Calgary and Winnipeg-based challenger bank Neo Financial has secured $362 million CAD in Series D financing as the FinTech scaleup looks to offer Canadians more competitive alternatives to traditional banks.
The financing, which closed last month, consists of $112 million CAD in equity and $250 million CAD in debt. The all-primary equity component was smaller and came at a lower valuation than Neo’s unicorn-minting $185-million CAD Series C round in 2022.
Led by an undisclosed Chinese investor, the round featured a number of notable tech leaders, including Shopify co-founder and CEO Tobi Lütke, Slack co-founder Stewart Butterfield, PointClickCare co-founder and executive chair Mike Wessinger, and Roblox co-founder and CEO David Baszucki. It brings Neo’s total equity funding to $384 million CAD and total overall funding to more than $650 million CAD.
“Now, it’s really about becoming the primary financial relationship for Canadians.”
Jeff Adamson,
Neo Financial
In an interview with BetaKit, Neo co-founder and chief commercial officer Jeff Adamson said that the debt portion is made up of a combination of asset-backed lending and venture debt provided by an undisclosed consortium of Canadian banks and credit unions (Adamson declined to share the exact debt breakdown). Neo plans to use asset-backed lending to support its new credit card products, including the Neo World Mastercard and Neo World Elite Mastercard.
Adamson declined to disclose Neo’s lead Series D investor or share the company’s latest valuation with BetaKit. He claimed that the company’s Series D round came at “really great terms” for Neo employees and existing shareholders.
Additional details have emerged following the publication of this story. As first reported by The Logic and independently confirmed by BetaKit, public filings indicate that a single, undisclosed Chinese investor led Neo’s latest round, with its Series D shares granting rights to Neo’s latest investors over earlier backers.
Approximately $69 million of the $112 million invested in Neo’s Series D round—roughly 60 percent of the equity funding—came from a single, undisclosed Chinese investor, according to documents posted to SEDAR and reviewed by BetaKit. These documents indicate that nearly $83 million in total came from international investors, raising questions as to whether or not Neo remains a Canadian majority-owned business.
Other documents posted online by federal regulators and reviewed by BetaKit appear to indicate that the company’s Series D financing is a structured round that grants seniority and some voting rights to its newest backers at the expense of earlier investors. Adamson denied that the round was structured to BetaKit, noting that no warrants, options, or higher liquidation preferences were provided on top of the shares.
Adamson attributed Neo’s decision to not share the name of its lead Series D investor to a lack of media release approval, but claimed that Chinese investor is “an experienced global investment firm” that has “invested in a number of leading FinTechs around the world.”
Adamson told BetaKit that Neo is majority-owned by Canadian and American investors and remains a Canadian majority-controlled business following this round. He said there were no changes in governance or control and no board seats were provided as part of this round, noting the unnamed lead investment was made passively in a minority position.
Becoming one of Canada’s fastest-growing firms
Neo has built a reputation as a fast-growing company: it recently topped Deloitte’s 2024 Technology Fast 50 list and The Globe and Mail Report on Business Magazine’s latest annual Top Growing Companies list. According to Deloitte’s list, Neo posted 154,022 percent revenue growth between 2020 and 2023. However, Adamson declined to share Neo’s actual revenue or an updated customer count (Neo last reported surpassing one million customers in 2022). According to The Globe’s list, Neo’s 2023 revenue was between $75 million and $100 million.
Two years ago, the challenger bank offered just a single product; today, it offers eight. The company plans to use the new financing to launch more products and expand its existing offerings. According to Adamson, Neo’s vertical integration enables the FinTech company to roll out new financial services products and features at an “unmatchable” pace.
“We’ve basically sprinted and got to near-product parity with [legacy Canadian] banks offering credit cards, bank accounts, term deposits, high-interest savings accounts, investments, [and] we became a mortgage lender, so we have that breadth of products,” Adamson said. “Now, it’s really about becoming the primary financial relationship for Canadians.”
