Bullish on the Chime IPO? Here’s another fintech making huge waves.

FINTECH SHINES WITH POTENTIAL CHIME IPO

Chime is a fintech darling, and the company is prepping to go public in 2025.

I know Chime on an intimate basis - I work on their ad agency team to help architect their digital branding strategies.

From what I’ve observed up close, it is a phenomenal business and easily one of the main stalwarts of this cohort of fintech companies.

Now unless you are an accredited investor that can scoop up secondary shares, your chances of investing in Chime prior to their IPO are essentially zero.

Chime’s latest valuation put the company’s worth at $25B, so this is going to be a massive payday for Chime’s earliest investors. 

Luckily for you, ANOTHER fintech with high-flying potential is allowing retail to invest early on.

I’ve spent the past week digging into this opportunity to see if it’s worth putting my own money in…let’s dive in.

ARRO - MORE THAN JUST A CREDIT CARD

Arro Finance is built on the belief that traditional credit is flawed. There are millions of creditworthy individuals…who cannot access credit, or simply want to embark on journey to take control of their finances.

Arro offers introductory credit lines and a gamified learning experience. 

They’ve had a killer 2024…

• 300,000 app downloads

• 251,000 financial lessons given

• 5x’d revenue since January, currently at a $1.3M run rate

But Arro is now in a race for its life - more on that later. First, let me actually explain their business.

Arro is a credit platform - users get access to credit via their Arro credit card. Their spending limit starts out low - between $50-$200 depending on their creditworthiness.

To determine creditworthiness, Arro uses a proprietary blend of information from the consumer’s credit & banking history, their spending habits, behavioral traits, survey data, and learning progress (I’ll get to that last one in a sec).

This all results in a user’s Arro score, which dynamically updates each day.

Despite being an ideal product for low-income/credit individuals, I was surprised to learn that Arro charges its members an annual fee.

The fee hasn’t deterred users from joining, as they’ve gone from 6,000 → 14,000 users in the past year (133% growth).

The annual fee is as low as $12 for the first year, then moves up to $36 after that. Arro charges a fee for a couple reasons:

• It deters individuals that have no intention of paying back their bill from signing up

• It goes to cover the costs of onboarding a customer; connecting their bank, pulling credit history, paying Arro’s identity provider.

• Incentivizes users to actually use the card and integrated learning platform

Based on their current member base of 14,000 users, the annual membership fee alone will generate $504,000 in revenue after the 1st year’s discounted price.

Arro makes money outside of just the annual membership - namely through interchange, interest on customer balances & late fees.

ARRO’S AI-POWERED LEARNING PLATFORM

The other side of Arro’s app is a gamified learning platform that rewards members for learning healthy financial habits.

Members are given personalized lessons in a bite-sized format (~5 min), and can earn small increases to their line of credit for completing them. 

And then there’s Artie, Arro’s AI financial coach. Members can get instant advice on financial decisions & credit questions by chatting with Artie, who is available 24/7/365.

Arro has grand plans of white-labeling the learning platform for other institutions to use. This could be an additional high-margin revenue stream for the company - however, I excluded it from my projections since it’s a bit too early to factor in.

ARRO’S CREDIT CARD GETS MAJOR 2025 BOOST

In 2024, Arro actually had to throttle back growth to make sure they could adequately service their existing customers.

One of the reasons behind this will also be one of the largest tailwinds heading into 2025.

When Arro first started, they lended credit to users from their own bank account. While Arro is venture-backed, their cash stockpile isn’t endless.

Arro had to wait for the money to flow back into their coffers before allowing more users on the platform and lending it out again.

This all changed in December, when they secured a $30M debt facility with a banking partner. What this means is that when Arro lends credit, they can tap into a $30M well of funds.

With this new debt facility, Arro can turn on its growth engine to take in more users.

ARRO’S RACE FOR ITS LIFE

Now back to Arro’s race for its life.

Right now Arro is unprofitable, burning about $400K a month. That’s a lot.

Arro is a quintessential ‘economies of scale’ business. They have a high amount of fixed costs due to banking fees & regulations that requires a salaried workforce of 15 employees.

But, their variable costs don’t increase that quickly since they’re an automated software product (they’re not building a new app every time a customer signs up).

The business model only works if they can reach a sizable scale, because the value of each incremental customer outpaces the incremental cost that comes with them.

