave, in turn, hopes to use the proceeds from its SPAC deal to expand its services to the “low-to-moderate income” Americans who disproportionately feel the burden of bank fees and have gravitated to its platform as a result, Wilk added. While those consumers—many of them younger and living paycheck-to-paycheck—currently represent the neo-bank’s core customer base, Dave hopes its offerings will grow to translate across such demographics.

“We want to build a banking product that is superior to the JPMorgans and Wells Fargos of the world in every way possible,” he said. “It just so happened that the way that we are marketing the business, we are trying to help the people that are most affected by fees. But we want to make a product that can be used by everyone.”

BINANCE LOOKING TO FINANCE: Crypto exchange Binance’s U.S. unit is aiming to raise “a couple hundred million dollars” in an upcoming pre-IPO funding round, Binance founder and CEO Changpeng “CZ” Zhao said at a forum in Singapore today. Zhao said he does not know the exact amount that will be raised, but added that the round is set to close “in about a month or two.”

Binance.US claims to operate separately from the world’s largest crypto exchange, despite their common ownership. Speaking at the forum, Zhao insisted that he is not involved in the U.S. unit’s day-to-day operations, and said its only connection with Binance is his own seat on Binance.US’s board. Binance is reportedly under investigation by U.S. authorities who are probing potential money laundering and tax offenses.

A NOTE: While Lucinda enjoys some well-deserved time off, a few writers will be taking over Term Sheet in her absence. Consequently, the deals section of this newsletter will be pared down from its normal length. Please send deals to Declan Harty (declan.harty@fortune.com) for Nov. 22 and 23, and Rey Mashayekhi (rey.mashayekhi@fortune.com) for Nov. 24.

Rey Mashayekhi
@reym12
rey.mashayekhi@fortune.com

VENTURE DEALS

- Sierra Space, a Louisville, Colo.-based commercial space company, raised $1.4 billion in Series A funding at a $4.5 billion valuation. General Atlantic, Coatue, and Moore Strategic Ventures led the round and were joined by investors BlackRock and AE Industrial Partners.

- Farmers Business Network, a San Carlos, Calif.-based agriculture technology platform, raised $300 million in Series G funding at a $3.9 billion valuation. Fidelity led the round and was joined by investors Archer Daniels Midland, LN Mittal Family Office, Colle Capital Partners, Walleye Capital, and Tudor Investment Corporation.

- ConsenSys, a New York City-based blockchain software technology provider, raised $200 million in funding at a $3.2 billion valuation. Investors included Marshall Wace, Third Point, ParaFi Capital, Think Investments, Dragonfly Capital, Electric Capital, Spartan Group, DeFiance Capital, Animoca Brands, Coinbase Ventures, and HSBC.

- Trusted, a San Francisco-based labor marketplace for health care professionals, raised $149 million in Series C and Series B funding. Greenspring Associates led the $94 million Series C round; Craft Ventures and Felicis Ventures led the $55 million Series B round.

- Chroma Medicine, a Cambridge, Mass.-based genomic biotech firm, raised $125 million in Series A and seed funding. Cormorant Asset Management led the Series A and was joined by investors Casdin Capital, Janus Henderson Investors, Omega Funds, T. Rowe Price, and Wellington Management. Atlas Venture and Newpath Partners seeded the company with participation from Sofinnova Partners.

- Benchling, a San Francisco-based biotech R&D cloud software provider, raised $100 million in Series F funding at a $6.1 billion valuation. Franklin Templeton and Altimeter Capital led the round and were joined by new investors Tiger Global and Lone Pine Capital.

- nTopology, a New York City-based engineering design software provider, raised $65 million in Series D funding. Tiger Global led the round and was joined by investors Oldslip Group, Root Ventures, Canaan Partners, Haystack, and Insight Partners.

- Gravitiq, a London-based health care brand aggregator, raised $55 million in seed funding. Investors included CoVenture and Crossbeam Venture Partners.

- HiMama, a Toronto-based software provider for childcare centers, raised C$70 million ($55 million) in Series B funding. Bain Capital led the round and was joined by existing investors Round13 Capital and BDC Capital.

- Comet, a New York City-based enterprise machine learning platform provider, raised $50 million in Series B funding. OpenView led the round and was joined by existing investors Scale Venture Partners, Trilogy Equity Partners, and Two Sigma Ventures.

- 8fig, an Austin, Texas-based provider of financing and supply chain management tools for e-commerce sellers, raised $50 million in Series A funding. Investors included Battery Ventures, LocalGlobe, and Matt Robinson

- EasyHealth, a Beverly Hills, Calif.-based online health care enrollment platform, raised $35 million in Series A equity funding, as reported by TechCrunch. Anthemis Group and QED Investors led the round and were joined by investors Victory Park Capital, Nationwide Ventures, Healthy Ventures, Brewer Lane and Operator Partners.

- Netomi, a San Mateo, Calif.-based customer service AI platform, raised $30 million in Series B fund. WndrCo led the round and was joined by existing investors Eldridge and Fin Venture Capital.

PRIVATE EQUITY

- Fidelity invested in GaN Systems, an Ottawa-based power semiconductor manufacturer. Vitesco Technologies, Golden Sand River, and BMW also participated in the $150 million capital investment.

EXITS

- Genstar Capital has agreed to acquire Brook + Whittle, a Guilford, Conn.-based provider of sustainable label printing and packaging, from TruArc Partners. Financial terms were not disclosed.

OTHER

- Workday (NASDAQ: WDAY) announced that it will acquire VNDLY, a Mason, Ohio-based provider of workforce management software, for $510 million.

F+FS

- BGH Capital, a Melbourne, Australia-based private equity firm, is seeking to raise A$3 billion ($2.2 billion) for its second fund.

- Primer Sazze Partners, a San Jose-based venture capital firm, closed its second fund with $127 million raised.

- Leo Capital, a Singapore-based venture capital firm, plans to raise $125 million for its third fund.

PEOPLE

- Goldfinch Partners, a Seattle-based private equity firm, added William Abbott as a principal. Abbott was most recently director of corporate development at Starbucks.

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