Neo Financial takes aim at Canadian banks with $360-million Series D

Calgary and Winnipeg-based challenger bank Neo Financial has secured $360 million CAD in Series D financing as the scaleup looks to build on its growth and offer Canadians more competitive alternatives to traditional banks.

The financing, which closed last month, consists of $110 million CAD in equity and $250 million CAD in debt. In addition to new and returning investors, the round features 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 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 banks and credit unions (Adamson declined to disclose the exact breakdown). Neo plans to use the asset-backed lending to support its new credit card products, including the Neo World Mastercard and Neo World Elite Mastercard.

The all-primary equity component of Neo’s Series D round was smaller and at a lower valuation than Neo’s unicorn-minting $185-million Series C round in 2022.

The round comes on the heels of significant growth for Neo. The company recently claimed the top spot on Deloitte’s 2024 Technology Fast 50 list, posting 154,022 percent revenue growth between 2020 and 2023. However, Adamson declined to share Neo’s actual revenue or customer count.

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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Neo’s equity Series D funding was provided by a group that includes new Vancouver-based investor Version One Ventures and existing Neo backers 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.”

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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Launched in 2019 by the founders of SkipTheDishes, Neo aims to reimagine spending, saving, investing, and mortgages for Canadians. 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. 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,” Adamson 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.

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.

Feature image courtesy Neo Financial.