Spurred by the growth of financial products designed to support Canada’s underbanked, Toronto-based FinTech startup Koho has secured $210 million in Series D financing to democratize access to wealth creation in Canada.
One of the largest FinTech funding rounds ever raised in Canada, the financing comprises $150 in primary capital, $10 million in secondary for early shareholders and members of the Koho team, and a $50 million debt facility. The round was led by US-based holding company Eldridge, with follow-on funding from past investors Drive Capital, TTV Capital, and Portage Ventures. BDC, HOOPP, and Round 13 Capital also participated in the round. According to the company, the new funding puts Koho “very close” to a $1 billion unicorn valuation.
“It’s easy to forget how most people live in Canada,” Eberhard said, noting that over half of all Canadians are currently living paycheque to paycheque.
The investment from Eldridge is notable, given its prolific portfolio of investments covering the gamut of finance (Wealthsimple, via secondary purchase), technology (Epic Games), and sports and entertainment (the LA Dodgers, Cloud9 Esports, and for some reason, Bruce Springsteen’s back catalogue). Koho CEO Daniel Eberhard told BetaKit that he was excited by Eldridge’s long-term focus and operator-led team, but it’s clear talking to him that the founder has larger strategic opportunities in mind given the breadth of industries and consumers the holding company reaches.
“They can merge those worlds of entertainment and technology,” Eberhard said of Eldridge. “It can mean all kinds of interesting things.”
It’s no wonder, then, that the company says it will use the funding to staff up, increase its marketing spend, and expand into new product verticals. But it’s the products that Koho launched last year that best explain the massive new round.
From the beginning, Koho’s goal has been to offer banking alternatives to Canadians, but it has been a long road to achieve core feature parity with traditional financial institutions (Koho is not a bank, but partners with a variety of banks and federally regulated financial institutions to deliver its products). That changed last year with the launch of its Credit Building feature, where the startup issues customers a line of credit for a $7 monthly subscription fee to help them build their credit scores. The launch gave Koho the core services consumers expect to see from a traditional financial institution: savings, spending, and credit.
Now, Koho’s credit offerings are not as… robust as most traditional financial institutions, but that criticism misses the point: Koho is targeting a different audience and mission than Canada’s traditional bankers.
“It’s easy to forget how most people live in Canada,” Eberhard said, noting that over half of all Canadians are currently living paycheque to paycheque. Additional data expands on the challenge: while 28 percent of Canadians are underbanked, per market research firm Mintel, another six percent are without a bank account at all.
It’s here where Eberhard draws a clear distinction between his company and its competitors, noting that while traditional FIs are focused on wealth creation, 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,” he said.
For Koho, that means making “it really simple and easy for people to establish credit and build credit scores,” but also ensuring they can access their pay faster.
The question has always been: can Koho disrupt Canadian banking before Wealthsimple disrupts them?
The other service Koho launched last year was its Instant Pay service, allowing employees of participating employers to access up to 50 percent of their paycheque every day at no cost. The product is an evolution of its partnership with Hyr which gives every Koho user the ability to access $100 of their pay early at no cost or interest. Both are solutions to allow Koho customers to better manage their expenses and provide a wider buffer in case of emergencies.
“There’s no doubt that a two-week cycle to pay folks is a legacy approach,” Eberhard said.
Beyond checking and saving, Eberhard now considers these two new products core to Koho’s business, and that core business seems to be booming. The company has surpassed 500,000 users, with over a quarter of them using Credit Building, averaging a 20 point increase to their credit scores in six months (by comparison, US-based Self Financial, which offers a similar product, claims a 32 point bump over 12 months). Koho wouldn’t say how many people are using its Instant Pay product, but did note that those who are using it do so an average of six times per month.
“This is our flywheel,” Eberhard said.
But traditional financial institutions are only one half of the competitive equation for Koho. Instant Pay places Koho contra Calgary-based ZayZoon, but that’s not the FinTech startup that overshadows the Canadian market, nor is Calgary-based challenger bank Neo Financial. It’s Toronto-based Wealthsimple, which raised $750 million at a $5 billion valuation in 2021 on its steady march towards IPO or becoming Canada’s first FinTech super app (or both).
The question has always been: can Koho disrupt Canadian banking before Wealthsimple disrupts them?
It’s here where Koho’s aggressive turn into wealth democratization over, say, simplification is key to carving out its own sustainable piece of the Canadian market. While it would appear at first glance that both companies ostensibly have the same target customer (ageing millennials who woke up one day to sadly realize they’re adults), Wealthsimple’s aggressive foray into active trading and embrace of cryptocurrency proves that not to be the case (well, Wall Street Bets aside). Wealthsimple doesn’t seem to be interested in Koho’s target customer.
For his part, Eberhard remains confident Koho has found product-market fit and the financing necessary to both scale and win.
“I think we can build a $50 billion business if we do our jobs well.”
Images courtesy Koho.