The visual I use for economies of scale businesses is one of a person pushing a heavy object up a mountain.

On the way up, the journey is massively difficult. You’re working incredibly hard but still burning through cash with almost no end in sight.

However, if you’re able to get the heavy object up the hill (scale to breakeven), it’s all downhill from there. Profits start flowing in, and growth can accelerate as you have more capital to reinvest into the business.

Businesses also have more leverage with their vendors as they scale. Arro may be able to negotiate more favorable terms with their banking partners for example.

The way down seems idyllic, but it’s really freaking hard to get there.

Many startups run out of cash before they can get to this point - I should know, I personally invested in one that flamed out.

Arro is no different from other economies of scale businesses - and right now they’re fighting to reach the mountaintop.

MODELING OUT ARRO’S FUTURE

I obtained a detailed breakdown of Arro’s financial performance in 2024, and spoke at length with its founder to understand the story behind the numbers.

Arro believes they’ll achieve profitability in 2026, but I ran a few financial models to stress test this claim for myself.

On top of pure user growth, there’s 2 main tailwinds helping them get there which I factored into my model:

• After 1 year of membership, the annual fee increases from $12 → $36. I conservatively estimated 60% member retention, but the reality is this should be even higher.

• As members build credit history and increase their spending limits, Arro should be able to collect more in interest from its users having higher balances.

Both of these result in a higher ARPU (average revenue per user), and brings Arro closer to profitability.

The question becomes - can they reach profitability before their cash runs out?

Modeling off of 2024 is challenging, because there were periods of time where Arro purposefully throttled back growth. As a result, they’ve grown between 4% - 25% each month.

I expect that with the $30M debt facility, Arro will be able to see more consistent growth towards the mid/high end of that range. 

Here’s when Arro reaches profitability based on a few different growth scenarios:

• 5% MoM Member Growth: January 2028 (35 months)

• 10% MoM Member Growth: June 2026 (16 months)

• 15% MoM Member Growth: January 2026 (11 months)

• 20% MoM Member Growth: October 2025 (8 months)

The company has approximately $2.3M of cash remaining, including the amount raised on Wefunder so far. At their current burn rate, the company has around 6 months of runway before the funds dry up.

As you can see, that outpaces even the most ambitious growth scenarios. 

Arro has options on the table however, to overcome the race against the clock. They’re in the late stages os securing a $10M investment, and have plans to raise a Series A within 2025.

None of this is guaranteed, but my general feeling is that the business model is there and financiers will be able to see that when making a decision.

The failed investment I referenced earlier was burning $2.4M a month - not even close to profitability. As a result they were unable to attract additional capital.

By the time Arro needs a cash infusion, they should be getting extremely close to breakeven - a much better position to be in when seeking capital.  

Still - there is no comparison for how important the next 3-5 months is for Arro.

If they falter on growth goals, they’ll have greater difficulty securing additional funding. And if that falls through, the company has a difficult path towards profitability before funds run out.

WILL I INVEST IN ARRO FINANCE?

I admit that this is (currently) a cash-intensive business that has a decent amount of risk involved given their runway & burn rate.

In this offering, investors get the better price of 2 options: a $34M valuation or a 20% discount to the next round’s valuation (if their Series A is at a $25M valuation, your equity converts at a $20M valuation).

I don’t know what will happen with a potential subsequent round, so we must operate from an assumption that we’re getting in at a worst-case $34M valuation.

I think the 10% MoM member growth scenario is most realistic, which is just under Arro’s own estimates. Under this scenario we see an estimated $23M annual revenue run rate by 2027.

Applying a conservative 5x revenue multiple (standard for the fintech space), we arrive at a $115M valuation in 2027.

This would reflect a 3.4x appreciation in value, or an 84% CAGR.

Even when factoring in dilution, that’s a handsome reward in just two years time should it pan out accordingly.

There’s varying degrees of risk in every investment, and as investors we must assess what risks we’re comfortable taking on. 

Running out of money before economies of scale kick in is the main risk associated with Arro in my opinion. Based on my conversations with Arro’s leadership, I have faith in the founding team to secure additional funding to extend their runway.

I’ve decided that their short-term cash burn is a risk I am comfortable taking, and believe the risk could be adequately rewarded with financial upside on the valuation front.

With that, I’ll be taking up a position in Arro.

If you would like to see Arro’s deal details for yourself, click the link above for more details!