Tag: Dave Inc

Robotics startup cofounded by Synapse CEO is raising funds with exaggerated claims about GM ties

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A humanoid robotics startup cofounded by the CEO of bankrupt fintech firm Synapse has canvassed Silicon Valley investors for funds by claiming close ties and an imminent investment from General Motors — claims rejected by the automaker.

The company, called Foundation Robotics Labs, is seeking the last $1 million in funds for an $11 million seed round, according to documents obtained by CNBC. The investor pitch claimed GM had already committed to an investment, along with the Menlo Park-based VC firm Tribe Capital.

“Foundation is building humanoid robots to take over work that humans do in factories, warehouses and eventually homes,” the startup declared.

On top of the seed investment, the fundraising document said GM was set to be Foundation’s first customer, with a targeted $300 million purchase order, and had also provided access to its factories to help them train its robots.

“GM agreed to let us collect the ground truth data in their factories,” Foundation said in the document. “Our team is in their Mexico factory this week to start the collection process. We would probably be the only company in this space with a dataset like this.”

‘Fabricated’ claims

But, according to GM and one of the startup’s founders, most of Foundation’s claims related to the automaker are exaggerated or untrue.

While GM met with Foundation executives a few times, it hasn’t allowed data collection from its factories, has no agreements for robot orders and isn’t planning an investment, according to a GM spokesman.

“GM has never invested in Foundation Robotics and has no plans to do so,” spokesman Darryll Harrison said in an emailed statement. “In fact, GM has never had an agreement of any kind with the company. Any claims to the contrary are fabricated.”

In a phone interview with CNBC, one of Foundation’s cofounders, Mike LeBlanc, confirmed GM’s points and said he was embarrassed that marketing materials existed that overstated their relationship.

“The engineering stuff we’ve done is really incredible, and it’s the bedrock of what this company will be,” LeBlanc said. “That, to me is what Foundation Robotics is.”

New Foundation

Foundation was started in April by Synapse CEO Sankaet Pathak, Tribe Capital CEO Arjun Sethi, and LeBlanc, cofounder of Cobalt Robotics, a maker of autonomous security guards, according to the company’s fundraising pitch.

It’s raising money at a time when American corporations look to automate more of their labor: 25% of capital spending by industrial companies in the coming years will be on automated systems, according to McKinsey.

The misleading fundraising pitch was shared in an email group with about 1,500 startup executives and investors this month, according to one of the recipients. The contents of the document were confirmed by someone with direct knowledge of Tribe Capital.

Tribe Capital and its cofounder Sethi declined to comment, while Pathak didn’t respond to messages seeking comment.

Fintech meltdown

The robotics startup finds itself in the spotlight after the implosion of Pathak’s other company, Synapse, which enabled fintech brands like Mercury and Dave to offer banking services by connecting them to FDIC-backed banks.

Cofounded by Pathak in 2014, Synapse went bankrupt earlier this year after some of its largest clients, including Mercury, left its platform. Mercury, which instead pursued a direct relationship with Evolve, later had disagreements with Synapse over contract issues.

The mess has left more than 100,000 Americans with a combined $265 million in deposits locked out of their accounts for more than a month, according to a trustee appointed to oversee the firm’s bankruptcy proceedings.

Making matters worse, there is an $85 million shortfall between what partner banks of Synapse are holding and what depositors are owed, and no answers yet on what happened to the missing funds, according to the trustee.

Pathak’s move to his next venture, coming on the heels of the still-ongoing Synapse failure, has raised eyebrows among some founders and investors in the startup community.

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June 12, 2024
Savings app CEO says 85,000 accounts locked in fintech meltdown: ‘We never imagined a scenario like this’

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When Adam Moelis co-founded a fintech startup named Yotta in 2019, he wanted to give Americans a new way to save money to help them cushion the ups and downs of life.

Instead, his company has inadvertently been a source of deep pain for thousands of customers who relied on Yotta accounts to receive paychecks, pay bills and save for emergencies.

The crisis began May 11, when a dispute between two of Yotta’s banking partners — fintech middleman Synapse and Tennessee-based Evolve Bank & Trust — led to the lockup of accounts at Yotta and at least two dozen other startups. Synapse declared bankruptcy earlier this year after several key clients abandoned the firm amid disagreements over the tracking of customer funds.

For the past three weeks, 85,000 Yotta customers with a combined $112 million in savings have been locked out of their accounts, Moelis told CNBC. The disruption had upended lives, forced users to borrow money for food and thrown upcoming events like surgeries or weddings into doubt, he said.

