Armed with $40M in fresh capital, fintech Stash says it's moving toward an IPO

Stash, an investing app, is taking advantage of a tool that’s been around for some time – a convertible note. The company told TechCrunch exclusively that it just raised $40 million through one of these mechanisms, led by early and existing backer T. Rowe Price.

It’s an interesting wrinkle for Stash. Convertible notes, also known as a convertible debt, are essentially short-term loans that may later be converted to equity. Startups like using them because as CEO Liza Landsman explained it in the case of Stash, it gives the company “the runway to get to profitability without a valuation.” At the same time, convertible notes underscore that investors in this current market have the upper hand. Firms that make loans in this way typically have the option of either making interest off the loans or to convert these loans into equity by purchasing warrants, which have a discount on the stock.

Either way, Landsman describes the move as a win for Stash, a startup that aims to offers lower and middle income consumers an affordable way to invest, and has aspirations to go public in the relatively near future. As part of that effort, the company also announced today that Amy Butte, former CFO of the New York Stock Exchange, has been tapped to serve as its first independent audit chair.

“An audit function that has independent oversight for the company is a critical path for any company, but if you happen to be in consumer fintech, it’s twice as critical,” said Landsman, who joined New York-based Stash in February after spending five years as a partner at venture firm NEA. “This new capital puts us in a position to be public market ready… [We want] to be a thriving, profitable and private market company so that we're not subject to the whims of where the public market finds itself."

Why it chose to skip venture capital

Stash intentionally opted not to raise more capital via the venture route in large part due to market conditions.

“We didn't want to do a priced round because of the volatility in the market — and because of our proximity to profitability, we didn't have to do it,” she added. Stash is on its way to becoming profitable by the end of 2024, according to Landsman.

Stash last raised a venture round in 2021 -- a $125 million raise at a $1.4 billion valuation. A mix of new and existing backers also participated in the latest financing, including Union Square Ventures and Goodwater Capital. The company has now raised about $550 million in equity and debt since its 2015 inception.

Last October, the company had said it expected to surpass $125 million in annual revenue. It actually ended the year “a little bit down from that,” according to Landsman. However, margins are up, she said.

“That was a very purposeful choice that we…made in the current market -- to focus on a better balance of growth and profitability,” Landsman told TechCrunch in an interview. “While we were a little bit shy of that mark, we have at the same time, continued to grow at a healthy clip and improved the gross margin of the business substantially.”

Specifically, she said, Stash ended 2022 “just a little bit north of 50% gross margin.” Landsman told TechCrunch that the company was projecting to end 2023 with a nearly 75% growth margin.

“Our run rate hasn't exceeded the pace of growth that we were originally targeting at the beginning of the year,” she added. “The number of subscribers is about the same because we've been constraining growth."

Today, Stash has 2 million active subscribers that the company says have collectively set aside nearly $3 billion in savings over time.

The company has also made a concerted effort to cut costs, conducting more than one layoff in the past year. It started 2022 with about 500 employees. Today, it has about 320, although it has plans to hire about another 15 workers by year’s end. It has made some strategic hires this year as well, bringing on Chien-Liang Chou from Dave and Salesforce as its chief technology officer (CTO).

Said Landsman: “We really were focused on bringing in capital to invest in the future growth of the business and we were very fortunate to be in a position, coming out of our last board meeting this summer, that one of our early existing investors and board observing member, T. Rowe Price reached out post-board meeting and said, ‘If you're thinking about bringing in some incremental capital to spur growth, we'd love to lead that.’ ”

Competitive space

Stash operates in the same space as the likes of Acorns and Robinhood -- with Acorns being a more direct competitor since it also targets a similar customer profile. Stash targets lower and middle income consumers with plans that start at $3 a month.

The company claims that "with just 1 cent," customers can buy fractional shares of stocks and funds, build their own diversified portfolios, and learn how to invest "confidently." It also offers a debit card that "rewards" users with a percentage of their purchases back in stock.

One thing Stash is not? A neobank. Emphasizes Landsman: “We provide banking as a service as a convenience to help facilitate investing, but we don't think of ourselves as a neobank or banking platform.” Like Acorns, Stash also derives 81% of its revenue from subscriptions whereas Robinhood is more “transactional,” she said, “and focused more on the upper bounds of middle income consumers.”

Added Landsman: “We encourage our customers to think long-term about their investments — and unlike most perceived competitors in our space, we do not need our customers to make frequent ‘trades’ that are neither in their best interest nor are they the foundation for our revenue.”

For Butte, Stash stands out in a competitive fintech landscape.

She told TechCrunch in an interview: “I think that there are many fintech companies that are out there that appear more like tools. What really attracted me to Stash besides Liza and the management team is that Stash is a fintech, and as a business, has longevity and is positioned to generate a great amount of innovation. And right now, they’re preparing themselves to be a part of the next class of companies preparing for the actionality of public markets -- whether that’s two or three years from now.”

Rebecca Kaden, managing partner at Union Square Ventures, believes that Stash is “uniquely positioned within fintech because of the ways it blends investing tools with advice and proprietary tech.”

She added: “For too long, only the wealthy have been guided to the best next step in their financial lives; Stash does it at scale, with an eye towards simplicity.”

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