Varo Bank Raises $510M Series E at $2.5B Valuation

Varo Bank Secures $510 Million in Series E Funding

Varo Bank, the first U.S. neobank to receive a national bank charter, has announced a substantial $510 million Series E funding round, achieving a valuation of $2.5 billion.

This significant, oversubscribed financing occurred approximately seven months after the fintech company secured $63 million in funding. That previous round was spearheaded by NBA star Russell Westbrook, who also assumed an advisory role focused on initiatives supporting underserved communities, particularly communities of color.

Growth and Financial Performance

While Varo has not publicly disclosed specific revenue figures, the company reports a doubling of opened accounts to four million within the 13 months following the attainment of its bank charter. Revenue has also tripled during this period.

The latest investment brings the San Francisco-based startup’s total funding to $992.4 million since its founding in 2015. Notably, this single round exceeds the total capital raised throughout the company’s history by nearly $30 million.

Previously, Varo had not revealed its valuation, but confirms a “5x” increase since May 2020, reaching the current $2.5 billion.

In February, the company reported 3 million opened accounts. This indicates an addition of one million new accounts over the subsequent seven months. Prior to the $241 million Series D round in June (which included participation from U2’s Bono), Varo had approximately 2 million banking and savings accounts.

Investment Details

Lone Pine Capital led the current funding round, joined by numerous new investors, including Declaration Partners, Eldridge, Marshall Wace, Berkshire Partners/Stockbridge, and funds managed by BlackRock.

Existing investors, such as Warburg Pincus, The Rise Fund, Gallatin Point Capital, and HarbourVest Partners, also participated.

National Bank Charter and Impact

Last year, Varo obtained a national bank charter from the Office of the Comptroller of the Currency (OCC), alongside regulatory approvals from the FDIC and Federal Reserve, establishing Varo Bank, N.A. – a fully regulated bank without physical branches.

CEO and founder Colin Walsh emphasized that securing the charter has significantly boosted the company’s growth. It eliminated the need for intermediaries and expanded margins.

“Direct access to the payment network has enhanced our ability to deliver substantial value to both customers and shareholders,” Walsh stated.

Path to Profitability and Expansion

Varo is currently not profitable, but Walsh anticipates achieving profitability within approximately two years of becoming a bank. He believes the charter allows for simultaneous pursuit of growth and profitability.

“We can pursue growth and profitability concurrently,” Walsh explained. “Profitability is within a three-year timeframe from when we became a bank.”

Over the past 13 months, Varo has nearly doubled its workforce to around 800 employees and expanded operations to a third hub in Charlotte, North Carolina.

Walsh acknowledged that the scale of the funding round exceeded initial expectations. He noted the strong investor interest reflects a culturally relevant moment for the company’s success and impact.

Future Plans and Potential IPO

The selection of Lone Pine Capital as the lead investor aligns with Varo’s potential plans for a public offering. The firm specializes in investing in high-growth private companies and guiding them through the IPO process.

“An IPO is on the roadmap,” Walsh confirmed. “There’s significant value to be created as a public company when the timing is right.”

Existing investors are not pressuring for an immediate IPO, and Walsh anticipates any such move will occur within the next couple of years. He also suggested potential future global expansion.

Core Offerings and Mission

Founded in 2017, Varo aims to be “an all-digital, mission-driven, FDIC insured bank designed around the modern American consumer.”

The company’s primary products include premium bank accounts with no minimum balance or monthly fees, high-interest savings accounts, and “tech-first features” designed to aid in saving and money management.

Recent launches include Varo Advance, a short-term line of credit offering up to $100 in cash advances, and Varo Perks, a cashback rewards program. The company also plans to introduce Varo Believe, a credit-building program with a flexible security deposit and no fees.

Capital Allocation and Vision

The new capital will be allocated to continued investment in product development, risk management, and design. Varo’s goal is to reach “tens of millions” of customers and establish itself as a “loved brand” recognized for its social impact.

From its inception, Varo has prioritized financial inclusion, serving marginalized and underserved communities historically excluded by traditional financial institutions. This remains a core value for Walsh.

“We’re on the cusp of creating an iconic brand that’s doing good in the world,” he said. “I want to be like the ‘Patagonia of banking,’ where people feel good about the company and its impact.”

Competitive Landscape

Varo Bank operates in a competitive market alongside other all-digital banks, including Chime, Current, N26, Level, Step, Moven, Empower Finance, Dave, GoBank, Aspiration, Stash, Zero, and others.

Like many fintech companies, Varo experienced a surge in business during the pandemic, as consumers re-evaluated their banking relationships and sought more value and convenience.

David Craver, portfolio manager at Lone Pine Capital, praised Varo’s achievements, stating the team is “well on their way to building one of America’s next generation of iconic companies.”

Todd Schell of Warburg Pincus highlighted the firm’s early alignment with Walsh’s vision of the bank charter as fundamental to a sustainable business model. He believes Varo has the potential to “reinvent financial services for tens of millions of people around the world.”