Madden’s private equity firm, Carrick Capital Management Co., made its largest investment to date by investing more than half of the $175 million Series D round in DailyPay, a New York-based firm founded in 2015.
DailyPay’s technology permits employees to immediately gain access to their salaries rather than wait for the traditional paycheck every two weeks. It already has notable customers like McDonald’s Corp., Dollar Tree and Kroger Co., and is a frequent partner with large employers in the retail, restaurant, healthcare and hospitality industries.
“Their ability to sign up marquee names has been impressive,” Madden told the Business Journal.
“We think this market is going to explode. The majority of large employers will offer this service within two years.”
Madden is the co-founder of Carrick Capital, a private equity investor with more than $1 billion assets under management and has co-headquarters in Newport Beach and San Francisco.
Carrick primarily invests in enterprise software and tech-enabled service providers, and typically makes investments of more than $35 million in companies with $20 million to $100 million in annual sales.
It targets firms with a 15% plus annual growth rate in a total addressable market of more than $1 billion, and is profitable or near profitability.
“The team at Carrick has a demonstrable record of helping companies to scale exponentially and enter the public markets,” Jason Lee, founder and CEO of DailyPay, said in a statement. “We are excited to leverage their expertise at this pivotal time of opportunity for DailyPay.”
5.6x
DailyPay is Carrick’s fourth new investment in the past seven months. It has 14 investments overall.
“It’s been the busiest 12 months we’ve ever had,” Madden said.
Earlier this year, it exited Accolade Co. (Nasdaq: ACCD), a health benefits platform that has more than doubled its stock price since it went public last July. Carrick in 2013 led a $30 million investment in Accolade and participated in a $50 million Series D round in 2018.
“We made 5.6x our money back,” Madden said.
His firm also invests locally; Madden said Orange County is showing potential in industries such as healthcare, fintech and cyber security.
One early investment was Irvine-based project management software firm Mavenlink Inc., whose products help service companies streamline their projects.
Mavenlink Chief Executive Ray Grainger in 2019 won a Business Journal Innovator of the Year Award.
“We’re still very happy with Mavenlink,” Madden said.
Paycheck to Paycheck
Carrick has been studying the payday space for the past three years, Madden said. He noted that 70% of Americans are living paycheck to paycheck.
“It became very clear that DailyPay was the leader by quite a bit,” Madden said. “It’s at the intersection of human capital management and fintech.”
DailyPay is designed for companies that typically pay their hourly employees every two weeks, such as retailers or call centers. Employers don’t pay any fees to DailyPay.
DailyPay receives a fee up to $3 every time an employee withdraws money. The employee pays 82% less than if they were getting a payday loan, Madden said.
Most of DailyPay’s competitors give employees a loan with interest rates higher than most credit cards, Madden said.
“That’s not the right answer,” Madden said. “Think of DailyPay like an ATM.”
DailyPay has a model that is difficult to replicate, Madden said. The company’s developed a technology platform that incorporates millions of data points in the human resources landscape and is also connected into the banking system so that consumer can access their money instantly.
“It’s a frictionless transaction,” Madden said. “They’ve built an impressive set of software that integrates into payroll and time and attendance.”
Banks won’t be able to replicate it because they’d need to build the technology to know what dollar amount the employee is eligible for every day. DailyPay said it’s launched ExtendPX, its proprietary white-label solution for payroll companies.
$100M+ in 2022
DailyPay didn’t disclose its revenue, except to say it grew sales 141% in 2020. Madden said it will surpass $100 million in 2022.
DailyPay said it saw significant increases in usage in 2020, remitting payments every single minute of the entire year to over 6,000 different financial institutions in the United States. The company said it also worked out a Memorandum of Understanding with the State of California about its business practices.
Another reason DailyPay will be difficult to replicate is that all of its initial payments are from its own balance sheet. In addition to Series D funding, the company at the same time announced it’s raised $325 million of credit capital from various sources.
The company said it intends to use the newly raised capital not only to expand among the world’s largest employers but also for new market opportunities.
“The initial application of our first-of-its-kind technology platform was to redefine how money moves between employers and their employees,” Lee said.
“We are now expanding our platform to change the relationship between merchants and their shoppers, as well as financial institutions and their customers. This platform enables us to create a new financial system by rewriting the invisible rules of money.”