“The stories are heartbreaking,” Moelis said. “We never imagined something like this could happen. We worked with banks that are members of the FDIC. We never imagined a scenario like this could play out and that no regulator would step in and help.”

Boom & bust

The ongoing mess has exposed the risks in a corner of fintech that grew in prominence during a boom in venture investment — and it will likely reverberate for years as regulators increase scrutiny of the space.

The so-called “banking as a service” model allowed consumer fintech companies to quickly launch savings accounts and debit services, with firms like Synapse acting as a bridge between the startups and FDIC-backed banks that ultimately held deposits.

The heart of the dispute between Synapse and Evolve Bank involves a foundational function of finance: keeping accurate ledgers of transactions and balances. Synapse and Evolve disagree on how much of Yotta’s funds are held at Evolve, and how much are held at other banks that Synapse worked with.

Synapse hasn’t responded to requests for comment, and Evolve has blamed Synapse for the breakdown.

The Synapse bankruptcy has mostly ensnared lesser-known consumer fintech firms, especially after larger fintech players including Mercury and Dave fled the Synapse platform in the past year.

That has left Yotta, which encouraged users to save money with free weekly lottery-style sweepstakes, as one of the largest companies to be affected. Accounts at crypto firm Juno and at Copper, which offered savings accounts for families and teens, also have been frozen.

Non-systemic meltdown

Moelis, who has been in contact with other fintech principals impacted by the Synapse failure, estimates that at least 200,000 total customer accounts with balances are locked. While Synapse has said in court filings it has 10 million end users, it’s likely that active accounts are far smaller, Moelis said.

Adam Moelis, Co-Founder at Yotta Savings.

Courtesy: Yotta

The fintech co-founder said he believes the relatively limited scope of the issue, and the fact that most of those affected aren’t wealthy, has given regulators clearance to let the situation play out. Last year, regulators swiftly intervened in the regional banking crisis that threatened uninsured deposits of startups and rich families, he noted.

“To me, if this was happening at a larger scale, I think regulators would have done something by now,” he said. “We’ve got real, everyday Americans that aren’t necessarily wealthy and don’t have the ability to lobby that are being impacted.”

The Federal Reserve and the Federal Deposit Insurance Corp. have declined to comment on the issue. Representatives of the agencies have pointed to efforts they’ve made to encourage banks to manage the risks of using fintech partners.

‘Money doesn’t just disappear’

But developments in the California bankruptcy court overseeing the Synapse failure give Moelis hope that at least some relief — a partial release of funds, perhaps — may be coming.

Last week, former FDIC Chair Jelena McWilliams was named trustee over Synapse. Her job is to develop a plan to maintain Synapse systems and craft a solution “that allows funds to be returned to end users, to the rightful owners of those funds, as soon as humanly possible,” said Judge Martin Barash.

For his part, Moelis said he doesn’t side with either Evolve or Synapse in their dispute — he just wants the situation resolved.

“I don’t know who’s right or who’s wrong,” he said. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”

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June 1, 2024
Fintech nightmare: ‘I have nearly $38,000 tied up’ after Synapse bankruptcy

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A dispute between a fintech startup and its banking partners has ensnared potentially millions of Americans, leaving them without access to their money for more than a week, according to recent court documents.

Since last year, Synapse — an Andreessen Horowitz-backed startup that serves as a middle-man between customer-facing fintech brands and FDIC-backed banks — has had disagreements with several of its partners about how much in customer balances it owed.

The situation deteriorated in April after Synapse declared bankruptcy following the exodus of several key partners. On May 11, Synapse cut off access to a technology system that enabled lenders, including Evolve Bank & Trust, to process transactions and account information, according to court filings.

That has left users of several fintech services stranded with no access to their funds, according to testimonials filed this week in a California bankruptcy court.

One customer, Chris Buckler, said in a May 21 filing that his funds at crypto app Juno were locked because of the Synapse bankruptcy.

“I am increasingly desperate and don’t know where to turn,” Bucker wrote. “I have nearly $38,000 tied up as a result of the halting of transaction processing. This money took years to save up.”

Until recently, Synapse, which calls itself the biggest “banking as a service” provider, helped a wide swath of the U.S. fintech universe provide services like checking accounts and debit cards. Former partners included Mercury, Dave and Juno, well-known fintech firms that catered to segments including startups, gig workers and crypto users.

