Toronto-based Koho Financial has raised a $190 million CAD round of debt and equity funding as it continues its efforts to secure a Schedule 1 banking licence.
The $40 million equity financing was led by PROPELR Growth with participation from return investors Drive Capital, TTV Capital, and BDC Capital. New York-based Rockefeller Capital, founded by oil baron John D. Rockefeller, also participated in the round as a new investor.
Eberhard said Koho is “meaningfully through” the second phase and expects to clear it by the end of next year.
PROPELR Growth managing partner Sanjiv Samant will join Koho’s board of directors as a result of the round.
Koho also secured an additional $150 million in debt through a credit extension that was provided in partnership with new and existing partners, the company said in a statement.
The secured capital will be used to fund Koho’s growth, expand its lending book and product offerings, and support its effort to secure a Schedule 1 bank licence.
In an on-stage conversation with BetaKit editor-in-chief Douglas Soltys at Elevate this week, Koho CEO Daniel Eberhard said that the company didn’t necessarily need the capital but wanted to create a buffer and keep its foot “on the growth pedal.” The credit facility also allows Koho to perform loans without using the capital on its balance sheet, an expensive process the company had been doing up to this point.
“Our [bank licence proposal] says our lending book is going to be of a certain size, and our deposit base is going to be of a certain size, and we need to start building our way towards that,” Eberhard said. “This allowed us to do it without using our own capital, which would have been very expensive for the organization to go and raise $200 million of equity.”
Koho became transparent about its plans to become a bank earlier this year, shortly after it secured an $86 million Series D extension at the end of 2023. The FinTech firm had previously secured $210 million in February 2022.
While Koho already provides a variety of bank-like offerings, including credit building, spending, and high-interest savings products, it has to rely on third-party partnerships with regulated players like Peoples Trust to deliver its financial products.
RELATED: Koho set to launch line of credit offering through partnership with Propel Holdings
As part of the Elevate panel, Eberhard and Koho chief banking officer Peter Aceto laid out the multiple phases of acquiring a banking licence.
The first phase required Koho to outline its business plan with the Office of the Superintendent of Financial Institutions (OSFI). Koho has since moved onto the second phase, which involves planning policies and infrastructure in conjunction with OSFI, before it can move into a final audit phase. Eberhard said Koho is “meaningfully through” the second phase and expects to clear it by the end of next year.
Despite being deep into the process, Eberhard said product velocity is central to the business, and Koho will prioritize that over a banking licence.
“We’re trying to run this in a way where we stay really intellectually honest through the process, and if it doesn’t fit [Koho’s needs] in six or 12 months, or if we learn something where we say this is no longer the best path for the business, then we have to be prepared to pull up,” Eberhard said.
RELATED: Koho rolls out reporting feature to help Canadian renters build their credit history
The FinTech firm has been rapidly rolling out features in recent months. In August, Koho launched a rent reporting and cashback feature, allowing users who pay rent through its platform to build credit history, as well as a tenant insurance offering through a partnership with Walnut Insurance.
Last month, Koho announced an upcoming line of credit offering through a partnership with fellow Toronto-based FinTech firm Propel Holdings. The partnership will see Koho introduce and manage the line of credit as one of the core lending products in its app while Propel powers the technology, underwriting, servicing, and funding of the loans, which will range between $1,000 and $15,000, through its lending platform Fora Credit.
Koho has more new offerings coming soon, including a buy now, pay later tool that’s currently in beta and a travel insurance offering.
Feature image courtesy of Elevate.
UPDATE (10/04/2024): This story has been updated with commentary from an Elevate panel featuring Peter Aceto and Daniel Eberhard.