- NBA star Russell Westbrook led a $63 million fundraising round in digital bank Varo.
- Varo became the first of recent US challenger banks to acquire a bank charter last year.
- The startup’s sights are now set on a new industry: consumer lending.
- Visit the Business section of Insider for more stories.
NBA star Russell Westbrook is making moves in a new arena: fintech.
Westbrook, a point guard for the Washington Wizards who was named the NBA’s most valuable player for the 2016-17 season, is leading a $63 million strategic investment in digital-only bank Varo, the startup announced on Thursday.
It’s only the latest step for Westbrook’s investment company, Russell Westbrook Enterprises, which was advised by Jefferies on the deal and has made previous investments in wellness-oriented startups like Health House (a fitness and rowing studio) and Hyperice (which sells athletic recovery tools).
Colin Walsh, Varo’s CEO and cofounder, told Insider that while Westbrook was motivated by Varo’s no-fee, easy-access banking, above all he was interested in issues around financial inclusion and inequality.
“Russell approached us,” Walsh said. “As we got deeper into exploring the kind of needs of communities of color, and just some of the inequities and some of the barriers to financial equality that exists today, we both got really engaged around this,” he added.
Walsh also said that once Westbrook was involved, interest in the fundraising increased.
“We got a much higher level of demand than we were anticipating. We were thinking this was going to be $30 million,” he said.
Varo, whose previous backers include Warburg Pincus and TPG Growth, among others, was the first of the recent US challenger banks to be granted a national bank charter by the Office of the Comptroller of the Currency, which oversees banking regulations in the US.
Regulatory approval came in July of 2020, about three years after Varo first filed its charter application. Approval came just a few months after Gallatin Point Capital and other investors, including U2 frontman Bono, contributed more than $240 million in a Series D round.
While Walsh declined to disclose a valuation, he said that the latest capital raise represented “a significant step up” to where the fintech was valued in its last round.
Taking aim at consumer lending
Walsh said that the charter approval last summer now allows Varo to “control our own destiny.”
“We’re not beholden to a partner bank,” he added.
Fintechs without bank charters can only offer checking and savings accounts by partnering with a chartered bank, which typically take fees for allowing startups to leverage their charter.
With its charter, Varo now has the ability to roll out new offerings without needing to check with a partner bank beforehand. Walsh cited things like Zelle payments —which allows users to send and receive payments between different banks — and joint accounts as examples of features Varo can now pursue as a full-fledged bank.
But it’s one area in particularly that will be a focus of the startup in the coming months: lending.
Varo already launched a cash-advance feature in December that allows customers to draw up to $100. The offering comes with no fees, for the time being, and was released in response to the pandemic. New lending tools — particularly around access to credit — will be launched in the coming months, Walsh added.
“Our ability to provide innovative solutions that help people start to build, repair, access, affordable credit is absolutely in our wheelhouse and it’s what we’re intending to do,” Walsh said. “We’re very well positioned to be a credible alternative in an industry that hasn’t been serving a lot of customers very well,” he said.
Westbrook’s investment, meanwhile, comes at a time when the landscape for online banks has arguably never been more competitive, especially as the COVID-19 pandemic has accelerated transitions to mobile and digital banking. Fintechs nonetheless continue to raise more and more money — according to one recent report from CB Insights, funding for digital banks increased 12% between 2019 and 2020.
New entrants like Goldman Sach’s Marcus are now turning their attention to checking and investing accounts, while no-fee, digital banking is quickly becoming table stakes.
As far as the public markets, Walsh said that he’s happy to take his time with Varo and is no hurry to capitalize on the rush of fintech IPOs and SPACs that have dominated headlines in recent months.
“We’re not about to announce a SPAC or anything. We are focused on building a culturally relevant brand that means something,” he said.
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