Why we give a green light to Varo Bank?
Starport Capital invests only in companies with a strong potential to breakeven within two years. The same goes for Varo, the seven-year-old digital bank we recently invested in. Varo, based in San Francisco, has a more diverse customer base in the Southeast than many neobanks. Varo obtained its own bank charter instead of partnering with an FDIC-insured bank to offer checking accounts. Fintechs with banking licenses earn 50% more profit than those without. Varo was valued at $2.5 billion with 4 million customer accounts (equal to $625 per account). In comparison, Chime's $25 billion valuation at 13 million accounts (=$1,900 per customer) appears much more reasonable.
Due to its diversified customer base, lower capital costs, and scalability of cash generation, Varo may also have the clearest path to profitability. (The ability of leadership to attract and retain talent): Momentum (Business growth & market expansion): Heat (Is the company too hot to handle?): Trajectory (Execution record): Shield (Defensibility): Bausch & Lomb filed for an IPO last week. Along with Solta Medical, Bausch Health (ticker: BHC) plans to spin off two companies into independent listed companies. After a loss of $18 million the year before, it had net earnings of $182 million in 2021. The company's revenue grew to $3.765 billion from $3.412 billion. A $522 million increase in cash flow from operations in 2020 was followed by an $873 million increase in 2021. There is a chance that this traditional cash cow business will find some love in this market.
After Bausch & Lomb changed its name to Bausch Health in 2018, I read about Valeant Pharmaceuticals' scandals and legal troubles. These problems seemed unrelated to Bausch & Lomb. However, it was renamed Bausch Health. As a drug company acquired by Valeant Pharmaceuticals, drugs were priced astronomically higher afterwards. As far as I know, none of this behavior was related to Bausch & Lomb. According to historical records, former CEO Michael Pearson might have made the best deal when he acquired Bausch & Lomb in 2013. In light of Bausch & Lomb's troubled past, it will be interesting to see if the company goes public.
Disclaimer:
CONFIDENTIAL & PROPRIETARY: The opinions expressed in this document are for informational purposes only and should not be construed as investment advice. This document is not a recommendation of, or an offer to sell or solicitation of an offer to buy, any particular security, strategy or investment product. The information contained
within this document does not represent a guarantee of performance or prediction of future performance of any aforementioned company. Starport Capital Management, LLC makes every effort to curate recent news that may be of interest, regarding each portfolio company, for the convenience of our investors. However, given the nature of privately-held companies, we cannot guarantee the veracity or entirety of information reported, only that we make every effort to aggregate our research from reputable sources. All information is subject to change. Contents of this document are not intended for use as due diligence materials upon which to base any new investment decisions.
