The biblical story of David and Goliath reminds us we all love rooting for the so-called “little guy.” Dave.com, a banking app company that took its name from the hero of that story (yes, the weaker one who surprisingly defeats the giant), has announced plans to go public this year.
Dave’s signature trait is it avoids overdraft fees, but it has expanded to include other popular features. Now, after receiving a great deal of institutional investor support, the company looks to go public through a SPAC (special-purpose acquisition company) and score a $4 billion valuation.
TL;DR
- Founded in 2016, Dave aims to provide “banking for humans” by eliminating pain points of legacy banks, including overdraft charges.
- In August 2021, Zach Martinsek filed a lawsuit against Dave claiming that he was unjustly pushed out of the company as an instrumental co-founder.
- Major investors have put money into the fintech startup, including Tiger Global Management and billionaire Mark Cuban.
- Dave is planning a merger with blank-check company VPC Impact Acquisition Holdings III and expects a $4 billion valuation.
- It’s unclear whether DAVE will list on the NYSE or another exchange, though VPCC is currently on the NYSE.
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What’s the history behind Dave.com?
Dave was born of the idea that banks shouldn’t be getting rich from ordinary people’s struggles. That’s why the company’s tagline is “Banking for humans.”
Co-founders Jason Wilk, Paras Chitrakar, and John Wolanin launched the company (although Zack Martinsek also claims to be a co-founder and key creator of the technology used for the platform).
Here are some unique features that Dave.com provides:
- Partnership with LevelCredit to enable customers to report rent payments to credit bureaus, providing a key credit-building opportunity
- Interest-free paycheck advances up to $200
- An automatic budgeting tool
- No ATM fees at 32,000 MoneyPass ATMs
- Side Hustle feature helps connect users with earning opportunities
- Dave Banking, a new spending account with a no-fee debit card
Perhaps the feature Dave is best known for is its approach to overdrafts. Instead of charging up to $38 for overdrawing your bank account, Dave “helps you outsmart overdrafts because we think it’s fundamentally wrong to kick people when they’re down.”
Dave.com allows users to sign up for $1 per month to get no-fee checking and up to $100 in overdraft protection (without charging fees or interest when used). The company claims that over 25% of Americans overdrafted in the past 12 months.
Dave asks for a “tip” each time a customer uses overdraft protection, which the CEO says is cheaper than fees most other banks charge. The company’s unique spin is that Dave plants a tree for every tip through Trees For The Future.
Dave earned a spot on the 2020 CNBC Disruptor 50 List, coming in at #26. This month, the brand announced it ranked number 5 on the Inc. 5000 list of America’s Fastest-Growing Private Companies.
DAVE responded to the COVID-19 pandemic and its impact on customers by expanding its Side Hustle feature to include flexible options for working from home. Plus, the company donated $800,000 to Feeding America, $250,000 of which went to its Covid-19 Response Fund.
In August 2021, Dave.com was hit with legal proceedings based on the allegations that the company forced out one of its co-founders. Attorney Alan Romero is representing Zach Martinsek, who claims that Dave.com “concealed” his existence as a co-founder despite his importance to the rollout of the technology Dave runs on.
Romero stated that Martinsek “was pushed out of the company without any meaningful basis and his vested ownership in the company was stolen.” It is unclear how this lawsuit could impact the fintech company’s plans for the IPO.
Dave fundraising rounds up to now
The company has raised $176 million in institutional funding so far:
- Seed Round: Dave conducted a $3 million seed round in April 2017.
- Series A: It raised $13.3 million in a Series A in October 2017.
- Series B: Investors added $50 million of equity financing in September 2019, with Norwest Venture Partners leading the round. The company achieved a post-equity valuation of $1.2 billion.
- Debt Financing: In April 2018, the company raised $10 million in debt financing.
- Debt Financing: In January 2021, Victory Park Capital provided a $100 million credit facility.
The path to the Dave.com IPO
Victory Park Capital is a global investment firm based in Chicago that has been an investor for some time in Dave. VPC Impact Acquisition Holdings III, its shell company, went public in March 2021. As with all SPACs, the shell company formed with the intent of finding another company to merge with for the sole purpose of taking it public.
Upon announcing the SPAC IPO deal, co-founder and CEO of Dave.com Jason Wilk stated, “We believe the legacy financial system has failed to deliver and today, more than 150 million people need our help to build financial stability.”
Dave.com IPO date
An exact date for the DAVE IPO hasn’t been set yet, but it’s expected to close during Q3 or Q4 of 2021.
Included in the IPO deal is $210 million of PIPE (private investment in public equity) funding from Tiger Global Management and others. The PIPE facilitates the IPO process for companies by providing additional capital. Other firms participating in the PIPE include Wellington Management and Corbin Capital Partners.
The merger with VPCC also provides up to $254 million in cash to be held in the VPC Impact trust account. The fully diluted equity value on a pro forma basis will be $4 billion, assuming no redemptions.
Risks and opportunities for Dave investors
Dave CEO Jason Wilk said that the company is “committed to improving the financial health of our members.” There’s fairly strong evidence of that: the company has helped customers save $300 million in fees in the first eight months of 2021. Dave’s cash advance users are overwhelmingly spending the advances on everyday necessities like gasoline and groceries.
Looking ahead to 2023, Dave.com has projects to bring in over $530 million in revenue and $29 million in EBITDA (earnings before interest, taxes, depreciation, and amortization).
Investor Mark Cuban seems to have confidence in CEO Jason Wilk—Dave is the third company of Wilk’s that Cuban has put some of his wealth into.
Dave is truly aiming to disrupt the banking and financial services industry by going out of its way to help customers avoid financial mistakes. It is the first bank to help customers actually earn income; its Side Hustle feature has already led to users earning $200 million through side gigs.
The lawsuit brought by the former co-founder Zack Martinsek could affect the IPO process, but time will tell how that plays out. Especially considering this stock is going public through a SPAC vehicle, investors with a low risk tolerance may want to wait until the lawsuit settles.
Competitors to watch include Chime (which offers similar overdraft protection services) and N26 (a European startup bank). Dave will need to continue to find innovative ways to set itself apart in the fintech space.
Bottom line
If Dave.com were strictly a banking app with a unique take on overdraft protection, it might not stand out much to investors amid its IPO. But the diverse array of financial products the company has rolled out, like the credit-building feature and the side-hustle finder, may provide just enough opportunity for more members to flock to Dave—ultimately helping to divert more business away from legacy banking institutions.