Synapse had contracts with 20 banks and 100 fintechs, resulting in about 10 million end users, according to an April filing from founder and CEO Sankaet Pathak.

Pathak didn’t immediately return an email seeking comment. A spokesman for Evolve declined to comment, instead pointing to a statement on the bank’s website that read, in part:

“Synapse’s abrupt shutdown of essential systems without notice and failure to provide necessary records needlessly jeopardized end users by hindering our ability to verify transactions, confirm end user balances, and comply with applicable law,” the bank said.

It is unclear why Synapse switched the system off, and an explanation couldn’t be found in filings.

The freeze-up of customer funds exposes the vulnerabilities in the banking as a service, or BAAS, partnership model and a possible blind spot for regulatory oversight.

The BAAS model, used most notably by the pre-IPO fintech firm Chime, allows Silicon Valley-style startups to tap the abilities of small FDIC-backed banks. Together, the ecosystem helped these companies compete against the giants of American banking.

Customers mistakenly believed that because funds are ultimately held at real banks, they were as safe and available as any other FDIC-insured accounts, said Jason Mikula, a consultant and newsletter writer who has tracked this case closely.

“This is 10 million-plus people who can’t pay their mortgages, can’t buy their groceries … This is another order of disaster,” Mikula said.

Regulators have yet to take a role in the dispute, partly because the underlying banks involved haven’t failed, the point at which the FDIC would usually intervene to make customers whole, Mikula added.

The FDIC and Federal Reserve didn’t immediately return calls seeking comment.

In pleading with the judge in this case, Martin Barash, to help the impacted customers, Buckler noted that while he had other financial accounts besides the one that is frozen, others are not as lucky.

“So far the federal government is not willing to help us,” Buckler wrote. “As you heard, there are millions affected who are in far worse straits.”

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May 22, 2024
Fintech CEO Chris Britt of Chime on reasons Americans don’t trust banks

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The disruption of traditional bricks-and-mortar banks by fintech companies was already occurring when the pandemic sent startups offering banking services faster, cheaper, and more digitally accessible into overdrive.

A rush of venture capital followed, with fintech companies raising more than $130 billion in 2021 alone, creating more than 100 new unicorns, or companies with at least $1 billion in valuation.

However, as the field of fintechs got more crowded and the economy has entered a more recessionary environment, funding has dried up and several fintechs have taken valuation cuts. The fintech reckoning is going well beyond private companies, as public markets have not been kind to former Disrupters Dave and SoFi, both trading well off their IPO prices. Legacy banks have seen their efforts to disruptor these disruptors fall short of expectations – for example, Goldman Sachs recently pulled back on its fintech ambitions.

Making that banking picture even fuzzier is the recent collapse of Silicon Valley Bank and the wave of concerns that followed.

But Chris Britt, CEO of Chime, which ranked No. 15 on the 2023 CNBC Disruptor 50 list, says even with much of the banking system on edge, he still sees a strong market need for fintechs.

“It’s very difficult for [the big banks] structurally to compete for the segment that we aim to serve, which is sort of mainstream middle and more lower income consumers,” Britt said on CNBC’s “Squawk on the Street” on Tuesday. “Big banks do a pretty good job with high income, high FICO score folks who have big deposits and are credit worthy, but for most Americans, the 65% that live paycheck to paycheck, the only way that big banks can make the math work on serving them is by being very punitive on fees.”

More coverage of the 2023 CNBC Disruptor 50

Addressing the part of the population that has been disillusioned by traditional banking was part of the impetus for Britt and Ryan King to found Chime in 2010. This year marks the fourth time Chime has been featured on the CNBC Disruptor 50 list.

“The trust levels that mainstream Americans have in banks is extremely low, and that was part of the opportunity that we pursued,” Britt said.

Those trust levels waned in recent weeks with the collapse of Signature Bank and Silicon Valley Bank, followed by the eventual government seizure and sale of First Republic Bank. Nearly half of the adults polled in a recent Gallup survey said they were “very worried” (19%) or “moderately worried” (29%) about the safety of the money they had in a bank or other financial institution.

Britt said that although Chime has a relationship with SVB, it “hasn’t seen much of a change as a result of the SVB situation” from members, as “99.9% of our consumer deposits are FDIC insured because they’re well below the $250,000 threshold.”

Chime’s focus on having a primary account relationship with members as opposed to other fintechs that may focus on one-off or peer-to-peer transactions has helped the company’s business be “very resilient.”

