With $67M in new capital, NorthOne doubles down on SMBs as some fintechs pull back • TechCrunch

It is common knowledge, especially for those working in financial services, that the COVID-19 pandemic dramatically increased the demand for digital banking globally.

A flurry of fintechs emerged hoping to meet this demand as incumbent banks clamored to step up their own digital games.

Then there were the companies that existed well before the pandemic. The New York-based challenger bank NorthOne is one such example. Founded by Eytan Bensoussan and Justin Adler in 2016, the startup was born to serve small business owners like hairdressers, mechanics and local restaurant owners.

When the pandemic hit, there was perhaps no other category of business that was as strongly affected as small businesses. Some did not survive, but many pushed through, either pivoting or weathering the early days of the crisis by adapting their models accordingly.

“The COVID, despite all the terrible parts, pushed the education around digital banking – at least in our part of the world,” CEO Bensoussan said.

Over the years, NorthOne has worked to offer more than banking services to its customers. It added products that would also help them simplify their financial operations “by connecting the data layer between accounting, receivables, payables, lending, payroll – all financial operations – and bank bookkeeping.”

“As our clients grow, their problems evolve beyond the bank account,” Bensoussan said.

In 2021, NorthOne replatformed the company with a new banking partner, The Bancorp Bank, NA, an investment it says has paid off. Over the past 12 months, Bensoussan said NorthOne’s revenue grew “4x-5x” while customer growth was “in line with revenue growth.”

“We were built — by definition — to serve the smaller end of the small business market,” COO Adler added. “And that allowed us to really be able to serve those people in an efficient way, but also have a product offering that was very tailored to what they specifically need.”

To help drive 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 and Tom Williams. The funding brings NorthOne’s fundraising total to $90.3 million since inception. The company declined to disclose valuation, saying only that it was a “raise round” that closed in late summer.

The funding comes at an interesting time in the fintech world, considering that players such as Brex have actually shifted their focus away from small businesses – in part due to the risk associated with underwriting such ventures – to focus on enterprises. For NorthOne, it only means opportunity.

“A lot of people are moving very aggressively toward the top end of the market — like a Fortune 500 company or a VC-backed startup, but the fact is that both of those markets are really niche,” COO Adler said. “We’ve actually doubled down on our core customer base, which are businesses you pass by on your way to work – like that cafe, or hair salon or dry cleaner – that are simply poorly served by traditional banks and increasingly by fintechs and challenger banks. »

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

The majority of NorthOne’s customer base has less than 10 employees.

The startup’s go-to-market strategy is surprisingly less dependent on the internet than one might expect.

While the company, which does not yet have a sales team, uses the Internet to prospect, it also holds in-person event series in various 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 give its customers access to the services in as many convenient ways as possible. For example, it takes cash deposits through a number of partnerships with companies like Walmart, 7-11 and OfficeMax.

“That’s important, since small businesses really handle cash — as much as we’d like to imagine it’s all online,” Adler said. “The vast majority of American businesses still use this type of money movement, and we need to go to them.”

Battery Ventures led NorthOne’s $21 million Series A in March 2020 and is doubling its investment with the new raise. Partner Shiran Shalev says he was drawn to the company’s laser focus on the SME market.

“There’s so much focus in the fintech world on serving tech companies and serving big businesses, that somebody is going after 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 area” in the US.

“We’re very, very impressed with 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 customers, such as working capital payment rails and credit offerings.

NorthOne currently has around 75 employees and does not plan to go on a hiring spree with its new capital.

“We will add programmatically as we come up with these new software layers and these new products,” Bensoussan said.

My weekly fintech newsletter, The Interchange, launched on May 1st! Sign up here to get it in your inbox.