Back in August we briefly highlighted Yotta Savings, one of the startups graduating from Y Combinator’s accelerator program, that is helping people save money and win prizes of up to $10 million through weekly number draws.
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During his Y Combinator pitch, co-founder Adam Moelis said this type of concept is already big in the U.K., with 33 percent of country’s bank accounts linked to prizes. He expected the same popularity to catch on in America.
Fast-forward to today, and the 2-month-old New York-based company is closing on a $3.3 million seed round from a group of investors including Slow Ventures, FundersClub, TwentyTwo VC, Chapter One, CapitalX, Y Combinator and some angel investors. Including this new funding, the company has raised $3.975 million, according to Moelis.
This is how it works: Yotta rewards savings account depositors via weekly drawings with prizes that range from $10 to $10 million, he said. The company provides free FDIC-insured bank savings accounts, so there is no risk of losing money, and customers get a ticket for every $25 saved each week. Prize-linked savings accounts in the U.S. are allowed by the 2014 American Savings Promotion Act.
“At first, when you talk to people about this, they think it sounds like a gambling concept, but you can’t lose money,” Moelis told Crunchbase News. “It’s offered more like a sweepstakes, which is totally legal. When you save money in your bank account, it is linked to the sweepstakes and you have a chance to win prizes.”
The new funding will be used to build out a team, ahead of the growth, in the areas of engineering and customer support, as well as starting on some paid advertising. Moelis also wants to roll out a more comprehensive bank offering that includes debit and credit cards.
Moelis got the idea for Yotta after working in finance. A friend of his moved to the U.K. and told him about the concept of Premium Bonds, which he said was very popular. This struck Moelis, who was interested in behavioral psychology, as well as personal finance. Combine that with the statistics that 69 percent of Americans have less than $1,000 in savings, while spending more than $1,000 on lottery tickets each year, and Moelis said you can see the problem.
“The lottery is literally the worst gamble you can make,” he added. “I thought this would be a way to solve the problem of saving while also scratching the lottery itch without the likelihood of a loss. In short, to bring more instant gratification to long-term behavior.”
When Yotta launched in July, it had 700 accounts in its beta mode. Two months later, that has grown to 21,000 accounts and more than $40 million in deposits, Moelis said.
Will Quist, partner at Slow Ventures, learned about Yotta prior to Y Combinator’s Demo Day. The firm had been looking at different versions of Yotta’s business model and immediately reached out to Moelis.
Quist sees the neobank landscape, a type of direct bank that operates exclusively online without traditional physical branch networks, crowded and noisy. Instead, Yotta’s strategy cuts through some of that noise and harnesses the idea of saving.
“We think the power of random rewards is underrated in the U.S. as a way to drive significant behavior change, and we were ideating on when that would get properly applied to financial services,” he said in an interview. “Yotta is focused on putting money back into Americans’ pockets by harnessing the power of the lottery to increase the financial health of the average American consumer.”