Koho lays off 14 percent of staff

Koho office
CEO claims cut doesn’t extend runway, but will support growth efforts.

Koho has made a 14 percent workforce reduction, following in the footsteps of the many tech companies trimming their headcount as tough market conditions continue.

Koho confirmed the layoffs to BetaKit, with CEO and founder Daniel Eberhard noting they were company-wide. Around 42 full, part-time, and contract staff were affected. Koho’s headcount now sits at 300 people following the staff cut.

“We’re not keeping the cash on the balance sheet, we’re putting it into growth to grow faster.”

The layoffs follow what Eberhard explained as a restructuring in the fall that was not based on market conditions. This restructuring saw Koho let go of 15 people related to its Instant Pay product and user success teams. At the time, Eberhard said Koho was still hiring, but being mindful of how. “We’re hiring judiciously across product, [engineering], and a few other functions,” he said.

In a recent interview following the 14 percent reduction, Eberhard noted that this continues to be the case. As part of the company’s latest cutbacks, Koho cancelled 12 roles it was hiring for, but another 15 remain open, including in product and marketing areas, as well as some leadership positions.

This coincides with Eberhard claiming that this layoff is not about extending Koho’s runway but about being able to spend more capital on growth initiatives. Eberhard said that the staff cuts help Koho move towards profitability but don’t extend Koho’s runway as the company’s plan for when it will raise another round of capital has not changed, despite current market conditions leading the startup to reduce its spend on headcount.

“We’re taking money out so that we can put it back,” he said. “We’re not keeping the cash on the balance sheet, we’re putting it into growth to grow faster.”

Koho most recently secured financing in February 2022 when it raised $210 million in a Series D round (the majority of which was either primary capital or debt financing). That round put Koho “very close” to a $1 billion unicorn valuation.

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At the time, Eberhard told BetaKit that Koho has found product-market fit and is now focused on using its capital to both scale and win the challenger bank market. More recently, Eberhard said that Koho remains well-capitalized from that round and has a strong balance sheet.

The CEO added that Koho is not planning to raise another round this year, though is keeping an eye on the funding market and will do so if the terms are right. “We have a lot of faith in the metrics and the performance [of Koho] and so don’t feel like we have any pressure to raise until the markets are more respective,” Eberhard said.

“The unit economics are in the right place. We have the right business, and we just need to scale the existing user base under the existing economics. So that’s kind of what this is,” said Eberhard, noting that Koho grew its revenue by 150 percent last year.

“When you can take operating expenditures out of the business, and then put that back in growth, you obviously get double the value because you’re required capital to breakeven is lower, and you’re also putting that money into growth, which is then generating revenue,” the CEO claimed. “So that was kind of the rationale [for the layoffs].”

RELATED: Canadian tech layoffs continue as tough year comes to a close

Eberhard didn’t expand on the specific product areas that Koho is looking to double down on but stated that the company is focused on growing its user base generally. Speaking with BetaKit in the summer of last year, it was noted that Koho has found scale with products like Credit Building and Instant Pay. Notably, the Instant Pay team was affected by Koho’s restructuring in the fall with Eberhard noting that Koho shifted away from a sales-based model. “We are still focused on this vertical but we’ve changed how we go to market, focusing on larger enterprise-style partners vs many small partners.”

The CEO called the restructuring a decision Koho “would have made in any market” and one that was “independent of market conditions.”

Koho’s latest layoff falls more in line with market pressures that include rising interest rates and a tougher fundraising market. However, Eberhard emphasized that Koho is well-capitalized. Koho has raised around $300 million in total funding to date from backers that include Portage Ventures, Drive Capital, NAVentures, and TTV Capital.

Despite Koho saying it’s more focused on growth than extending its runway, the company has followed a similar trajectory to many startups. That is to slow hiring, enact a freeze (even a temporary one), and then make cuts once the realization about continuing downward market trends hits.

RELATED: Koho secures $210 million to give more Canadians access to wealth creation

With the current market conditions, even well-capitalized companies are being more prudent about where they spend capital. Investors, who are facing their own trouble accessing capital in some instances, are also looking for their companies to be more reserved in their spending, which can lead to pressure to make company layoffs.

Eberhard acknowledged the investor pressure. “Of course, there’s much more scrutiny around the path to profitability and the underlying economics, [and] the fundamentals of these businesses,” he said, adding, however, that ultimately the decision to make layoffs is the CEO’s.

With Eberhard claiming that Koho’s goal with these layoffs is to reinvest in growth initiatives, it would appear that while the FinTech startup is being more prudent about its spending, its focus remains winning the challenger bank market.

As the CEO noted last year, Koho sees itself as differentiated from traditional financial institutions that are focused on wealth creation because Koho is squarely focused on products that give more Canadians access to wealth creation in the first place.

“The areas that we feel offer the most value, and the hardest place for banks or anyone else to compete with us, are the 50 percent of individuals living paycheque to paycheque,” Eberhard said.

Challenger banks face challenges

With many challenger banks not yet profitable, Koho is far from alone in reevaluating its spending. In May last year, Wealthsimple, once one of the highest-valued tech firms in Canada, implemented a hiring freeze and later laid off approximately 13 percent of its nearly 1,300 employees.

Wealthsimple investor IGM Financial later noted that the startup’s user growth had slowed and assets under management fell in the second quarter of 2022. This followed IGM reducing the valuation of its stake in Wealthsimple.

On a global stage, with FinTech funding decreasing, a number of companies in the sector have made layoffs. However, there still seems to be interest and investor appetite for challenger banks. Earlier this month, United Kingdom-based Zopa raised $93 million USD at a more than $1 billion USD valuation—even if it was a smaller round than the startup had set out to raise.

And while some industry experts say challenger banks that are unprofitable yet carrying lofty valuations are due for a reckoning, the current economic environment can also present opportunities for FinTech companies like Koho. An impending recession could significantly impact the company’s customers and its ability to spend money as freely, but as Eberhard noted last year, these circumstances could also prompt consumers to think more conscientiously about what financial products offer them real value.

“Koho’s business seems to be counter-cyclical so we’ve been performing very well,” said Eberhard. “We grew revenue almost 150% last year and got our user economics to the right place. Now it’s really about a disciplined approach to scaling a business that’s working.”

Feature image courtesy Koho.

Meagan Simpson

Meagan Simpson

Meagan is the Senior Editor for BetaKit. A tech writer that is super proud to showcase the Canadian tech scene. Background in almost every type of journalism from sports to politics. Podcast and Harry Potter nerd, photographer and crazy cat lady.

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