It is common knowledge, especially among those working in financial services, that the COVID-19 pandemic has dramatically increased the demand for digital banking worldwide.
A flurry of fintechs have emerged in hopes of meeting this demand, while incumbent banks have been clamoring to step up their own digital games.
And then there were those companies that existed long before the pandemic. New York-based NorthOne is one such example. Founded by Eytan Bensoussan and Justin Adler in 2016the startup was born to serve small business owners like barbers, engineers and local restaurant owners.
When the pandemic hit, there was perhaps no other category of business that was affected as much as small businesses. Some did not survive, but many pressed on, either pivoting or weathering the early days of the crisis by adjusting their models accordingly.
“Covid, despite all the terrible points, has pushed education around digital banking – at least in our part of the world,” said the CEO Bensoussan.
Over the years, NorthOne has worked to offer its customers more than banking services. He added products that would also help them streamline their financial operations “vs connecting the data layer between accounting, receivables, payables, lending, payroll – all financial transactions – and the general bank account.”
“As our customers grow, their problems evolve beyond the bank account,” said Bensusan.
In 2021, NorthOne re-platformed the company with a new banking partner, The Bancorp Bank, NA, an investment it says has paid off. In the last 12 months, Bensoussan said that of NorthOne Revenue grew “4-5x”, while customer growth was “in line with revenue growth”.
“We were built – by definition – to serve the smallest segment of the small business market,” added COO Adler. “And that made us really able to serve those people in an efficient way, but also have a product offering that was really tailored for what they specifically need.”
To help with continued growth, the startup announces it has raised $67 million in a Series B funding round that included participation from Battery Ventures, Don Griffith, NFL player Drew Brees, Ferst Capital Partners, FinTLV, Next Play Capital, Operator Stack, Redpoint Ventures, Tencent, Tom Williams and Wedbush Capital. The funding brings NorthOne’s total funds to $90.3 million since inception. The company declined to disclose the valuation, saying only that it was a “bullish round” that closed in late summer.
The funding comes at an interesting time in the fintech world, given that players like Brex have essentially shifted their focus away from small businesses – in part due to the risk associated with undertaking such ventures – to focus on enterprises. For NorthOne, that means only opportunity.
“A lot of people are really moving aggressively toward that top side of the market – like a Fortune 500 company or a VC-backed startup, but the fact is that both of those markets are not just niche,” said COO Adler. “We’ve really doubled down on our core customer base, which are businesses that you pass on your way to work – like that coffee shop, hair salon or dry cleaner – that are just not being served by traditional banks and increasingly by fintechs as well. and questionable banks’.
The majority of NorthOne’s customer base has fewer than 10 employees.
The startup’s go-to-market strategy is surprisingly less web-based than one might expect.
While the company, which does not yet have a sales force, uses the Internet for leads, it also holds a series of in-person events in cities around the country where it offers educational content to small business owners. It also works with organizations such as Profit First, a group that offers financial management advice to small businesses.
NorthOne, the founders said, works to provide its customers with access to its services in as many convenient ways as possible. For example, it receives cash deposits through a series of partnerships with companies such as Walmart, 7-11 and Office Max.
“This is important because small businesses are really dealing with cash — as much as we’d like to imagine it’s all online,” Adler said. “The vast majority of American businesses are still using these types of cash flows, and we need to address them.”
Battery Ventures led NorthOne’s $21M Series A in March 2020 and is doubling its investment with the new raise. Partner Shiran Shalev says he was drawn to the firm’s laser focus on the SMB market.
“There’s so much focus in the fintech world on serving tech companies and serving big business, that one goes behind Main Street and that size of business is just such a big opportunity,” he told TechCrunch in an interview.
Having spent time in Israel and Europe, where fintech was more developed, Shalev says he “spent a lot of time looking at all the different options in this space” in the United States.
“We are very, very intrigued by what NorthOne has built,” he added. Ultimately, the company’s goal is to give businesses the “control, clarity and confidence” they need to better manage their finances. It plans to use its new capital to build out the software layer of its business as well as create new financial products for its clients, such as rail payment lines to working capital and credit offerings.
NorthOne currently has approximately 75 employees and does not plan to hire with its new capital.
“We’ll be adding programmatically as we bring these new layers of software and these new products.” said Bensusan.
My weekly fintech newsletter, The Interchange, launched on May 1st! Sign up here to receive it in your inbox.