Calgary’s Neo Financial raises $185-million led by Peter Thiel’s Valar Ventures

For the third time, Neo Financial Technologies Inc. has tapped Silicon Valley billionaire Peter Thiel’s Valar Ventures to lead a sizable venture capital financing.

The $185-million investment round, announced Thursday, values the Calgary bank challenger at more than $1-billion including the funds received. “We’re trying to buy as much as we can,” said Valar founding partner Andrew McCormack, whose firm accounted for US$125-million (about $160-million) of the latest round. “We like the team and they’ve grown very, very fast.” Valar has backed 15 digital bank challengers globally, he added, and Neo “is definitely in the top 10 per cent in terms of growth, execution and total addressable market size.”

Valar previously led Neo’s first $50-million venture funding in 2020 and a $64-million investment last year. Other investors in the new round included Tribe Capital, Altos Ventures, Blank Ventures, Gaingels, Maple VC and Knollwood Investment Advisory. Early Facebook investor Jim Breyer, Inovia Capital and Golden Ventures, as well as Shopify chief executive officer Tobi Lutke and Thomvest have also backed Neo. (Peter Thomson, founder and chairman of Thomvest, is also co-chairman of Woodbridge Co. Ltd., which owns The Globe and Mail.)

SkipTheDishes founders target big banks with new startup, digital fintech company Neo Financial

Neo has rapidly built its business by making a play to become one of Canada’s leading reward card providers while partnering with other financial services providers to offer a range of banking services. The four-year-old company says it has more than one million customers and has nearly doubled its staff since last fall, to 650 people, split between Calgary and Winnipeg.

“Over the last year it’s been a bit crazy and we’ve had a lot of traction across both the partnership side with retailers and businesses as well as the customer side,” said chief executive officer Andrew Chau, one of two Neo co-founders who also previously co-founded popular food ordering service SkipTheDishes. “For us it’s really around continuing to own the entire Canadian financial experience.”

Neo is one of a wave of companies including Canada’s Wealthsimple Technologies Inc. and Koho Financial Inc. that have built new, mobile-first internet-based businesses that are meant to be nimbler, more customer-friendly and digitally savvier than traditional banks. They’re often targeting customers they view as underserved by banks, including small businesses and millennials.

Neo’s core strategy has been to partner with retailers across Canada to provide no-fee, cash-back MasterCards that are issued by ATB Financial, and which come with a loyalty program that applies across all of its retail partners. Neo’s biggest coup was partnering in early 2021 with Hudson’s Bay Co. to offer a new digitally enhanced store-branded MasterCard and loyalty program to its two million prior cardholders (Neo has not disclosed how many of them have signed on).

It has signed similar partnerships with 7,000 other national and local retailers – up from just 4,000 last September – including Home Depot, H&R Block, Structube, Boston Pizza, Second Cup Coffee, Harry Rosen, Avis and Goodfood. “The most attractive part of the business is Neo’s increasing network effects across this merchant loyalty program they’ve created,” said Andre Charoo, a Canadian who runs Maple VC out of San Francisco.

Rather than rely primarily on blasting ads on online channels including Facebook and Google – like other consumer-oriented digital companies – Neo has relied on its partners to promote its cards in-store to their customers. Neo also deploys the old-school promotional tactic of setting up card sign-up kiosks in malls, and recently launched a national broadcast advertising campaign on mass market channels.

With that exposure, Neo has also expanded into offering savings accounts (which are actually provided by Concentra Bank), and recently began offering an investment product in partnership with startup wealth management platform OneVest, which offers customers exposure to alternative assets classes including venture capital and private equity through managed portfolios that invest in exchange traded funds. Neo says the product is open to consumers with as little as $1 to invest and charges a management fee of 0.75 per cent of assets, plus management expense fees charged by OneVest funds that are typically around 0.5 per cent. The company plans to offer mortgages this year, likely in partnership with financial services providers, Mr. Chau said.

Asked how the company planned to compete for that business with giant banks that have not yet been noticeably threatened by the rise of digital challengers, Mr. Chau said: “That’s really the number one thing most fintechs are trying to solve for. With Neo we’ve taken a very deliberate approach to acquiring and onboarding customers. Our vision has always been to look at an individual’s entire financial experience, whether they are looking to buy a home, car or invest. We want to be right there and then and be that one-stop shop for all Canadians.”

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