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Discover Bank is launching its first venture capital fund to support the growth of companies working on financial health. | DBT PHOTO BY MIKE ROCHELEAU[/caption]
WILMINGTON – The online banking and credit giant Discover Bank has had roots in Delaware for more than a century, but it recently launched a new effort to invest in startups that could make a difference in the lives of individuals and small businesses.
Last month, it launched the Discover Financial Health Improvement Fund, a $36 million venture capital fund that will invest in startups and early-stage technology companies that are developing solutions to improve financial health of consumers and entrepreneurs. While common for many other large companies across the country looking to get an early edge on emerging technology, it marks the first time that Discover has formed a VC fund to make equity investments in companies.
Matthew Parks, vice president of Discover Bank, said they have invested in community development initiatives, including financial literacy programs, for years around Delaware through its Community Reinvestment Act (CRA) Fund. It invested $274.1 million in community development initiatives in Delaware and the region in 2020 and 2021.
While much of that investment has targeted affordable housing, including low- and moderate-income homebuyer support and multifamily project financing, and small business support through its Grow Delaware funds, Discover sought to do more.
“Now that we've got a pretty sizable portfolio from a CRA perspective, it only makes sense to diversify a little bit and actually get more into our core business. Discover is a consumer financial institution, we're not a commercial financial institution, so we wanted to be able to make these investments to support the consumer,” Parks told Delaware Business Times. “We started this fund to try to find the best technologies, products, and services available to bring them to Delaware.”
While the fund is not limited to Delaware-based companies, Parks said he was hopeful that Delaware could be used as a test market for some companies.
The $36 million fund took about five years to establish and will partner with Financial Health Network and two investment firms, ResilienceVC and Chartline Capital, to manage the investments, Parks said.
Financial Health Network, a nonprofit consultancy on financial health, will evaluate startups for their potential impact on improving financial health.
“With nearly 20 years of expertise identifying and supporting fintech innovators that are moving the needle on financial health, we are well positioned to support Discover’s new fund and its mission,” said Adeeb Mahmud, chief program officer at Financial Health Network, in a statement.
Through Financial Health Network, Discover was introduced to ResilienceVC, a Washington, D.C.-based seed-stage venture firm investing in embedded fintech startups. It had already worked with global nonprofit Accion to start the Accion Venture Lab to support such investments. With Discover, it will manage earlier-stage investments.
Vikas Raj, co-founder and managing partner at ResilienceVC, said in a statement, “Tahira and I started ResilienceVC to support the next generation of fintech startups in the U.S. who are driving financial resilience for all Americans. We are thrilled to partner with Discover to augment our funding and support for these companies.”
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Ben du Pont | PHOTO COURTESY OF BEN DU PONT[/caption]
In looking for a manager for later-stage companies, Parks reached out to Ben du Pont, co-founder and managing director at Chartline Capital Partners, a broad-based, business-to-business venture investment firm, for advice. That conversation led to Chartline’s involvement.
In a statement, du Pont said, “Throughout time, new technologies have made people’s lives better. Chartline is honored to partner with Discover to invest in companies leveraging new financial technologies to improve the lives of low- and moderate-income people, communities, and small businesses.”
Parks said that he was encouraged by the partnership forged between Resilience VC and Chartline Capital on how to manage the growth of portfolio companies, noting that the deal’s structure benefits both as seeded companies succeed.
And if those startups can find their footing, it could lead to new economic development for the First State.
“The goal here is that if it gets a seat at the table, we're going to be able to hopefully sell Delaware to these companies,” said Parks, a Delaware native. “If they do well and they can grow and build, we’re going to pitch them to come here.”
