The man who built a bank for people banks don't want - Jason Wilk [Dave]

0:00Every great company starts with somebody having a bone to pick with some big problem. In the pain of the$34 overdraft charge on a cup of coffee, we look at your cash flow data, not your credit score, to offer you a$75 micro month. And we went from being a$5 billion company to a$50 million market cap company within a matter of nine months. Today on Billions, I'm sitting down with Jason Wilk, four-time founder and a CEO who took a 98 % stock collapse and turned it into one of the greatest comeback history in fintech. His first company, Go Club for a dorm room. His second, an ad tech play-out of white combinator that sold for$85 million.

0:39He used that money to start a war against one of the most predatory fees in American banking, the$38 overtrapped charge that quietly bleeds$30 billion a year from the people who can least afford it. He called his company Dave, as in David vs Goliath. Jason, welcome to Billions. Thanks so much. Can you maybe explain to people why you decided to start Dave in the first place? Personal pain point. I think every great company starts with somebody having a bone to pick with some big problem. And for me, that was going through high school, college, starting my first business. And the pain of the$34 overdraft charge on a cup of coffee or a tank of gas was just incredibly punitive.

1:22in a time in your life where you need every penny counts to make it through. And I knew if I had that problem, there were lots of other people that might be having the same issue. And it turns out it's over half the country is dealing with things like overdraft fees, not having enough credit score to afford mainstream credit products. And ultimately, just the banking system is too expensive for the everyday American. So how do you attack such problem? Because, you know, it looks like a banking system is huge. How do you get started with it? How do you create your new bank? I think the way we started actually led to a lot of our success in the sense that I knew we always wanted to offer a full suite of banking services, but to offer that back in 2016, it would have been a tremendous amount of work to either get a bank charter or go through the bank partner process.

2:13At the time that Dave was launching, there had been several neobanks around previously that had not really seen a lot of traction. And so I had in the back of my mind that people's excitement to open up a checking account was really not there, but their pain point around short-term credit was. And so we decided to start with that part of the spectrum first. And so a company launched in 2015 called Plaid, which was the conduit between fintechs and large banks. And there was only one interesting company that was using the service that I had seen so far, which was a business called Acorns, which was connecting to your primary checking account, looking at your transactions and rounding up your purchases to put into the stock market.

2:57I said, yeah, that's really interesting. If we could use that same cash flow data to underwrite people for effectively a micro loan in the U.S., that should eradicate the need for traditional overdraft. And so Dave's first product was a app where you connect your checking account. We look at your cashflow data, not your credit score to offer you a$75 micro-mend, smallest mode in the country. And this model had worked in places like India and Africa where micro-mending was a real thing, but no one had really tried it in America as a way to solve sort of short-term gaps. and the real vision there was that short-term credit of this small dollar amount, FICO is an irrelevant score because that's based on long-duration credit, your ability to pay a mortgage or an auto loan, and we've really proven out that your cash flow data in your account is very, very valuable.

3:54And I knew that to be true because I always knew my paycheck was coming in. I was a great customer for my bank, but why charge me such a high rate when they know that I'm good for the money? And so that was really the foundation of the business. Start with the credit, migrate to banking later. And we really followed along that journey. We didn't launch banking really until 2021 where people could make Dave their primary account should they choose. And can you maybe like walk us through the equity story? Like did you have to raise funds in the early days? Like who were your investors? Like was it easy?

4:26The seat round was fairly easy because I utilized most of my investors from my previous company. One of our investors, I had a deal with that whatever they made in the previous company, they would automatically write me a check for the next company, sight unseen, for 50 % of whatever their profit was. So that check was real easy. It turned out really great for that guy because he never would have written that large of a seed check usually. And I think that stake's worth over$150 million now. So he's done quite well. and then two of my other lead investors from that last business also participated.

5:04We rounded out the group with Ron Conway and SV Angel amongst some other people in the seed round, but that was a$3 million round, which we used basically to buy the domain name, give us some capital to hire the early team. And also we needed some principal capital to actually lend out to users because we didn't, at that point, had no credibility with private credit and certainly no bank was going to be willing to lend this money with no experience. And the second round, how exactly did it go? Did you feel like you had to work a lot harder? The second round was really difficult because we clearly had product market fit.

