Mark Cuban-backed fintech Dave’s public offering puts SPACs to the test

What happens when a pretty solid company takes the unconventional route to the public markets?

The special purpose acquisition company (SPAC) boom did not play out as some folks in the technology and business worlds hoped. Despite a wave of optimism through early 2021, private companies that pursued public debuts with the help of blank-check companies have frequently failed to cover themselves in glory in the intervening quarters. 

Even more, a wave of SPACs failed to take a market-changing number of unicorns and other high-priced private companies public; the number of private unicorns continues to grow more quickly than even a SPAC-juiced public market has been able to receive them.

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But not shaking up the dynamics of the unicorn market doesn’t mean that blank-check companies have had no impact on the startup market. The list of SPAC casualties is lengthy. Latch, to pick one particular tech shop that TechCrunch spoke to concerning its SPAC process, has seen its share price fall from an all-time high of $19.70 to just $6.56 today. That’s pretty brutal, but hardly a set of returns unique to Latch among SPAC debuts in recent history.

We’ve also seen SPAC deals announced or completed with companies of imperfect repute. But not every company going public via a SPAC is an EV company with an issue telling the truth or a social networking “company” of a former president famous for sporting a lack of connection to reality. SoFi is perhaps a good example of a company that went public with the help of a blank-check company that appears to be doing just fine.

Today, hopes to join SoFi in the ranks of the fintech startups that did just fine in their SPAC debuts. 

Dave is a consumer financial service focused on helping folks pay less in terms of banking fees. Its main pitch to consumers, summarizing if we may be so bold, is that overdraft fees are a tax on the poor, and that technology can help offer a better banking experience to folks of all income brackets.

As a corporate concern, Dave is fascinating. Not only because it raised little capital — on a relative basis, that is, when compared to its peers — while private (including from tech celebrity and investor Mark Cuban), but that it has a history of limited operating losses, adjusted profitability and growth.

It’s a company that could have gone public via a traditional IPO if it wanted to, something that not every SPAC debut can say. So, we got on the phone with its CEO and co-founder, Jason Wilk, to chat about his company’s decision to pursue a SPAC and what’s ahead for Dave now that it is public.

To start, we’ll look at Dave’s most recent financial notes, talk through its SPAC choice and then look to the future. Into the breach!

Recent results

Dave released some data regarding its financial performance through Q3 2021 that we should review. 

In aggregate, the fintech business saw 30% revenue growth in the third quarter of last year, including 22% more service top line and 956% year-over-year growth in transaction incomes. The company also said that it saw “approximately 1.56 million new members.”

Even more, the company said that its banking services are maturing, and that “all customers will be converted to Spending Account Members in early 2022.” Dave’s spending account, for reference, is a “non-interest-bearing demand deposit account” that can be used online and through a debit card from the company. 

Given that Dave reached nine-figure revenues in 2020 (per its SPAC investor deck), the Q3 2021 Dave growth rate is perfectly acceptable for a company going public. Throw in its history of positive EBITDA generation, and the company was, by the limited data that we have regarding its historical and current performance, IPO material. So, why the SPAC?

IPO options

As SPAC hype faded, it became clear to us that such deals typically fall into two categories: those that wouldn’t have happened in another form and those in which companies had options. Dave falls in the latter category.

Why did Dave choose a SPAC, then? Wilk said that as a young company that had raised very little to date, the fact that the price discovery would happen upfront was an important factor. So was having an anchor investor, Tier, and guaranteed PIPE capital.

There is a fly in the ointment, however: the several-month-long delay that Dave had to endure for the operation to close. According to Wilk, this was due to increased scrutiny from the U.S. Securities and Exchange Commission, as such deals now often go through several rounds of comments. In a way, Dave paid a price for being lumped in together with 2021’s many not-so-great SPAC deals. 

Does Dave’s CEO wish he had followed the same path as another neobank, Nubank, and its successful IPO?

“If I could have done it all over again, I guess it would have been the same price discovery and guaranteed capital without the name SPAC associated with it, just because it’s been unfair,” Wilk said, referring to the negative change in the reputation of SPAC deals since his company announced its own combination last year.

Having chosen the SPAC route might not have much long-term impact for Dave. But something that it did have to deal with was a delay in its final combination. What drove the slowdown? The SEC was simply “backed up,” Wilk told The Exchange. “Some of the companies that are going out … should have been probably further reviewed,” the CEO said, noting that rounds of questions from U.S. regulators for SPAC deals evolved from singular to several. More questions and a backlog meant that it took longer for Dave to get its SPAC combo done.

The impact of those delays was that the company could not access its SPAC cash until, well, now. And that meant that it had been “counting on having several 100 million dollars of additional capital” earlier, its CEO said. That limited its growth in the back half of 2021. Wilk told The Exchange that his company “updated our growth to be more like 38% in 2021, as opposed to like 60 or 70% that we anticipated with the additional capital.”

But that’s all behind the company. 

What’s next for Dave

As observers of the fintech and neobank scene, we couldn’t help but notice that many players are attempting to become one-stop shops. But don’t expect Dave to become an “everything store,” Wilk said. “We will make sure that everything [else we do] complements the banking service.”

We asked Wilk about two expansion routes the SPAC deck hinted at: “investing” and “protecting.” Wilk said these were only examples of what the company could get into, but gave us more details. 

On one hand, investing could very well mean crypto, in which Dave is “interested in the future.” Crypto exchange FTX was an investor in Dave’s PIPE, and, incidentally, Wilk’s company is also interested in Venmo-style peer-to-peer transfers. “There’s a lot of different applications for what that could look like one day,” Wilk said.

On the other hand, the most likely incarnation of “protecting” would be insurance, which seems like a logical segue. “We thought about other areas where our customer base who tends to be overdrafters is grossly overpaying for services,” Wilk said, “and insurance was an area [where] the average customer with a lower credit score is overpaying for car insurance and other things like renters insurance by a significant amount.”

Insurance is also a good fit for Dave’s expertise, not just because of what it learned about underwriting loans, but also because of the data it has access to. “We know what someone is paying for their insurance and for their typical loan. It gives us an advantage to offer something at a better price and have a guarantee.”

Both “investing” and “protecting” were listed under a section of the SPAC deck referring to “future opportunities (incl. M&A).” This means that Dave might execute them on its own, via partners or via acquisitions, but either way, we will be watching.

The company also has a gig economy jobs service called Side Hustle, indicating that Dave isn’t shy about building services that aren’t traditional fintech. Perhaps there will be other surprises from the company down the road. Regardless, Dave is now public, and that means we’ll have a good view into its continued performance. More when it reports earnings!