X1 Gets 50% Valuation Increase, Aims to Give Consumers a Way to Buy Stocks Via Credit Card Rewards Points • TechCrunch
X1, a consumer fintech startup that recently launched an income-based credit card to the public, has raised an additional $15 million in funding.
This round caught our attention for several reasons. First, a consumer fintech surge in this environment is somewhat at odds with the narrative that startups in the space are generally struggling. (For example digital bank Chime recently laid off 12% of the workforceor around 160 people.)
Also, X1’s latest funding comes just six months after the San Francisco-based company raised $25 million in a series B round in July. It’s not just that either not a down or a flat round, the cash infusion increases X1’s valuation by 50%, according to Deepak Rao, Co-Founder and CEO of X1.
Unfortunately, Rao declined to reveal the new valuation or the number of cardholders, but he did share some other very interesting information surrounding the company’s finances. When X1 began fundraising for its Series B in late March/early April, it was generating about $1 million per month in revenue, he said. In October, the start-up had around 3 million dollars in revenue. With these figures, the company’s annual revenue is 36 million dollars. Very impressive for a company that only went live in private beta 13 months ago and launched its credit card to the public in mid-September – after gathering 600,000 people on the waiting list.
Gross merchandise value (GMV), also known as consumption, has also increased, according to Rao – from $50 million in July to $55 million in October to an expected $60 million this month. The company projects $1 billion in annual spending by 2022.
That kind of rapid growth caught the attention of several investors, who reached out to X1, Rao told TechCrunch in an interview.
“In the beginning we didn’t think about it [raising more money so soon],” he said. “But since it felt like we’re one of the few companies in the consumer fintech space that’s getting interest and growing at a good pace and in a responsible way, we thought we should take advantage of that.”
New investor Soma Capital led X1’s B1 raise, which Rao said was not an extension and closed in early November. Also participates in the last financing was The Points Guy founder and CEO, Brian Kelly, and Cruise CEO, Kyle Vogt, bring the Series B round total to $40 million. The startup’s long list of past backers includes FPV, Craft Ventures, Spark Capital, Harrison Metal, SV Angel, Abstract Ventures, the Chainsmokers, Global Founders Capital, actor Jared Leto, Box co-founder and CEO Aaron Levie, Jeremy Stoppelman, Affirm and PayPal co-founder Max Levchin and Y Kombinator partner Ali Rowghani .
X1 has raised over $60 million since inception, incl a Series A of $12 million which closed in 2020 but was announced in January 2021.
Interestingly, X1 didn’t raise any money at all in 2021, choosing instead to keep “its head down with a focus on growth and long-term customer value.” This may actually have worked in the company’s favor considering that it was not among the many fintechs that raised inflated valuations that they are currently trying to defend.
“There just aren’t that many affordable companies out there,” Rao told TechCrunch.
In connection with the B1 increase, X1 also today announced the launch of a new investment platform it will allow cardholders to purchase shares with earned reward points.
The new trading platform will live in X1’s app and will be rolled out to a select number of cardholders in beta over the next few weeks. The plan is for it to be live for the general public by the end of the year or early January, depending on how the initial rollout goes. Unlike users of current trading apps, X1 cardholders with access will be able to purchase shares using earned reward points.
“By using credit card points to buy stocks instead of cash or savings, we feel this is a safe way for many consumers to start investing,” said Rao, who admits the company hopes to compete with the likes of Robinhood. “There’s no real downside since their investment is technically free.”
The startup first made headlines for its unique model which allows it underwrite customers based on their income rather than their credit score. (Since then, other players have appeared with similar models – such as Tomo Creditwhich offers credit based on cash flow rather than credit).
X1 does not charge an annual fee for the stainless steel Visa card, has no late or foreign transaction fees and rewards users with “points”. The company also claims that the card is “smart” in that it has built soften software features that work with the credit card. For example, my colleague Romain Dillet wrote in 2020“you can track your subscriptions from the X1 app, you can also generate a virtual card that expires automatically for free trials that require a credit card. You also get refund notifications.”
To date, X1 has awarded over $10 million in reward points.
Brokerage fees on purchases represent X1’s primary source of income. But it also makes money by giving users incentives – in the form of extra rewards – to shop directly in the in-app shopping portal using the card. When cardholders shop through that portal, X1 earns commissions from featured merchants, which include Nike.com, Sephora, Kate Spade, Apple, Macy’s and Warby Parker, among others.
X1’s plans for its new capital are market expansion, building new products and hiring product and engineering teams. Currently, the company has 36 employees, and Rao claims that all growth so far has been organic.
In recent months, X1 has already made a couple of very high-profile appointments, including lures away Abhi Pabba from Apple, where he worked as head of credit risk from the tech giant’s Austin office.
The company has also recently hired Kieran Brady – a former managing director at Barclays, where he started the UK bank’s fintech practice – to serve as X1’s chief financial officer (CFO).
When asked if the CFO appointment meant X1 was aiming to go public, Rao said that is the longer-term goal.
“We want to do things the right way, and not get caught up in the hype cycle,” he said. “It is extremely important for a consumer fintech company to meet all regulatory requirements and have all the foundations in place to build a lasting business.” (For example, he said the company is already doing audits – something other companies can learn from).
Rao started X1 with Siddharth Batrawho also previously served as Twitter’s director of engineering, in 2020 after previously co-founding ThriveCash.
“There is so much to love about X1 and at the heart of it are Deepak and Siddharth – the visionary founders with an uncanny knack for product and the superior ability to listen to the voice of the customer,” said Mir Faiyaz, Partner at Soma Capital. “X1’s radical product-market fit and the team’s ability to be a magnet for both top-tier talent and investors are symptomatic of the perfect storm of founder-market fit, bold vision and brilliant execution.”
X1 is not the only fintech company to raise a round in recent months. TripActions, which in 2020 expanded from being a travel expense management company to a general enterprise expense management startup, in October raised a combination of equity and debt at a post-money valuation of $9.2 billionup from the previous valuation of $7.5 billion.
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