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Drop was co-founded four years ago by Cameron Dearsley, left, Darren Fung, centre, and Derrick Fung.The Globe and Mail

Royal Bank of Canada is backing an upstart loyalty-management program geared at millennials called Drop Technologies Inc. as part of a US$44-million venture-capital financing.

Toronto-based Drop, co-founded four years ago by brothers Derrick and Darren Fung and their friend Cameron Dearsley, says it has signed up three million consumers who use their smartphones to collect cash rewards by shopping with more than 300 merchant partners geared toward younger users, including e-commerce companies Warby Parker, Instacart, Expedia and Postmates, as well as Whole Foods, Starbucks and Uber. Drop says its users, who link their credit and debit cards to their account to receive points as they shop – sometimes on top of the points they already earn from their financial institutions – have earned close to US$19-million in rewards.

“The loyalty rewards space is old and archaic” with legacy providers more geared toward merchants than consumers, said 31-year-old chief executive Derrick Fung, whose younger brother is the company’s chief technology officer. “Someone has to come in and really innovate.”

He said millennials are more comfortable providing personal data and access to their online bank accounts to customer-friendly financial technology apps such as his on their smartphones. That will allow Drop to send more targeted, personalized offers to customers than other loyalty-management firms – and to generate marketing insights from the wealth of data it collects from consenting consumers. “You may think of us as a reward company … [but] we believe that Drop at its core really is a financial-data company. We use the data to better the lives of our consumers and help our retailer partners make better decisions.”

Mr. Fung declined to provide information on the company’s revenue and other key metrics, including how many of its registered users actually use the app regularly. However, two of the company’s earlier backers expressed enthusiasm about the startup’s progress since it raised US$21-million in early 2018 in financing led by New York venture-capital giant New Enterprise Associates, at a time when it had less than 20 retail partners.

Onsi Sawiris, co-founder and managing partner of New York-based HOF Capital, which led the latest funding round, said Drop had increased its number of registered users tenfold since early 2018. “Drop is definitely headed in the right direction” with relatively high customer engagement compared with other financial technology startups. “We’re very comfortable that Drop has found product-market fit and has a loyal user base.”

Eric Martineau-Fortin, London-based managing director with White Star Capital, said Drop is generating “positive unit economics,” but will need to raise another round of financing before it produces operating profits. He added that investors don’t want the company to focus yet on profitability, but “to optimize on growth and scale. That’s where we are now.”

Mr. Fung, a former Bay Street trader, decided to launch a startup geared at providing an updated loyalty program for smartphone-toting millennials after selling his previous startup, Tunezy, a marketing platform for musicians, to SFX Entertainment in 2013. Drop found support early on, raising $1-million in seed funding in 2016 primarily from foreign fund managers including ff Venture Capital and Rothenberg, and raising another US$5.5-million a year later led by Sierra Ventures, a few months before closing its US$21-million financing in early 2018.

RBC is believed to be one of the largest investors in the latest financing, although the company declined to comment on the deal.

Mr. Fung, whose 70-person company recently bought Canadian predictive analytics startup Canopy Labs last year to help sharpen its analytic capabilities, plans to focus on expanding into other markets outside its North American base including Britain and Australia.

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