Neo Financial has become Canada’s latest unicorn tech company after securing a $185 million CAD Series C round at a more than $1 billion valuation.
The round also marks the third consecutive round that Peter Thiel-backed firm Valar Ventures has led for Neo. Much like fellow bank challenger Wealthsimple had Power Corp and Paul Desmarais III’s backing in its early days, Neo has that in Peter Thiel-backed Valar.
“We’ve seen world-class execution on a massive opportunity from this Neo team.”
Valar first invested in Neo in 2020, leading its $25 million Series A round and $64 million CAD Series B round a year later. With total funding to date now sitting at $299 million, Neo is one of the quickest Canadian tech companies to reach unicorn status.
Founded in 2010, Valar invests in startups outside of Silicon Valley with a heavy emphasis on the finance space – backing other challenger banks such as Europe’s N26, Mexico’s Albo, and Nigeria’s Kuda. The rest of the firm’s portfolio reads like a network of financial services that would typically be offered by big banks; not dissimilar from the network that Power Corp created through direct and indirect investments in the likes of Wealthsimple, Koho, Borrowell, and others.
An investor tripling down and leading three consecutive rounds for a startup is rare. Venture capitalists that BetaKit spoke with noted such backing is “a pretty strong signal” typically indicating belief in the company’s market opportunities and its management team (Power did something similar with Wealthsimple between 2015 to 2019).
This is not the first time that Valar has backed a FinTech startup in this way. The firm led the Series A through C rounds of credit card startup Petal.
“We invest in people above all else,” Andrew McCormack, founding partner of Valar, told BetaKit. “We’ve seen world-class execution on a massive opportunity from this Neo team, and owning more of the company was an easy decision.”
For its part, Neo CEO Andrew Chau said the startup chose to have Valar lead the Series C round despite interest from other investors. Chau cited Valar’s long-term relationship with Neo and its deep understanding of the company as one reason to have the firm lead a third round. Chau also noted Valar’s experience in the FinTech space overall.
The Neo CEO emphasized that Valar brings to the table challenger bank know-how from various countries that could help inform how Neo tackles the banking oligarchy of Canada.
“Especially here in Canada, you can’t take the same cookie-cutter approach that all the other traditional banks take in terms of [customer] acquisition,” Chau told BetaKit. “Having that experience with our investors, seeing what else has worked globally, I think that experience does definitely help inform and pave a way for different thinking.”
The Series C round also brings Neo into a small group of Canadian startups that have reached a $1 billion valuation within a few years of founding. Founded in 2019, Neo reached that mark in about three years; Axelar Networks and Nexii Building Solutions both hit that mark within a two-year period, while Dapper Labs and Figment did so in three years.
The sizeable financing round will fuel Neo’s war chest as it attempts to take on not only the country’s big banks, but a broad selection of FinTech challengers, including Koho, Wealthsimple, Stack, and Mogo. While the financing increases Neo’s chances of winning market attention, competition amongst the financial disruptors is stiff.
Since launching in 2020, Neo has garnered more than one million customers with its card, savings account, and, most recently, Neo Invest (that one million includes Hudson’s Bay credit card clients since Neo took over the account in 2021). Mogo claims to have 1.5 million users; Koho around 650,000; and Wealthsimple more than two million. While Neo and its fellow FinTech startups are arming up for battle with new products and venture financing, Canada’s Big Five banks still hold the majority of the country’s consumer base.
In a competitive market with high customer acquisition costs and deep-pocketed competitors, Chau is not deterred. Nor is he deterred by Canada’s slow progress on a competitive playing field for financial service providers.
“I’d say, we’re very much still in the early innings of what [FinTechs in Canada] will eventually look like,” he said.
Chau pointed to China and Europe as examples of where he sees the potential for the Canadian financial market. In China, digital banks have been able to generate higher revenues than incumbents – buoyed by the allocation of digital banking licenses.
When asked about Neo’s potential plans to acquire a Canadian banking license Chau noted, “We’ve built strong partnerships with banks as our path to provide the best financial experience for Canadians. We’ve been able to offer all of the innovative products and features that we’ve wanted to through this partnership model, so this is something we’ll continue focusing on.” ATB Financial is the bank that powers Neo.
For its Series C round, Neo received backing from a mix of new and return investors. In addition to Valar, Altos Ventures, Maple VC, and Golden Ventures, which led Neo’s seed round (Golden was also notably an investor in Chau’s former startup, SkipTheDishes). Chau noted that other existing investors also returned for this round – both institutional and angel – though declined to disclose details.
New investors that came on board for the latest round are Tribe Capital, Blank Ventures, Gaingels, and Knollwood Advisory. The group also brings a wealth of financial knowledge to the Neo table, with Tribe having backed the likes of cryptocurrency exchanges Kraken and FTX and checkout startup Bolt Financial, which is in the midst of a lawsuit.
The round also included secondary capital that allowed for early investors and employees to sell a portion of their shares to new investors. The secondary was in addition to the $185 million, with Chau declining to share the amount other than noting it was small, comparatively.
Neo plans to use its newfound capital to continue expanding its product suite. The Calgary-based startup has revealed that it plans to launch its mortgage product later this year. The company also has plans to expand into Québec, and increase its already 650-person team. Neo is currently hiring for more than 100 roles for its Winnipeg and Calgary offices.
“Our mission has always been to be that one-stop-shop for Canadians,” said Chau. “So how do we continue innovating across the board, from saving, spending, buying a home, or buying a car? That’s really how we think about where we’re heading, and what we want to achieve.”