First, the disclaimer: This author is not an impartial observer of the markets. I’m an extremely active investor in fintech. Furthermore, Restive is an investor in Dave and we have had a financial connection to the company since the seed round back in 2017. As part of the research into this piece, the author interviewed Dave management and shared an early draft of this paper for feedback. Restive and the author may own shares in the company and shares in other companies that have very similar business models to Dave. In short, Restive and the author have a strong incentive for the following argument to be true. But it might not be. And this is definitely not investment advice.
Dave, a Restive portfolio company, went public in early 2022, at arguably the worst time for a fintech company to list its shares. The stock promptly crashed by ~97%. It became a poster child of the excesses of the previous hype cycle and the company was threatened with delisting. Meanwhile, internally, the speed of the crash meant that the vast majority of employees were deeply underwater on their stock options. “Smart money” said the company would be sold for scrap, despite the fact that the company was generating several hundred million dollars a year in revenue, had a huge cash pile and was effectively controlled by its Founder and CEO, Jason Wilk.
But this timing was also fortuitous as it meant that, unlike a private company, Dave was getting real time feedback on its business model. Unlike a private company, the investors and management couldn’t pretend that negative sentiment would blow over. Unlike a private company, investors couldn’t avoid marking down the value of the shares. Unlike a private company, management couldn’t keep employees in the dark on the value of their shares. The public markets were crystal clear in their verdict: this company deserved destruction.
But the depth of the trough of despair was so extreme that Dave was forced to get creative and evolve. And because of the timing of this required evolution, the company was able to leverage the latest developments in AI to lay the groundwork for a remarkable turnaround. In the process, Dave may have become the first publicly traded AI-powered financial services company.
Dave's competitive advantage didn't emerge overnight. According to management, the company began developing its AI capabilities in 2019. But that early work was occurring in an extremely competitive market that was focused on driving user growth. Meanwhile AI technologies were still in their infancy. Dave was able to benefit from clear product market fit, rapid growth and relatively easy access to capital to go public in early 2022.
It was both the worst, and also the best, possible time to go public. It was the worst time because investors were deeply skeptical of fintech and, in an increasing interest rate environment, businesses that were reliant on cheap capital to fund operations - like lenders and money-losing tech firms. Of which Dave was both.
But the cold brutality of the public markets also created opportunities.
First, there was reduced competition for customers. As VC funding dried up across fintech, competitors retreated from customer acquisition. Dave capitalized on this opportunity, filling the vacuum while getting smarter in who they targeted. The result: customer acquisition costs were cut in half.
Second, the company was forced to focus on fundamentals. While other fintechs struggled with unsustainable unit economics built during the easy-money era, Dave had to move quickly to become profitable. Leveraging the major breakthroughs in AI during this period, Dave invested heavily on CashAI, its core AI underwriting technology. The result: a 300% improvement in underwriting performance as measured by risk-adjusted returns.
Third, Dave re-invested in core capabilities and tech. Of the company's 300-odd person team, half of the employees work in engineering and data science. Also, because the stock decline was so extreme, the company had to reset employee stock grants. This allowed the firm to re-align the long term performance with the company’s new public market incentives while also focusing the company on key talent while keeping headcount, and cash burn, low.
This strategic positioning during the fintech winter created a compounding advantage: lower acquisition costs combined with superior underwriting, and an extremely lean, technology focused team. This powerful profit engine is now driving Dave's financial outperformance.
Dave's management believes they've identified the optimal application of AI in financial services: short-term consumer lending. Unlike traditional credit products that rely on historical credit scores and static data, Dave's "Cash AI" engine evaluates real-time banking data to make instant lending decisions.
This approach has produced remarkable results over the past three years, with management achieving what they describe as the "perfect balance" of consistently declining loss rates and increasing origination volumes:
According to management, Dave's AI has reached a critical inflection point and has now achieved optimal risk assessment. The strategy going forward focuses on maintaining these low loss rates while dramatically scaling origination volumes. Unlike incumbent banks and neo-banks peers who often require a direct deposit relationship or a traditional credit check before approving a customer for a credit advance, Dave is able to underwrite based on cash flow data collected from almost any bank in the country.
This ‘open’ approach has several benefits. First, it lowers acquisition costs because customers can see an ad for Dave and gain access to credit within minutes of download. This drives a much more efficient CAC compared to neobank peers and incumbent banks. Second, when a customer connects their bank account to Dave, Dave is able to access up to 18 months of checking account transaction data. Dave’s CashAI underwriting engine is then able to better assess risk based on the actual cash flows of its customers. Dave has the ability to leverage this external account data to improve their own underwriting over time and potentially expand into other account categories.
Dave's positioning creates a compelling opportunity for multiple expansion. The public markets currently value companies along a spectrum:
Dave's opportunity lies in moving up the value chain. Several factors could drive significant multiple expansion:
Management is certainly signaling how they think the company should be valued: they expect that going forward, virtually every incremental dollar of gross profit will flow directly to EBITDA. With loss rates optimized and customer acquisition costs at multi-year lows, the company claims it is positioned for dramatic operating leverage, with higher margins than most financial services companies, as it scales origination volumes.
If Dave can continue demonstrating that its AI capabilities drive sustainable competitive advantages and expanding margins, it will further strengthen the argument that the company isn’t just a tech-enabled lender but an AI company that operates within financial services.
What’s interesting for us as private market investors is just how similar the story of Dave is to the new companies we’ve backed since the explosion of AI tools in late 2022 and early 2023. Since the widespread adoption of these tools in software development, data analysis and content creation, we’ve seen dramatic growth of customers, sales and revenue at the earliest stages. For those technical founders that can most benefit from these tools, the impact has been extreme: companies growing very quickly, with small teams and minimal dilution.
Dave essentially replicated this formula for success: leveraging cutting edge technology, lean operations and rapid development cycles. But they also did this at scale - while operating as a public company. However, given the differential between how Dave has performed and many of its peers who stayed private throughout this period, this author would argue that it precisely because Dave was public, that allowed it to first avoid – and now benefit from – the creative destruction the market is now heaping on those firms that missed the AI revolution in financial services.
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