ScaleFactor Archives - �� News

NY-Based NorthOne, A Digital Challenger Bank For Small Businesses, Raises $21M Series A

Mary Ann Azevedo — Tue, 10 Mar 2020 14:00:37 +0000

, a digital challenger bank focused on small businesses, announced this morning a $21 million Series A raise.

Boston-based led the round, which included participation from and . The financing brings NorthOne’s total raised since its 2016 inception to $23.3 million.

NorthOne aims to provide small business owners (such as hairdressers and bakers), freelancers and startups with an easy-to-use banking application. The company says its offering includes multi-language customer service teams, enhanced deposit and payment features for cash-reliant businesses, and “seamless” overseas vendor payments, among other things. NorthOne recently moved its headquarters from Toronto, Ontario, to New York.

CEO co-founded the startup with his own upbringing in mind.

“I grew up in a family of small business owners where everybody would be going through occasional painful cycles of closing books and chasing invoices,” he told �� News. “So that in many ways influenced who we are trying to target.”

NorthOne spent a few years building out the product, conducting research with 100 small business owners across America, undergoing compliance testing and “finding the right partners.”

The startup launched its API-enabled, mobile-first banking platform in private beta last June, at which time Bensoussan said, the company already had a waitlist of 100,000 businesses requesting accounts. The startup had accomplished all its “in beta goals” by August, so went public on the app store at that time. In November, it released on Google Play. It currently has the “bare bones” of a desktop product in place. It serves as a SaaS (software as a service) operator, offering monthly subscriptions.

“The role of a bank is not to just keep money safe and move it around occasionally,” Bensoussan said. “We want to go beyond banking and into the back office of companies and take the busy work right off their plates so the owners can have more time to focus on building their business.”

The company’s strategy is to “uniquely” address each community, incorporating new products and services based on the differing needs of businesses depending on their markets.

Specific features include branch-free banking; dedicated sub-accounts for things like rent and payroll; mobile check deposits; integrations with software such as Quickbooks and Expensify; and the ability to give your bookkeeper “read access.”

Growth

Since its launch last August, NorthOne has been growing nearly 130 percent month over month and counts “thousands” of small businesses as customers, according to Bensoussan. The company has grown its staff from about 12 a year ago to nearly 40 today.

“The kind of businesses we’re growing with are the kind I used to know growing up. They’re the core of industry across America, the ones you walk by on the way to work,” he told me. “That really means a lot to me personally.” Many have 20 or fewer employees. Some of the NorthOne’s largest markets are in the South and the Midwest.

NorthOne also aims to visualize cash flow for its customers so they can “prevent oops moments” such as buying a $10,000 oven when the money may not all be there.

“The vast majority of failures are due to cash flow mismanagement and illiteracy,” Bensoussan said. “That’s the problem we’re attacking by trying to educate in a non-intimidating way and making it super easy to understand the health of a business, and get that information in real time.”

Looking ahead

The company plans to use its new capital to expand its marketing efforts and speed up the growth of its customer acquisition programs. It also wants to hire more product, software engineering and customer service staff.

All of what NorthOne is doing sounded a bit like what an Austin-based SaaS operator, , is working on as well. (I wrote about that company’s raise last year.) ScaleFactor is focused on building a back office for small- and medium-sized businesses.

So I asked NorthOne how similar (or not) they are.

Its answer: “ScaleFactor can be a great solution for bigger companies that have more complicated expense management needs. For most small businesses, the burden doesn’t come from expense management but from the burden of daily banking. So while Scalefactor’s product is awesome, it isn’t set up to replace their bank account.”

That said, NorthOne is apparently compatible with ScaleFactor’s software.

Meanwhile, Battery Ventures’ Shiran Shalev said his firm has been closely following the rise of challenger banks in Europe.

“It’s inevitable that similar disruption would hit the U.S. market next–particularly in business banking,” said Shalev, who is joining NorthOne’s board, in a written statement. “We believe NorthOne is well on its way to building a leading challenger bank for SMBs in the U.S., and are excited to partner with management to realize this vision.”

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Austin Reaches Top 10 In US Venture Markets With Record Funding In 2019

Mary Ann Azevedo — Mon, 13 Jan 2020 16:28:25 +0000

2019 was a good year for Austin.

Companies, big and small, continued to flock to the city in droves. Several venture capital firms based in Austin announced nine-figure funds, a new unicorn was born, and venture funding hit record numbers. Plus, those venture rounds included more global investors than ever.

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So as the year and decade have officially drawn to a close, we thought it would be a good time to quantify some of the recent growth Austin has experienced. When I asked our data guru, Jason Rowley, to pull some numbers, I had a few hunches about what he’d find. And I’m pleased to report that I was right.

Let’s start with the numbers.

Venture funding in Austin totaled $1.84 billion for the year. That’s up 19.5 percent compared to the $1.54 billion raised in 2018 and an impressive 87 percent compared to $983 million in 2017. As is typical, Dallas-Fort Worth- and Houston-area startups trailed far behind the Texas capital when it came to venture dollars raised during the year.

Even though it sometimes feels like it, Austin is not the only Texas city bringing in venture dollars it’s just the largest (for now). Area startups brought in 61 percent of the venture dollars raised (a total of $3 billion) in the Lone Star state last year. Dallas-Fort Worth came in a fairly distant second, with Houston not far behind it.

To put Austin’s record figures in context, I asked Jason to rank Austin’s funding last year to other major tech markets in the U.S. What we found is that in 2019, Austin officially broke the top 10 when it comes to recipients of known venture capital funding. (There’s always reporting delays so these figures will most certainly change.) While the amount of dollars raised ranked significantly less than that raised in San Francisco (no big surprise), it was still respectable enough to rank No. 10.