5:47Customers were loving the product. We were scaling. Our CAC was really low, but our loss rates were really high. They were like 20%. And so it wasn't quite clear that this customer profile that we were underwriting was going to be able to lend to profitably. And so we had that going against us. And also every venture capitalist, at least that I spoke to, had never really even heard of over-jot fees. So they didn't recognize it as a major problem. And the third was that neobanks historically had not gained a ton of traction. The most successful exit thus far was, I think, Bank Simple, which sold, I think, for$150 million.

6:25So, you know, not great comps, not great loss rates, problem that investors don't really understand. And it took me about 120 meetings to get the Series A done. And ultimately, it was with an investor that wasn't even writing checks into fintech. It was just a connection with one of our board members who said, trust me, it's a smart team. And Jason's hardworking, he'll figure it out as he always does. And so that really was the catalyst of getting the check there. We had a tremendous performance from that$10 million check. We got loss rates down to a few percent. We were scaling users. We got to close to a million users in the first couple of years.

7:07And we didn't raise our next round of funding until we reached a billion dollar valuation in 2019. and that was a big deal because there weren't that many unicorn businesses back then. We weren't in a hurry for raising more capital and so to be more patient. But the traction we had at that point was sort of irrefutable at that point in time. And so raising the round was a little bit more competitive and we brought on a great investor of Norwest Venture Partners who led that round entirely. And that$50 million equity check lasted us all the way to the IPO. So I was incredibly capital efficient.

7:44I think around 63 million of total primary capital raised. And yeah, the next round was our public transaction. How exactly do you like prepare for an IPO? And when do you decide like if you're ready or not? Well, we were really quick towards an IPO, more so than most. I think as of January next year, we'll have been a public company longer than being a private company, which is really interesting. And so it's almost like we've forgotten life as a private business and don't miss it that much. And to be honest, we like the rigor of the quarterly reporting. We sort of got ourselves in this quarterly reporting mindset leading up to the IPO.

8:24And fortunately, what gave us a lot of confidence is our business is very forecastable. We have a lot of cohorts that have been with us for a long amount of time. We have very heavy repeat users. And we thought the business was ready, even though we were early on to become a public company. As of January, we'll be in a public company longer than being a private company. And don't really miss it that much because our business is a lot of repeat customers. And so we feel like we can forecast the business really, really well. I think that's the key for a public company. And investors want to be able to build models they can rely on.

9:00And given we have 98 % of our customers every month are our repeat users, we just felt very confidence, a lot of confidence in the core model. So aside from that, just building up the management team, getting the public board ready, and then going on the roadshow process to find our lead investors is not too dissimilar from a private capital raise, other than you have to convince 50 people to validate your valuation as opposed to one. And I think that's a major difference in public versus private. It's just your valuation in the public is more consensus versus private is literally can be just the opinion of one person.

9:40And how long did it take you from, okay, I think we should IPO to let's ring the bell? Like, what was the timeline? Well, the market was ripe for IPOs. You know, we actually were marching our way there. We thought we had a great opportunity to go public, decided to wait a little longer to see how the market was going to continue to play out and ultimately decided to go public in January 2022. The market looked a little soft when we went out, but we had a great IPO. I think we were the best performing stock of the first couple of months when we went out. Valuation got to over$5 billion, and then the market fell apart.

10:22and the interest rates went up, which led to FinTech being a bad name, anything being in lending, being a bad name. And then with growth capital effectively coming to a halt, if you were a company that was losing money with the expectation you had to possibly raise some more, people just underwrote your valuation effectively to zero. And we went from being a$5 billion company to a$50 million market cap company within a matter of nine months. And we were trading for less than our cash value for a good amount of time. It was a really challenging place to be. But ultimately, we loved our business.

10:59We knew that all we had to do was grow our way out of this, which was not a really great narrative at the time. But our plan was to keep burning capital until we could actually cross the user threshold required for us to reach profitability. And to us, as an already mean business, that was really our only pathway to success because we couldn't cut our way there like most businesses could do that. We were a very lean team. We're still a very lean team with only 300 people at the company today, actually a little bit less than that. And just we kept our heads down and got there. And here we are today, nearly four going to our market cap and teams happy.

