Novo Raises $90M at $700M Valuation

Novo Secures $90 Million to Expand Banking Services for SMBs

Novo, a startup focused on delivering a novel banking experience specifically designed for small and medium-sized businesses, has successfully completed a substantial funding round. The company has raised $90 million in a Series B investment, bringing its valuation to $700 million.

Funding Allocation and Growth Plans

This new capital will be strategically deployed to enhance Novo’s existing infrastructure, accommodating its expanding customer base – projected to grow from 24,000 to 150,000 users. Furthermore, the funds will facilitate the development of new product offerings, with a particular emphasis on lending solutions, and drive further customer acquisition.

Competitive Landscape and Novo’s Position

The fintech sector, including numerous “challenger banks,” currently serves the SMB market. Companies like Brex, Rho, Juni, NorthOne, Lili, Mercury, Hatch (now Nearside), Anna, Tide, Viva Wallet, and Open are all active in this space. Even Amazon, with its financial management tools, is considered a competitor.

However, Novo identifies traditional, large banks as its primary competition. According to Michel Rangel, Novo’s CEO, these incumbents control 99% of the market share and are the central focus of their competitive efforts.

Investor Confidence and Series B Details

The funding round was spearheaded by Stripes, with continued participation from Valar Ventures, Crosslink Capital, Rainfall Ventures, and BoxGroup – all previous investors in Novo’s $40 million Series A round, secured just six months prior. To date, Novo has raised over $135 million in total funding.

Accelerated Growth and Key Metrics

Novo is experiencing rapid growth, mirroring a trend among startups capitalizing on favorable investment conditions. The company has witnessed significant increases in both customer numbers and app usage over the past year.

Currently, Novo serves 150,000 SMB customers across the U.S., a 50,000-customer increase since June of the previous year. Lifetime transaction volume has reached $5 billion, a substantial rise from $1 billion in June. Projections indicate lifetime transactions for 2022 will reach $7 billion.

The Impact of the Pandemic and Strategic Funding

The COVID-19 pandemic acted as a catalyst for Novo’s expansion, according to Rangel. The Series B funding materialized after Stripes proactively approached Novo following the signing of Series A term sheets. Subsequent growth validated the decision to pursue another rapid funding round.

In-House Development and Technological Approach

Unlike some neobanks that rely on third-party APIs for core services, Novo has prioritized building its central functions internally. This approach, supported by a large development team primarily located in India, allows for greater control and flexibility.

Rangel emphasized that everything from the core processing system to the customer-facing application has been developed in-house. Middlesex Federal Savings provides the necessary banking license, FDIC insurance, and access to financial rails.

Novo’s Marketplace and API Strategy

While primarily focused on in-house development, Novo has also launched a Marketplace offering APIs for integration with approximately 1,000 other applications and services. This expands the Novo experience with features like point-of-sale payments, e-commerce tools, and payroll management.

The Marketplace serves multiple purposes: enhancing customer utility, gathering data for future product development, and potentially identifying features suitable for internal development.

Future Lending Products and Data-Driven Insights

A key focus for Novo is the development of a new lending product. Loan applications will be evaluated swiftly and accurately by leveraging a comprehensive dataset to assess a business’s financial health.

This strategy mirrors approaches taken by companies like Stripe and Shopify, but Novo aims to gather even more siloed data to create a more complete financial picture.

Investor Perspective and Board Addition

Saagar Kulkarni, a partner at Stripes, stated that small businesses often struggle to access basic financial services due to being overlooked by traditional banks. He believes Novo’s ground-up approach to building a banking platform will deliver both a superior digital experience and innovative financial products.

Kulkarni will be joining Novo’s board of directors as part of this funding round.

Potential Acquisitions and Future Outlook

As Novo continues to grow, Rangel indicated the company may explore acquiring smaller companies that align with its overall strategy. He also acknowledged previous acquisition approaches, stating that Novo is now positioned to be the acquirer.

“We’ve done the acquisition dance,” Rangel said, “but I think we’ll be the ones doing the acquiring now.”