Austin was also the only city in the top 10 to be located outside the historically largest recipients of venture capital markets of the Bay Area, Seattle, Boston/Cambridge and New York.

It also ranked seventh in terms of number of deals.

Another thing I suspected was that the Austin startup scene was maturing and our data proved that theory. The city has historically been known for its emerging startup scene, but that’s slowly changing. As you can see below, in 2015 seed/angel rounds made up more than half (56 percent to be exact) of the venture rounds closed. By 2019, they made up just 43 percent. Meanwhile, early-stage rounds ticked up by 10 percent and late-stage rounds by 3 percent.

Drilling down

Austin both started and finished the year on a strong note, while in between was on the slow side. In the fourth quarter in particular, Austin startups raised a combined $575.4 million, up 89.4 percent from $303.7 million from Q4 2018. Deal volume was down – the money was raised across 34 deals in Q4 2019 compared to 48 in Q4 2018, another indicator of a maturing market.

A new unicorn was born during that three-month period that we (of course) covered. In October, , a marketplace for on-demand services and skilled labor in the energy industry, raised a $300 million Series D round led by (a16z). The round values the company at $1.9 billion, according to . It also marked the largest funding round raised by a Texas company in all of 2019, according to �� data. The round also represented more than half of all venture that was raised in Austin during the fourth quarter.

That round took place just days after AI startup $100 million Series C, which was led by and included participation from , among others.

The three largest rounds in the state in 2019 weren’t all in Austin, at least. Dallas-based raised in February before by pharma giant in May. And, Houston-based biopharmaceutical company (formerly known as ViraCyte) announced , which Jason covered in May. ��貹��ǲ��Ծ��پ��ǲ�’s raise marked the fourth largest in Texas as a whole for the year.

VCs weigh in

in April 2019 announced the close of its second fund, topping it out at $105 million. The 6-year-old venture firm primarily invests in early-stage startups with a focus on the Texas market. I talked with co-founders and partners and to get their thoughts on what went down in 2019.

The year was “definitely a blockbuster,” Srinivasan said. LiveOak signed 10 new investments in 2019, and of those 10, seven were in Austin. The activity was “indicative of a tremendous surge in really high-quality company formation underway in this market.”

Austin has historically been known for its large number of software startups. I’ve also noticed a serious uptick in real estate-related companies here, which made me curious about which sectors the LiveOak team has seen emerging. That’s when Srinivasan introduced me to a new acronym: Firetech — finance, insurance and real estate.

“We’re seeing a lot of activity in those industries,” he said. Indeed, during the year, SaaS fintech startup raised a $60 million Series C just seven months after closing its $30 million , and just over a year after closing its $10 million . Another example lies in real estate startup (and LiveOak portfolio company) July 2019 close of $25 million in debt and equity financing.

Meanwhile, Shamapant agreed the Austin market is maturing.

“Years ago, people asked us why there were so many large financings in the Bay Area and not in Texas,” he said. “We always told them it was just a question of time. The companies that could raise those big financings just started getting funded four to five years ago. Now the Austin market is finally to the point where there are plenty of companies that have seen that kind of maturity. I think we are finally there now.”

Partner said he believes the growth of so many large tech companies in Austin (such as Apple and Google) is having a direct impact on the startup scene.

“Their presence is bringing a lot of talented folks here, both technical and business talent, who end up either working for a startup or founding one,” he said.

Additionally, people are flocking to Austin from both coasts (but particularly ). I examined the trend in this story and . The city’s (relatively) lower cost of living, among other factors, is significant.

S3 Ventures’ Engineer has also observed that more VCs are looking at Texas.

“More firms in general are identifying Texas as a geography in which they want to invest,” he said. “There’s been a real structural change where more VCs are including Texas as a stopover they make on a regular basis.”

In 2018, Austin-based S3 Ventures (which also focuses on Texas startups) saw six exits. In 2019, it was focused on investments and put $50 million into 17 companies, with three of those being new investments. Eighty percent to 85 percent of its portfolio is based in Austin.

Meanwhile, Silverton Partners’ believes that Austin’s record funding is in line with the enthusiasm and bullishness of the overall economy in 2019. For those who are unfamiliar; 16-year-old Silverton Partners is Austin’s most active venture firm and is in the process of raising a targeted $120 million sixth fund. In 2019, Silverton made 20 investments, including five new ones. It also saw a nice exit in being by in January for $225 million. (Just last week, it had another exit in women’s shaving startup being acquired by P&G, which we covered here.)

He believes that overall record fund sizes have led to increased competition which in turn has led to “many late-stage venture investors in search of value in new geographies like Austin.”

Chen also acknowledged Austin’s overall growth as a city and tech hub. As mentioned above, Austin, and Texas more broadly, has been a primary beneficiary of the talent flight out of the Bay Area.

Chen said he sees it firsthand.

“I receive emails nearly every day from startup founders and employees asking for tips on Austin,” he told me.

When it comes to trends, Chen pointed out that Austin’s startup scene is also gaining momentum in two other important areas.

For one, marketplace and aggregation platforms are raising large sums of capital (digital health startup April 2019 $50 million raise is one example). Secondly, 2019 saw startups that use artificial intelligence in their software bring in large rounds. Examples include SparkCognition and ScaleFactor.

Chen said: “Austin has been a great market for these businesses to achieve more efficient growth with a concentration of specialized talent and the benefit of a labor cost arbitrage against the Bay Area.”

Methodology

The data presented in this report is based on a snapshot of �� data from early January 2019. Re-running the numbers in the future may yield slightly different results for Q4 2019 and prior quarters as new data gets added to �� over time. Funding round data for private companies is often subject to reporting delays, particularly affecting seed and early-stage rounds. For more information about �� News’s methodology, check out the Methodology page.