When BetaKit last checked in with the ‘FinTech Justice League’ (Power Financial’s portfolio of FinTech startups built to attack banking incumbents), Wealthsimple had raised a $100 million in financing ($30 million of which came from Power and its subsidiaries), while Koho raised a $42 million Series B round led by Portag3 Ventures, which is backed by Power. Now, another FinTech startup is in the mix, looking to disrupt a different sector of the financial industry: home-buying.
While many ‘Justice League’ members position themselves against financial incumbents, Nesto’s approach is a mix of both challenging the incumbents and working with them.
Nesto was co-founded by Diagram Ventures, a venture co-creation firm backed, in large part, by Portag3 Ventures. Portag3 itself has stakes in three of Canada’s most prominent FinTech startups: Koho, Wealthsimple, and Borrowell. All three specialize in financial services that frame themselves as modern alternatives to traditional banks: Borrowell provides the lending, Wealthsimple the investing, and Koho the saving and spending.
A Montreal-based mortgage-focused startup, Nesto was launched May 2018 by Malik Yacoubi, Karim Benabdallah, Chase Belair, and Damien Charbonneau. Yacoubi and Benabdallah both previously launched and sold two technology companies: Mobilito and Paymentpin. Belair has more than a decade of experience as a mortgage broker, and Charbonneau is a former McKinsey consultant.
Nesto’s mission is to simplify the mortgage financing experience. Through its online platform, Nesto analyzes the mortgage market in seconds to find the best mortgage terms available. The startup’s certified advisors are rewarded based on customer satisfaction, rather than commission, and the company is authorized to pursue mortgage brokerage in Quebec, Ontario, British Columbia, Saskatchewan, Newfoundland and Labrador, Nova Scotia, and New Brunswick.
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“There’s a weird dent in the mortgage industry today between the lenders and the customers. It’s basically one of the last things that you need to negotiate, truly,” Yacoubi, Nesto’s CEO, told BetaKit. “We were co-founded… with a very clear mission, which is getting Canadian access to more transparency about mortgage products, while empowering them to do more through the digital platform that we offer.”
While many of the ‘Justice League’ members position themselves against incumbents of the financial services industry, Nesto’s approach is a mix of both challenging the incumbents and working with them. Most recently partnering with life insurance provider SSQ Insurance, Nesto has an index of over 20 partnerships with mortgage providers across Canada, including TD and Scotiabank. Despite the pairings, the startup could still be a threat to traditional brokers, which Yacoubi said can lack transparency and simplicity in their processes.
“We’re challenging them while we’re cooperating with them,” he said of the incumbents in the mortgage industry. “Many lenders are liking the way that we are working. They want to learn more and see how we can better collaborate. We try to be as cooperative and transparent with our lender partners as we are with our customers.”
Yacoubi has also previously indicated that the mortgage industry has room for both traditional brokers and online alternatives.
“We’re a friendly competitor. It’s a market where there is a lot of competition,” Yacoubi said to the Montreal Gazette, in March. “The reality is, it’s just such a big market there will never be winner takes all. There is room for everybody.”
The 20-person startup has raised “several mini-rounds” of financing, which Yacoubi also classified as “seed extension” rounds. He did not disclose the overall amount of seed funding or the specific strategic investors, but said the capital totalled “several million.”
“We are definitely aiming to become the first place Canadians go to get a mortgage online.”
BetaKit recently spoke with Power Financial senior vice president and Portag3 Ventures executive chairman Paul Desmarais III, who introduced Nesto as the “newest member of the FinTech Justice League.” Desmarais also commented on Power’s investments into the startup, noting that it was all done through Diagram.
Yacoubi said he would also not disclose nor comment on Nesto’s investors. Diagram typically invests between $3 million and $5 million in each of its portfolio companies, taking a hands-on approach to management: after an initial upfront investment, follow-on investments are made as portfolio companies meet agreed-upon milestones. Power Financial-backed Portag3 Ventures led Diagram’s second fund, which officially closed in June.
“Diagram is a key component in our broader strategy to invest in the next generation of global financial services platforms,” Desmarais III said, earlier in the year. “My personal commitment to Diagram is unwavering because I have full confidence in the team and that the model works.”
Nesto is certainly not the only FinTech startup in the mortgage space. Lendesk, for example, connects mortgage brokers with Canadian lenders. Its platform was designed to serve as the single point of contact for brokers to submit, and lenders to approve mortgage applications. Lendesk was recently acquired by Rock Holdings, the parent company of US-based Quicken Loans.
Another company working on simplifying the mortgage experience is Moregidge, an online platform that is looking to streamline the home-buying process for brokers, realtors, and clients. Like Nesto, Moregidge was also founded in 2018, and the company also raised a $500,000 seed round in January. Its goal is to own the entire home-buying pipeline and build a comprehensive platform that includes brokers, realtors, lawyers, and clients.
Yacoubi said the goal for the rest of 2019 is to start expanding and refining Nesto’s platform to enable its clients to do more online. Nesto will be looking to accelerate growth mainly in Canada’s urban regions, and will be gearing up for new partnerships and more offers for its customer base. The CEO said the startup is on track to reach over $100 million in mortgages this year, and is expecting to increase that by tenfold next year.
“Long-term, we are definitely aiming to become the first place Canadians go to get a mortgage online,” Yacoubi said. “What we really want to do now is get access to the best mortgage products out there for our customers.”
Image courtesy Malik Yacoubi