Challenger bank based in Calgary and Winnipeg Neo Financial has secured CA$362 million in Series D funding as scaling FinTech seeks to offer Canadians more competitive alternatives to traditional banks.

The financing, closed last month, includes C$112 million in equity and C$250 million in debt. The financing, closed last month, includes C$112 million in equity and C$250 million in debt. The fully primary component of the shares was smaller and had a lower valuation than Neo’s unicorn currency. 185 million Canadian dollars Series C round in 2022.

Led by an undisclosed Chinese investor, the round brought together a number of notable tech leaders, including Shopify co-founder and CEO Tobi Lütke, Slack co-founder Stewart Butterfield, co-founder and executive chairman of PointClickCare, Mike Wessinger, and Roblox founder and CEO, David. Baszucki. This brings Neo’s total equity funding to CA$384 million and total global funding to over CA$650 million.

“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 business officer Jeff Adamson said the debt portion is made up of a combination of asset-backed loans and venture debt provided by an undisclosed consortium of banks and credit unions (Adamson did not share the exact breakdown or whether these organizations are based in Canada). Neo plans to use asset-backed loans to support its new credit card products, including the Neo World Mastercard and the Neo World Elite Mastercard.

Adamson declined to disclose Neo’s lead Series D investor or share the company’s latest valuation with BetaKit. He said the company’s Series D round was on “really, really good terms” for Neo employees and existing shareholders.

Additional details have emerged following the initial publication of this story. As first reported The logic and independently confirmed by BetaKit, public filings indicate that a single undisclosed Chinese investor led Neo’s latest round and that Neo’s Series D shares granted rights to its latest investors over backers previous ones.

About $69 million of the $112 million invested in Neo’s Series D round, or about 60% of the equity funding, came from a single, undisclosed Chinese investor, according to filings posted on SEDAR and reviewed by BetaKit . Those documents indicate that nearly $83 million in total came from international investors, raising questions about whether or not Neo remains a majority-Canadian company.

Other documents posted online by federal regulators and reviewed by BetaKit indicate that the company’s Series D funding is a round structured which grants seniority and certain voting rights to its new backers at the expense of previous investors.

BetaKit reached out to Neo to ask additional questions regarding the identity of its Series D lead and whether it remains a majority Canadian company.

Neo has built a reputation as a fast-growing company, recently topping Deloitte’s rankings Fast50 Technology List 2024 and The Globe and Mail’s report on Business magazine’s latest annual report List of Top Growing Companies. According to Deloitte’s list, Neo saw revenue growth of 154,022% between 2020 and 2023. However, Adamson declined to share Neo’s actual revenue or an updated customer count (Neo last said times having exceeded one million customers in 2022).

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Two years ago, the challenger bank only offered one product; today, it offers eight. The company plans to use the new funding to launch more products and expand its existing offerings. According to Adamson, Neo’s vertical integration allows the FinTech company to roll out new financial services products and features at an “unmatched” pace.

“We sprinted and achieved near product parity with (formerly Canadian) banks offering credit cards, bank accounts, term deposits, high interest savings accounts, investments, ( and) we became a mortgage lender, so we have that. product line,” Adamson said. “Now it’s really about becoming the primary financial relationship for Canadians.”

In addition to the undisclosed Chinese investor, Neo’s Series D equity funding was provided by a group that includes new backers Butterfield, Wessinger, Baszucki and Vancouver-based Version One Ventures and Neo investors existing companies like Valar Ventures of Peter Thiel, who led FinTech. scaleup series A, BAnd C rounds—based in Toronto Golden companiesAfore Capital of San Francisco, Thomvest Ventures of Peter Thomson and Lütke.

Adamson noted that Lütke had already invested “a small amount.” “He’s really the one doubling down,” Adamson said.

“We need a gold-digging culture in Canada and that is precisely what the Neo Financial team has,” Lütke said in a statement. echo his previous comments about the country’s “go-for-bronze” culture at the BetaKit town hall earlier this year. “(Neo’s) growth is proof that it is possible to manufacture world-class products here in Canada. »

RELATED: Neo Financial joins Canada’s unicorns as Peter Thiel’s Valar triples its stake with a funding round of $185 million

Like technology and Venture capital the market has cooled against the backdrop of the macroeconomic slowdown, many startups had difficulty raising funds. This has been particularly true in the fintech sector, as 2023 was marked by venture capital investments and deals in the fintech sector in Canada. drop by 30 and 50 percent respectively, from one year to the next.

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 to Canadians through a combination business-to-business and direct-to-consumer FinTech. Today, it helps businesses set up loyalty and rewards programs and offer co-branded cards and other services. Neo works with Tim Hortons, Cathay Pacificand Hudson Bay, which would have holds a stake in Neo, among others.

This cycle comes two and a half years after Neo became a unicorn when it closed $185 million in Series C financing for a valuation of over $1 billion in May 2022.

“There is no doubt that the market is completely different today than it was in 2021 and 2022,” Adamson said. “We’re looking at how to build a long-term, sustainable business that can withstand the ups and downs, and I think it’s really a testament to the fact that we were able to launch one of the largest FinTech funding rounds in the world this year. strength of the team we have at Neo, the quality of the products we have built and the incredible opportunity we have in front of us.

Adamson indicated that Neo’s Series D funding had a lower valuation, but declined to disclose how exactly he valued the FinTech scaling. “While lower than our previous watermark, this cycle is in line with multiples noted by the world’s leading challenger banks,” he said.

RELATED: Neo Financial lands first place in Deloitte’s Technology Fast 50 2024

Last month, Koho Financial, a Toronto-based Neo competitor, announced $190 million in financing to fuel its growth, expand its loan portfolio and product offerings, and support its efforts to become a bank and obtain a Schedule 1 banking license. Koho’s financing consisted of $40 million in equity and $150 million in debt, and according to The Globe and Mailits valuation is a flat rate of 800 million dollars.

It hasn’t all been easy for Neo. The logic reported in 2023 that the company was struggling to grow its consumer-facing business and retain customers. BetaKit spoke with Neo last year about its efforts to help more businesses offer integrated financing. At the time, Andrew Chau, co-founder and CEO of Neo, said embedded finance had been part of Neo’s strategy from the beginning, but noted that the challenger bank had started selling more actively to businesses.

This month of April, The free press reported that Neo had quietly laid off an unknown number of employees in Winnipeg for unexplained reasons. In July, The free press reported that Neo had the provincial funding it needed previously promised slightly reduced by the Manitoba government after creating fewer positions and training fewer people than expected.

LinkedIn Insights says Neo’s headcount fell 21 percent to 751 over the past year. Asked if the company had made any layoffs during that time, Adamson said Neo had “a high bar” for performance, which he said had “driven the efficiency of the company.” company”, but claimed that Neo had not carried out any “structured redundancies” during this period. . Neo currently has more than 600 employees, slightly down out of the more than 650 it had available in 2022.

Neo, with headquarters 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 not only for tech talent, but of course for financial services talent,” Adamson said, noting that Neo plans to hire for some key positions in the city, including banking positions.

UPDATE (11/11/24): This story has been updated to reflect new information about Neo’s D series.

Featured image courtesy of Neo Financial.