NY-Based NorthOne, A Digital Challenger Bank For Small Businesses, Raises $21M Series A

NorthOne, a digital challenger bank focused on small businesses, announced this morning a $21 million Series A raise.

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Boston-based Battery Ventures led the round, which included participation from Redpoint Ventures and Tom Williams. The financing brings NorthOne’s total raised since its 2016 inception to $23.3 million.

NorthOne aims to provide small business owners (such as hairdressers and bakers), freelancers and startups  with an easy-to-use banking application. The company says its offering includes multi-language customer service teams, enhanced deposit and payment features for cash-reliant businesses, and “seamless” overseas vendor payments, among other things. NorthOne recently moved its headquarters from Toronto, Ontario, to New York.

CEO Eytan Bensoussan co-founded the startup with his own upbringing in mind.

“I grew up in a family of small business owners where everybody would be going through occasional painful cycles of closing books and chasing invoices,” he told Crunchbase News. “So that in many ways influenced who we are trying to target.”

NorthOne spent a few years building out the product, conducting research with 100 small business owners across America, undergoing compliance testing and “finding the right partners.”

The startup launched its API-enabled, mobile-first banking platform in private beta last June, at which time Bensoussan said, the company already had a waitlist of 100,000 businesses requesting accounts. The startup had accomplished all its “in beta goals” by August, so went public on the app store at that time. In November, it released on Google Play. It currently has the “bare bones” of a desktop product in place. It serves as a SaaS (software as a service) operator, offering monthly subscriptions.

“The role of a bank is not to just keep money safe and move it around occasionally,” Bensoussan said. “We want to go beyond banking and into the back office of companies and take the busy work right off their plates so the owners can have more time to focus on building their business.”

The company’s strategy is to “uniquely” address each community, incorporating new products and services based on the differing needs of businesses depending on their markets.

Specific features include branch-free banking; dedicated sub-accounts for things like rent and payroll; mobile check deposits; integrations with software such as Quickbooks and Expensify; and the ability to give your bookkeeper “read access.”

Growth

Since its launch last August, NorthOne has been growing nearly 130 percent month over month and counts “thousands” of small businesses as customers, according to Bensoussan. The company has grown its staff from about 12 a year ago to nearly 40 today.

“The kind of businesses we’re growing with are the kind I used to know growing up. They’re the core of industry across America, the ones you walk by on the way to work,” he told me. “That really means a lot to me personally.” Many have 20 or fewer employees. Some of the NorthOne’s largest markets are in the South and the Midwest.

NorthOne also aims to visualize cash flow for its customers so they can “prevent oops moments” such as buying a $10,000 oven when the money may not all be there.

“The vast majority of failures are due to cash flow mismanagement and illiteracy,”  Bensoussan said. “That’s the problem we’re attacking by trying to educate in a non-intimidating way and making it super easy to understand the health of a business, and get that information in real time.”

Looking ahead

The company plans to use its new capital to expand its marketing efforts and speed up the growth of its customer acquisition programs. It also wants to hire more product, software engineering and customer service staff.

All of what NorthOne is doing sounded a bit like what an Austin-based SaaS operator, ScaleFactor, is working on as well. (I wrote about that company’s raise last year.) ScaleFactor is focused on building a back office for small- and medium-sized businesses.

So I asked NorthOne how similar (or not) they are.

Its answer: “ScaleFactor can be a great solution for bigger companies that have more complicated expense management needs. For most small businesses, the burden doesn’t come from expense management but from the burden of daily banking. So while Scalefactor’s product is awesome, it isn’t set up to replace their bank account.”

That said, NorthOne is apparently compatible with ScaleFactor’s software.

Meanwhile, Battery Ventures’ Shiran Shalev said his firm has been closely following the rise of challenger banks in Europe.

“It’s inevitable that similar disruption would hit the U.S. market next–particularly in business banking,” said Shalev, who is joining NorthOne’s board, in a written statement. “We believe NorthOne is well on its way to building a leading challenger bank for SMBs in the U.S., and are excited to partner with management to realize this vision.”

Illustration: Li-Anne Dias