New, neobank SMB, snatches $90 million on a $700 million valuation – Techdoxx

New, the startup that has been building a new kind of banking service from the ground up for small and medium-sized businesses, has closed a significant round of funding to take the next step in growing its platform. He raised $90 million, a Series B round that values ​​the Miami-based startup at $700 million, funding that will be used to build its infrastructure (going from 24,000 customers to 150,000 is no small feat); add new products, specifically around loans; and win more customers.

There are several fintechs, some that describe themselves as challenging banks, in the market today serving small and medium-sized companies. (We’ve covered many of them; they include Brex, Rho, Juni, NorthOne, Lili, Mercury, Hatch, Anna, Tide, Viva Wallet, Open and more; and you could argue that Amazon, offering other money and spend management tools, is also in the space.) But Novo sees incumbents as the real “challenge” here.

“We are competing with the big banks. They are the only ones we care about because they own 99% of the market,” Michel Rangel, CEO of Novo, said in an interview earlier this month. “We believe our product has a better value for companies, but we are happy to see others also driving the charge.”

The round is being led by Stripes, with Valar Ventures, Crosslink Capital, Rainfall Ventures and BoxGroup — all of whom backed Novo in its $40 million Series A just six months ago — also participating. The startup has so far raised just over $135 million.

Many startups are getting into patterns of raising large rounds of funding in quick succession to ride their respective waves of growth and capitalizing on the huge opportunity now to attract pocket-sized investors looking for smart places to put their LP money. That’s the case here with Novo as well. The company has seen truly accelerated growth over the past year, and specifically the last six months, both in terms of the number of customers and in terms of how much their app is being used.

Novo now has 150,000 SMB customers in the US, an increase of 50,000 from last June’s numbers. And Novo has already logged $5 billion in lifetime transactions, up $4 billion from last June’s $1 billion. The company said that, as of this month, it is on track to see lifetime transactions for 2022 grow to $7 billion (although it’s only in January, that number is likely to change).

“The pandemic was a catalyst for our growth,” said Rangel, co-founder of Novo with Tyler McIntylre, who is now the CTO. Rangel noted that this Series B came on the back of the Stripes approaching the New “at the end of its Series A” after terms had already been signed. Watching its growth after that “validated” another quick round of funding, he added.

One thing that stands out about Novo is that, unlike several other neobanks, it did not adopt the “embedded financing” approach by porting a series of basic services through APIs built by third parties that focus only on infrastructure and services. backend. Instead, it decided to build its core functions from scratch in-house. (It has a large development team, mostly based in India, Rangel told me.)

“We say that everything from the underlying central processor that powers the bank to what is in the hands of our 150,000 business customers was built in-house,” Rangel said. (Middlesex Federal Savings handles the banking license, FDIC insurance, and rail access for the Novo.) Rangel added that his choice to build was partly made out of necessity, as in 2016 there weren’t many banking-as-a-service platforms. to provide those APIs. “It freed us up from someone else’s release schedule and means tighter margins,” he continued, but it has its challenges, for example, sometimes keeping the focus on the product and the investment needed to keep maintaining all this technology.

The company hasn’t fully opted for APIs either. Between its Series A and this latest round, the company launched a new Marketplace where it provides APIs for around 1,000 other apps and services that can be integrated into the Novo experience. Here, it focuses on features that fall outside the core functionality of a banking service, for example point-of-sale payments, e-commerce operations, invoice and payroll management, and more. This can actually also provide guidance to Novo on what might be more popular and potentially worthy of being considered as in-house products in the future, but for now it serves two other main purposes: it makes Novo more useful to its customers and provides more data sources for Novo to build future products.

Chief among these, Rangel said, will be a new lending product where loan applications will be evaluated quickly and (hopefully) more accurately, bringing in and considering a broader set of data that provide a more informed picture of how a company is operating. . This is no different from how, for example, Stripe and Shopify built their own cash advance and credit products; the difference here is that Novo is intentionally looking to get as much siled data as possible to get the most complete picture of a company’s financial health.

It’s not just about providing more accurate loans, but more of them in general.

“Despite being the heart of the US economy, the more than 30 million small businesses in the US have always struggled to access even basic financial services as they are constantly ignored by big banks,” said Saagar Kulkarni, a partner at Stripes, in a press release. affirmation. “What sets Novo apart is a fundamentally different approach to helping small businesses succeed. Rather than opting for incremental changes, Novo built its banking platform from the ground up so that it could not only deliver a great digital banking experience, but also deliver financial products de novo to a customer base that craves them. At Stripes, we only invest in companies that create amazing products, and Novo’s great reviews, strong retention and incredible growth make it clear that they have built something small businesses love.” Kulkarni is joining Novo’s board with this round.

As the company continues to grow, Rangel said another area being considered is hiring potential smaller players that fit into its larger strategy. That’s if it isn’t acquired first. Rangel said he has been approached by at least one major player in recent years but decided to go it alone. (This might have been for the best for other reasons too: this company has already been acquired, one of the byproducts of the changing tide due to the pandemic.)

“We did the acquisition dance,” Rangel said, “but I think we’re the ones doing the acquisition now.”

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