Another Look At Acorns’ Growth

Nearly two weeks back, reports surfaced that Acorns, a service that helps people save and invests small amounts of money regularly, was looking to raise around $100 million at a valuation of over $700 million. Given those large numbers, I decided to dig in.

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Acorns is a company with plenty to like. It helps round people’s purchases up, investing the difference. As I noted at the time, Americans on average haven’t saved enough money for emergency funds, let alone retirement. So, apps and services that help make saving money easier and simpler are solid in my books.

But a $700 million valuation? That was the question. I noodled a bit on the firm’s subscription pricing for its investment products, noting its assets under management (we could only get so close to the correct number) and prior business model that charged 25 basis points on saved funds. (Acorns now charges flat $1, $2, and $3 monthly rates depending on your goals, instead of a percentage of savings.)

After that post went out, the company reached out to link me to its CEO. We spoke earlier today, and he provided some extra context on the company’s revenue profile. So, let’s talk about what I learned.

Two Things

Acorns CEO Noah Kerner declined to disclose company’s current revenue but highlighted two places where the firm generates top line that I missed.

First, its “Found Money” program that provides savings for Acorns users from partner retailers and service providers, generates revenue for the startup. That’s a pretty damn good deal — Acorns gets more value into its users’ accounts while making money for itself.

And, the company’s debit card-checking account program has 300,000 pre-orders according to Kerner. As Acorns is providing the program as part of its $3 per month service, which includes its normal savings program (called “Acorns Core”) and its retirement account service (“Acorns Later”), it doesn’t look like a revenue driver at first blush. But, I forgot about interchange rates, which are powering a wave of so-called neo-banks. (More here, if you are curious.)

So how do interchange rates help Acorns? Observe how the New York Times describes how Chime, a neo-bank, makes money from the system:

“Chime, which has 100 employees in downtown San Francisco, makes money by collecting a fee from Visa every time its customers use Chime’s debit card to make a payment. The company has received $105 million in investments from venture capital firms.”

That’s what Acorns is doing as well, I reckon. (Acorns has raised over $150 million.)

We can’t work our way to a sufficiently solid revenue figure for Acorns from the above to determine a revenue multiple range, but I can safely say that I was undershooting the company’s top line before. Which is good for Acorns and its investors, and probably its users as well, who depend on it to help them save.

Illustration Credit: Li Anne Dias