“Most of our members use Chime for non-discretionary spend; they’re going out and shopping at Target or Amazon or Subway, and they’re using it for their everyday purchases,” Britt said. The majority of Chime’s revenue comes from network partners like Visa when members use their cards at the point of sale.

Chime, which was valued at $1.5 billion in 2019, reached a valuation of $25 billion in 2021. The company became profitable on an EBITDA basis during the pandemic, Britt told CNBC in September 2020.

However, the company has not been immune from the current challenges. In November, Chime laid off 12% of its workforce, or about 160 people, in a move that Britt said would help the company thrive “regardless of market conditions.”

Still, Chime is still open to a future IPO, Britt told CNBC’s Julia Boorstin, something that the company has long been rumored for well ahead of the current frozen IPO market for new offerings from venture-backed startups.

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May 9, 2023
‘We’re alive and kicking’: CEO of banking app Dave wants to dispel doubts after this year’s 97% stock plunge

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Mobile banking app provider Dave has enough cash to survive the current downturn for fintech firms and reach profitability a year from now, according to CEO Jason Wilk.

The Los Angeles-based company got caught up in the waves rocking the world of money-losing growth companies this year after it went public in January. But Dave is not capsizing, despite a staggering 97% decline in its shares through Nov. 18, Wilk said.

Shares jumped as much as 13% on Monday and closed 7.9% higher.

“We’re trying to dispel the myth of, ‘Hey, this company does not have enough money to make it through,’” Wilk said. “We think that couldn’t be further from the truth.”

Few companies embody fintech’s rise and fall as much as Dave, one of the better-known members of a new breed of digital banking providers taking on the likes of JPMorgan Chase and Wells Fargo. Co-founded by Wilk in 2016, the company had celebrity backers and millions of users of its app, which targets a demographic ignored by mainstream banks and relies on subscriptions and tips instead of overdraft fees.

Dave’s market capitalization soared to $5.7 billion in February before collapsing as the Federal Reserve began its most aggressive series of rate increases in decades. The moves forced an abrupt shift in investor preference to profits over the previous growth-at-any cost mandate and has rivals, including bigger fintech Chime, staying private for longer to avoid Dave’s fate.

“If you told me that only a few months later, we’d be worth $100 million, I wouldn’t have believed you,” Wilk said. “It’s tough to see your stock price represent such a low amount and its distance from what it would be as a private company.”

Employee comp

The shift in fortunes, which hit most of the companies that took the special purpose acquisition company route to going public recently, has turned his job into a “pressure cooker,” Wilk said. That’s at least partly because it has cratered the stock compensation of Dave’s 300 or so employees, Wilk said.

In response, Wilk has accelerated plans to hit profitability by lowering customer acquisition costs while giving users new ways to earn money on side gigs including paid surveys.

The company said earlier this month that third-quarter active users jumped 18% and loans on its cash advance product rose 25% to $757 million. While revenue climbed 41% to $56.8 million, the company’s losses widened to $47.5 million from $7.9 million a year earlier.

Dave has $225 million in cash and short-term holdings as of Sept. 30, which Wilk says is enough to fund operations until they are generating profits.

“We expect one more year of burn and we should be able to become run-rate profitable probably at the end of next year,” Wilk said.

Investor skepticism

Still, despite a recent rally in beaten-down companies spurred by signs that inflation is easing, investors don’t yet appear to be convinced about Dave’s prospects.

“Investors haven’t jumped back into fintech more broadly yet,” Devin Ryan, director of fintech research at JMP Securities, said in an email. “In a higher interest rate backdrop where the cost of capital has been materially raised, we don’t see any abatement in investors challenging companies toward operating at cash profitability … or at the very least, demonstrating a clear and credible path toward that.”

Among investors’ concerns are that one of Dave’s main products are short-term loans; those could result in rising losses if a recession hits next year, which is the expectation of many forecasters.

“One of the things we need to keep proving is that these are small loans that people use for gas and groceries, and because of that, our default rates just consistently stayed very low,” he said. Dave can get repaid even if users lose their jobs, he said, by tapping unemployment payments.

Investors and bankers expect a wave of consolidation among fintech startups and smaller public companies to begin next year as companies run out of funding and are forced to sell themselves or shut down. This year, UBS backed out of its deal to acquire Wealthfront and fintech firms including Stripe have laid off hundreds of workers.

“We’ve got to get through this winter and prove we have enough money to make it and still grow,” Wilk said. “We’re alive and kicking, and we’re still out here doing innovative stuff.”

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November 21, 2022