11:39Investors seem to be pretty happy and we think there's a lot of room to run from here. Yeah, I mean, I've looked at the stock. I think it's quite insane to see like the growth you guys are doing. So congrats. And I'm actually like curious to understand, like when your stock start like tanking, like how exactly does that affect the company from day to day operation? Because you still have your customers, you still have like, I mean, you're still generating cash. It's just basically like a valuation that the public market is giving. But does that affect you like from a day to day basis, like in bad ways or?

12:17Well, the only way it would really affect us if we needed to raise capital, we were dead in the water. I mean, imagine trying to raise$50 million when your valuation is$50 million. That wouldn't be a really great place to be. And so fortunately for us, we didn't need more capital. We knew we didn't need more capital, but that would have been a really tough place to sit should we needed that. But look, taking a step back, you want to be a public company because you have public currency. You can give away to employees for valuable stock options. You want currency for M &A. And then you want the ability to tap what is an easier way to raise equity capital.

12:54And the challenge we have being a public company with such a low market cap, you can't take advantage of any of those things. It really was like a waste of time and money. cost at least a couple of years ago close to 10 million dollars just to maintain being a public company and so you want to have those benefits otherwise there's not really much of a point and um from like uh from your side like because when the when the valuation of the company is like at a certain like is getting like lower and lower does does it um does it make the company like a target for acquisition potentially? Or like, you know, because if you see a company that's actually like valuable and you see like their stock going, their stock price going down, you might want to acquire it, you know, at a much lower price.

13:42Like, is it something that, you know, when we talk about hostile IPO or this kind of thing? I'd say that's the one, you know, big benefit from going public was that my shareholders gave me a different share class. And so my stock converted into, you know, controlling vote, which when you have that, it keeps a lot of the activist shareholders away or any hostile takeovers. It would have been very easy to build a position in our company and, you know, try and acquire it. But the fact that I had the ability to approve any M &A through my control vote kept a lot of people, you know, on the sidelines.

14:17And so that was a big benefit of going public and, you know, would recommend that for other founders who or going out, you know, it's in many ways in the best interest of the company. That's super interesting. And I think like Tiger at some point was part of the one, you know, like helping you to go public and investing when you started the IPO. But usually these investors, they have some sort of like lockup period and they have to kind of like keep their shares for a long time. That's right. And in their case, I think they decided to sell at some point. Can you explain a bit how does this work and how can an investor who has a lockup period is actually able to do these kind of things?

15:00Yeah, so generally you have your private investors leading up to an IPO all agree to a sort of a standstill mockup provision, generally six months. But the investors through the IPO process do not have any sort of standstill, at least through the process we want to go public. And so Tiger and others were free to sell from day one. That didn't help us because, you know, Tiger had their own issues through April with a lot of people redeeming in their fund due to the market crashing. And so it was nothing against our business independently, but they just sold everything that was in growth. and to lose your anchor investor that quickly prior to a mock-up when your valuation still has a lot of value appreciation from early people, which also puts selling pressure on, it just made it a perfect storm of disaster for us.

15:52And fortunately for us, it had nothing to do with our business. But from a just timing market landscape perspective, we were in the worst of every storm. And as the company was, when it was at the very bottom and you knew that it has tremendous potential. As a founder, did you acquire more shares at that time? Or is there a way to benefit from it in some way? Yeah, it's hugely beneficial, actually. So we couldn't afford, because the valuation was so cheap, to just give people better stock packages at today's price. But we did structure this performance stock unit structure where people actually would get more shares at certain prices, all the way up to, I think the stock price got as low as about$5 post split.

16:44And the needy for a lot of our employees was that the stock could reach$100,$200 worth of value. And that's like 20X return. But it's amazing to see that everyone that stuck around and got those performance units have fully realized that. And we made more millionaires post IPO because of that drop than we did pre IPO just for the amount of people that we hired and that stuck around. That's insane. And for the for the IPO, I think you did like a SPAC. Yeah. Can you explain to people what it is and like how concretely does that work? Well, SPAC versus traditional IPO, you are effectively merging with an existing public shell whose sole mission is to go find a company to combine with.

