Acorns Grow Inc., the Irvine-based fintech startup that’s attracted investments from big name investors, is shifting its route to Wall Street.
The micro-investing app this month canceled plans to go public via a reverse merger with Pioneer Merger Corp., a special purpose acquisition company or SPAC.
That deal, first announced last May, placed a $1.5 billion “pre-money” valuation on Acorns, which is best known for its spare-change investing and checking account app.
“Given market conditions, we will be pivoting to a private capital raise at a higher pre-money valuation as we continue on our path to 10 million paid subscribers saving and investing for a better future,” Chief Executive Noah Kerner said in an emailed statement to the Business Journal.
A traditional IPO is now expected for Acorns, though a time frame for such an offering hasn’t been disclosed.
SPAC Setback
The change in plans comes amid a challenging period for SPACs, the ranks of which have proliferated over the course of the pandemic.
In recent months, SPACs have lost popularity on Wall Street as many firms that used the blank check vehicles to go public—including some based in Orange County—ended up with stock values far lower than their initial $10 prices. Critics of the process also said insiders creating SPACs have collected too much in fees and shares. Â
Acorns is one of the more prominent firms to call off their reverse mergers with a SPAC.
Other SPAC deals canceled in recent months include Wynn Resorts Ltd.’s online betting unit, grill-maker BBQGuys and software provider ServiceMax.
“We continue to believe that Acorns is not only a category leader but also a category creator,” Pioneer Chairman Jonathan Christodoro said. “Its value proposition is built around inclusive, long-term financial wellness that we believe will continue to compound over time.”
The New CFO
Acorns’ initial SPAC prospectus was filed before it hired as its new Chief Financial Officer Wall Street veteran Rich Sullivan, formerly of Twitter, AT&T; and DreamWorks.
That prospectus forecast the company’s revenue would explode from $39.6 million in 2019 to $309 million in 2023. A November update predicted 2021 sales would climb 77% to $126 million.
Acorns also predicted the number of paid subscribers would rise from its current 4.6 million to 8.1 million in 2023.
It had some red flags, such as predicting it won’t have adjusted profit nor positive cash flow from 2021 to 2023.
Sullivan, who often talked to analysts and investors in prior financial roles, earlier this month said that “Acorns has exceeded its public forecast.”
Along with existing offerings, Acorns is working on a new service for later this year called Customizable Portfolios that will allow users to invest a small portion of their money in individual stocks.
The expansion for Acorns into direct investing will help the app rival other mobile-first platforms like Robinhood Markets Inc., plus legacy services like E-Trade and Fidelity, Bloomberg News said earlier this month.
Robinhood (Nasdaq: HOOD) went public last year in a $32 billion IPO and its stock reached as high as $85 a share. At press time, it was trading around $13 and a $10.9 billion market cap; its shares took a hit earlier this month on news of Acorns’ own Customizable Portfolios offering in the works.
$17.5M payout
Pioneer is led by Christodoro, who sits on the boards of companies including PayPal Holdings Inc., Rick Gerson, founder of Falcon Edge Capital, and Oscar Salazar, a co-founder of Uber Technologies Inc.
Acorns is required to pay at least $17.5 million in termination fees to Pioneer, which said it intends to seek another operating company to merge with. If it doesn’t complete a deal and liquidates, the amount Acorns has to pay Pioneer is increased.
“We really appreciate the partnership with Pioneer. They exceeded expectations and helped make Acorns public-company ready,” Kerner said.
Micro-Investing
Local investment banking pioneer Walter Cruttenden and his son Jeffrey founded Acorns in 2014 to bring micro-investing to the masses through a mobile app featuring nominal fees and no minimums.
Acorns helps consumers automatically invest spare change from everyday purchases into diversified ETF portfolios. Its assets under management climbed from $1.5 billion in 2018 to $5.9 billion as of Dec. 30.
“From acorns mighty oaks do grow is not just a principle of nature; it is the premise that has allowed us to grow into what we believe is the largest subscription service in U.S. consumer finance today,” Kerner wrote in the prospectus last year.
Acorns attracted notable investors such as actor Ashton Kutcher, and companies like Comcast Corp. and BlackRock Inc.
Walter Cruttenden is known locally for starting in 1984 what eventually became Roth Capital Partners LLC, which is now the largest investment bank based in Orange County. Walter Cruttenden was also the founder and chief executive of E-Offering, the investment banking arm of Menlo Park-based E-Trade Group Inc.Â
