NorthOne has $67M of new capital and is now doubling down on SMBs, as other fintech companies pull back

 

 

Most people who work in financial services know that the COVID-19 pandemic radically increased global demand for digital banking.

There was a flurry in fintechs trying to meet that demand, while banks tried to increase their digital game.

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There were companies that existed long before the pandemic. One example is NorthOne, a New York-based challenger bank. The startup was founded by Justin Adler and Eytan Beoussan in 2016 to help small business owners like barbers, mechanics, and restaurant owners.

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Small businesses were the most severely impacted by the pandemic. While some businesses didn’t survive, others managed to adapt their business models and pivot or weather the initial days of the crisis.

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CEO Bensoussan stated that “COVID, despite the horrible parts, pushed education around digital banking — least in our region of the world.”

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NorthOne has been able to offer much more than just banking services over the years. NorthOne added products to simplify customers’ financial operations, “by connecting the data layers between accounting, receivables and payables, as well as payroll — all financial operations — with the bank account ledger.”

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Bensoussan stated, “As our clients grow, their problems develop beyond the bank account.”

NorthOne, a bank partner of The Bancorp Bank N.A., replatformed its company in 2021. It claims that this investment has been a success. Bensoussan stated that NorthOne’s revenue has increased “4x-5x” over the past 12 months while customer growth was “inline with revenue growth.”

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COO Adler stated that “We were designed — by definition — in order to serve the smaller portion of the small business marketplace.” “That made us more capable of providing these people with efficient service, while also offering a product that is tailored to their specific needs.”

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The startup announced that it raised $67 million in a Series A funding round. Participants included Don Griffith, Battery Ventures and Drew Brees (NFL player), Ferst Capital Partners as well as Ferst Capital Partners, FinTLV. Next Play Capital, Operator Stack. Redpoint Ventures, and Battery Ventures to date. NorthOne has raised $90.3 million in fundraising since its inception. The company did not disclose the valuation of the transaction, stating that it was an “upround” that closed in summer.

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This funding comes at a fascinating time in fintech’s world, as players like Brex have shifted their focus from small businesses to enterprises. In part because of the risks associated with underwriting ventures such as these, NorthOne sees this as an opportunity.

“A lot people are moving very aggressively towards that top market — like a Fortune 500 firm or a VC-backed start-up, but the truth is that both those markets are really niche,” stated COO Adler. “We have actually doubled down on our core customers, which are businesses you pass on your way to work, such as the cafe, hair salon, and dry cleaner. These are traditionally underserved banks, but are increasingly being served by fintechs, challenger banks, and more so traditional banks.

Co-founders Eytan Bensoussan (CEO) and Justin Adler (COO). Image Credits: NorthOne

NorthOne has a majority of its customers with less than 10 employees.

Surprisingly, the startup’s go to market strategy relies less heavily on the internet than you might think.

Although the company does not have a sales team yet, it does use the internet to find leads. However, the company also hosts in-person events in cities across the country that offer educational content for small business owners. Profit First, which offers small business financial management advice, is also a partner.

The founders of NorthOne stated that they work to provide customers with access to their services in the most convenient way possible. It accepts cash deposits through partnerships with companies like Walmart, OfficeMax, and 7-11.

Adler stated, “That’s very important because small businesses do deal with cash. As much as we would love to believe that it’s all digital,” “The vast majority American businesses still use these types of money movement, and we should go to them.”

Battery Ventures was the lead investor in NorthOne’s $21 Million Series A in March 2020. The new raise will double its investment. Shiran Shalev, a partner, says that he was attracted to the company’s focus on the SMB sector.

He told TechCrunch that there is so much emphasis in fintech on the service of tech companies and large enterprises that someone going after Main Street and that type of business is a huge opportunity.

Shalev, who has spent time in Europe and Israel, where fintech was more advanced, says that he “spent quite a bit of time looking at all of the options” in the United States.

He said, “We are very, very interested in what NorthOne has created.” The company’s ultimate goal is to provide its customers with the “control, clarity, and confidence” that they need to manage their finances. It intends to use the new capital to expand its software platform and create new financial products for customers, such as payment rails that connect to working capital or credit options.

NorthOne currently has 75 employees. It doesn’t intend to hire more with the new capital.

Bensoussan stated that “we’ll be adding programmatically when we bring on these software layers and these products.”

 

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