17:33That public shell has no operating business. They have capital that they have committed from investors to go find a target. And the benefit of going public that way is that the shell is already public and you're able to negotiate your valuation and how much capital you're going to raise through your investor syndicate well before your IPO date. Whereas in a traditional IPO, you don't really know what the value of the company is going to be until you start to build your book right before the IPO process. So there's a lot to like about this spat. And just there's a lot more certainty, especially for a young company.

18:10You want to be able to count on the proceeds if you're going to go through the process that you want to be sure is going to succeed, not fail at the end. There's a lot of IPOs that go through testing the waters at the end and don't like what they see, so they pull back or they wait. You've seen that before with others. And so the big, I'd say that the downfall of the SPAC came from the types of quality of companies that went public, because a lot of them went out of business. Valuations were not based in reality. So SPAC's got kind of a bad name, but they're still a perfectly viable vehicle based on the reason I just explained.

18:46And why do you think it got like a bad press at some point, like the SPAC? Well, too many companies that never should have been public went public through that process. And that was just the environment of interest rates were nearly 0%. The market was super hot and the appetite for underwriting companies losing significant amounts of money with negative unit economics was at an all-time high. And so just the challenge of all these companies that weren't great is what put pressure on the SPAC process. Had we only kept it to high-quality businesses, which we believe Dave was one of them, then SPACs would still have a great name, and I think it'd still be a very popular way to go public.

19:27But unfortunately, I think the negative stigma is there. And what was your revenue whenever you did your SPAC IPO? I want to say it was around a couple hundred million of a run rate at the time of the IPO. And I believe in 2022, we burned a hundred million. We raised two ten of total proceeds. We had a decent amount of capital left. But if you were to just take a run rate of our burn rate at the peak, I can see why some investors would say this company is not going to actually make it through to the end. But we always knew that there was this pretty clear line. And once we started to get cleared towards that line, it could really clearly communicate to investors that once we reached 2.1 million paying members, every incremental user was going to be contributing to profitability because they don't need a bigger team to grow the user base by the next 100 ,000, 200 ,000 members.

20:28And now it's just amazing to see. I mean, our guidance for 2026 is over 700 million of revenue at the midpoint and over 300 million of EBITDA. That's just a$400 million swing on earnings in just a few short years. And the investors that believed in us have made just tremendous amounts of return. And how do you like plan for it as a founder? because we see a lot of people, you know, raising like a lot of money and saying like, hey, we're going to reach that point where, you know, like things become like profitable and we have a great business. Like, I mean, you hear this story a lot. The truth is like very few people manage to do it.

21:09So how exactly did you plan for it? And how did you manage to really succeed? Plan for what specifically? Absolutely. Planning for the profitability points that you would get to? Well, I think we knew what we needed to build our platform that could scale. And to us, that was the 300 people we needed to build the core systems. It would be hard to think we could do that with significantly less people than that. And so we sort of drew our line in the sand that this is the amount of people we have. We did a hiring freeze. We didn't do any layoffs. We just said, we're going to keep it steady here, only do backfills of people that leave, and just really kept our heads down, avoided all distractions, any new products that weren't core to achieving profitability, went on the back burner.

22:02and a lot of our work went around just margin improvement, renegotiating contracts, adding more users, driving more CAC efficiencies, improving onboarding conversion and underwriting efficacy. And it was just a real big push across the company to turn profitable. I even got my CFO a hat that says EBITDA on it for his birthday. And he was really driven, kudos to him, because he was really the driver of all the profitability initiatives within the company. And we succeeded in it even more so than we could have expected at this time four years ago. And as a company, like, and as a CEO, you know, like whenever you raise funds and you're like non-profitable and you're spending a lot on, I don't know, like hiring, on acquisition, on all of these things, like the vibe in the company is a bit different versus when you're bootstrapped and you're looking at like how much you should spend.

