Mobile Banking App Dave Is Going Public via a SPAC Merger

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Fintech startup Dave announced on Monday that it will go public by merging with special purpose acquisition company (SPAC) VPC Impact Acquisition Holdings III (NYSE: VPCC) in a deal that values the company at $4 billion.

SPACs have become a popular way for private fintech companies to go public, with SoFi Technologies (NASDAQ: SOFI) being among the more prominent deals in recent months. 

Here’s what fintech investors need to know about Dave.

What is Dave

Dave has created a banking app that offers a variety of financial services to users from the palm of their hand, including interest-free paycheck advances and bank accounts without overdraft fees. 

The company’s flagship feature, ExtraCash, was a way to allow users to avoid overdraft fees and Dave estimates that it has collectively helped its community avoid $1 billion in overdraft fees to date. The platform also capitalizes on the booming gig economy with a feature called Side Hustle that lets users find small side jobs to earn extra money. The feature Insights allows users to track their upcoming bills while sending notifications designed to prevent overspending.

Dave believes that its feature set can address many common customer pain points associated with traditional banking services, allowing the company to grow a loyal user base. Dave currently has over 1.3 million members that pay $1 per month in membership fees. Dave Bank users are forecast to grow at a compound annual growth rate (CAGR) of 95% through 2023.

“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 CEO Jason Wilk commented in a release. “Dave is upending the banking industry with our suite of breakthrough financial products and making a meaningful impact on our customers’ lives.”

The company is expanding beyond the core app and has launched Dave Bank, offering accounts with fewer fees and also allowing Dave to make money on interchange fees from debit cards. Average revenue per user (ARPU) in the first twelve months of a user joining the platform is approximately $43, but this monetization metric climbs to $95 for users to join Dave Bank.

Revenue in 2020 was estimated at $122 million, with Dave forecasting sales growing to $533 million in 2023. Unique users are expected to grow to 11.4 million by the end of that year, according to Dave’s estimates. 

The deal’s structure

The merger with VPC Impact Acquisition Holdings III assigns Dave a post-money equity valuation of $4 billion. The SPAC has $254 million in cash in its trust, and the sponsor has lined up $210 million in PIPE (private investment in public equity) financing being led by Tiger Global. Other prominent institutional investors participating in the PIPE include Wellington Management and Corbin Capital Partners. After paying transaction fees, $389 million will go to the combined company’s balance sheet.

Existing Dave shareholders will roll over their equity and own 87% of the combined company, with the SPAC shareholders having a 6% stake. PIPE investors will get 5% and the SPAC sponsor will take home 1% for putting the deal together.

The deal is expected to close late in the third quarter or in the fourth quarter, at which point the ticker symbol will change to “DAVE.”

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.