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In addition to the undisclosed Chinese investor, Neo’s equity Series D funding was provided by a group that includes new backers Butterfield, Wessinger, Baszucki, and Vancouver-based Version One Ventures, and existing Neo investors like Peter Thiel’s Valar Ventures—which led the FinTech scaleup’s Series A, B, and C rounds—Toronto-based Golden Ventures, San Francisco’s Afore Capital, Peter Thomson’s Thomvest Ventures, and Lütke.
Adamson noted that Lütke had invested “a small amount” previously. “This is really him doubling down,” Adamson said.
“We need a culture of going for gold in Canada and this is precisely what the team at Neo Financial has,” Lütke said in a statement, echoing his previous comments about the country’s “go-for-bronze” culture at BetaKit’s Town Hall earlier this year. “[Neo’s] growth is proof that it’s possible to build world-class products here in Canada.”
“A completely different market”
Launched in 2019 by the founders of Winnipeg-based online food ordering service SkipTheDishes, Neo offers a variety of spending, saving, investing, and mortgage products for Canadians through a combination of business-to-business and direct-to-consumer FinTech. Today, it helps companies power loyalty and rewards programs and offer co-branded cards and other services. Neo works with Tim Hortons, Cathay Pacific, and Hudson’s Bay—which reportedly holds a stake in Neo—among others.
This round comes two and a half years after Neo became a unicorn when it closed $185 million in Series C funding at a more than $1 billion valuation in May 2022.
As the tech and VC market has cooled amid the macroeconomic downturn, many startups have struggled to fundraise. This has been especially true in FinTech, as 2023 saw VC investment and deal activity in Canada’s FinTech sector drop by 30 and 50 percent respectively, year-over-year.
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“There’s no question it’s a completely different market today than it was back in 2021, 2022,” Adamson said. “We look at, how do we build a long-term, durable business that is going to be able to weather the highs and the lows, and I think the fact that we’ve been able to raise one of the largest FinTech rounds globally this year is really a testament to the strength of the team that we have Neo, the quality of the products that we’ve built, and the incredible opportunity we have in front of us.”
Adamson indicated that Neo’s Series D financing came at a lower valuation, but declined to disclose how exactly it valued the FinTech scaleup. “While it’s lower than our previous watermark, this round is in line with the multiples raised by the leading global challenger banks,” he claimed.
Last month, Toronto-based Neo competitor Koho Financial announced $190 million in funding to fuel its growth, expand its lending book and product offerings, and support its efforts to become a bank and obtain a Schedule 1 banking licence. Koho’s financing consisted of $40 million in equity and $150 million in debt, and according to The Globe and Mail, it came at a flat $800 million valuation.
Balancing priorities and staffing changes
It has not all been smooth sailing for Neo. The Logic reported in 2023 that the company had struggled to grow its consumer-facing business and retain customers. BetaKit spoke with Neo last year about its push to help more companies offer embedded finance. At the time, Neo co-founder and CEO Andrew Chau said that embedded finance had been a part of Neo’s strategy since the beginning, but noted that the challenger bank had begun more actively selling the offering to businesses.
This April, The Free Press reported that Neo had quietly laid off an unspecified amount of staff in Winnipeg for unexplained reasons. In July, The Free Press reported that Neo had the provincial funding it was previously promised cut slightly by the Manitoba government after creating fewer positions and training fewer people than expected.
LinkedIn Insights indicates Neo’s headcount has dropped by 21 percent to 751 over the past year. When asked whether the company had made layoffs during this time, Adamson said Neo has “a high bar” for performance, which he noted has “driven efficiencies in the business,” but claimed Neo has not made any “structured layoffs” during this time. Neo currently has over 600 employees, down slightly from the more than 650 it had in 2022.
Neo, which is dual-headquartered in Calgary and Winnipeg, recently opened its third Canadian office in Toronto, setting up shop on Bay Street, where it hopes to tap into the city’s talent pool.
“Toronto is a real hub for not only tech talent, but of course, financial services talent,” Adamson said, noting that Neo plans to hire for some key roles in the city, including banking positions.
UPDATE (11/12/24): This story has been updated to reflect new information about Neo’s Series D round obtained from company filings, as well as supplementary commentary shared by the company.
Feature image courtesy Neo Financial.