22:58So you're always like profitable. And for you, like you also went from, okay, we have money, we spend it to we're profitable and we need to stay profitable. So how exactly did the company like culture kind of change with that change? Well, it's tough depending on what stage of the business you are at. I'd say in our potential later rounds, the fact that we were a profitably growing company meant that we didn't need to raise more capital. But also, had we raised a lot more, we probably could have grown quite a bit faster. And so to attract some of the best and biggest venture capital investors in the world, they like seeing the heavy burn, right?

23:47Because they want to put more capital to work. And so we lost that on a couple of funding rounds to competitors who were burning three or four times as much as we were to chase user growth faster. But ultimately, that wasn't the kind of business we wanted to run. We had really healthy growth while maintaining profitability early on. we took the business to running at a loss to build the platform of which we believe was needed to build for the long term. But it's really a matter of preference on the founder. You know, do you want to raise a lot of capital and raise a bunch of pref? I never liked sitting behind a lot of pref personally because it just becomes a dangerous game of having to clear that pref stack in an M &A transaction could be quite challenging.

24:30We still see a lot of our smaller competitors who thought they were worth a billion dollars. They raised several hundred million of venture capital and it becomes a curse in the end. And so I think for businesses that really need it, like these AI hyperscalers, there's no other choice. But I say for some founders, you've got to really look at this VC money you're raising is like very high APR debt. I think about the effective APR we paid our series A investor. It's worse than any loan shark in the world when you really take a step back. I mean, if I had that much confidence in the business that early on, I wish I did that$10 million round as venture debt in the business, not giving away very valuable equity in the company, which is worth so much now.

25:14And what's like, would you say, is the biggest challenges for you in the coming years? Biggest challenge for us, we are becoming a multi-product company. We just announced our new credit card. We're excited to scale that. And it's always ever easy for companies to build multiple go-to-market leading business units. And we're just really excited about that as the future of the company. And I think that's our maybe biggest challenge is proving out our ability to have multiple things working at scale. And on your side, how do you decide to launch a new product when you have something that's already working, already growing?

25:57Is it because you want to get like more growth? Is it because you want to get better retention? Is it a bit of both? Well, it just comes back to what our customers want. And we have the benefit of having millions of customers we can talk to them. And going back to my days at Y Combinator, the number one lesson from Paul Graham was always to talk to users. And we do that all the time through user research. Really important to understand what they want. We also have the benefit of having a connection to our customer's primary checking account. and so we can actually see all the products that they're using and so that's amazing market intelligence for us to go decide what else we need to be doing but in the end yeah it's you know building customer happiness and if we do well there that's going to lead to better lifetime value through you know either more arpu or better better retention or both and that's sort of the name of the game and is it like uh like how exactly do you do you decide like uh about a new product I know you're going to talk to customers, etc., but why did you choose a new credit card and not something else?

27:00We wanted to lean in on where we thought our differentiation was versus our scale neobank competitors. And to us, that is our AI-based underwriting of cash flow information. And it was working incredibly well for our extra cash product, which is giving people up to$500 between paychecks. The beauty of that product is the payback is very short. The downside is that the customer's willingness to use that for multiple different purchases is quite low. You tend to use our core product for gas, grocery, and rent, all these sort of non-discretionary expenses. But we aspire and we can see through the cash flow data that our customers are using things like BNPL and SunPribe credit card for discretionary purchases, of which we have 0 % market share.

27:45And so when I think about areas where we think we have the right to win, our customers love us for credit. We think we can expand the credit and give them a different use case of how to use the company made a lot of sense. And so it felt very clear to us as to what to build. We just had to go back to sort of the core principles of the business of what we want to disrupt. And it is these expensive fee streams from banks and credit card companies. and just like overdraft fees are really hurting Americans, revolving credit card APRs and credit card late fees are over 100 billion a year. And so I like the idea of eating other people's margin through better products.

28:24And we're going to do the exact same thing with this product. Yeah, and you have already like the user base and you know, like the, so it's whenever you deploy, like you know, you're going to have like a large addressable market from the start. So it's quite smart. And I was wondering, because earlier you mentioned, you know, that the interest rates started to kind of change and it affected like your company. So how exactly do you plan? Because you're essentially offering like short term loans. So obviously you are a bit dependent on the macroeconomics. So how exactly do you plan on things that are a bit outside of your control?