Miami-based small business banking platform Novo has raised $35 million from GGV capital at a pre-money valuation of $720 million, up from $610 million in January. The new funding round is an extension of its Series B fundraise earlier this year.
Novo’s main product is a business checking account geared towards small and medium-sized companies. The mobile bank offers clients an app marketplace that allows them to plug tools from third parties like payment processor Stripe or accounting software Quickbooks into their checking account.
“Banks have largely driven a one-size-fits-all product to very different types of businesses and forced that square peg through the round hole for many years,” Rangel says. “We put that on its head and allow small businesses to customize their own products by plugging in the tools used to run the business right into the checking account.”
Novo’s projected revenue for 2022 is approximately $20 million, up from $8 million in 2021, the startup says. The company currently has just under 200,000 small business customers compared with 140,000 at the end of 2021. Roughly half of incoming clients are switching from existing banks, while the other half are newly formed businesses, according to Rangel.
The company’s plan to compete in a crowded field of business-focused neobanks is by narrowing in on digitally-run small businesses including freelancers or professional esports teams that make money through subscriptions on streaming platforms like Twitch. Businesses with few employees like community dental offices also fit into Novo’s target customer.
In June, business banking fintech Brex announced that it would close the accounts of small and medium-sized businesses as it shifted focus to serving enterprise clients, with the exception of venture-backed startups. Rho’s focus is mid-sized businesses with revenues between $10 million and $1 billion. Ramp targets a wide range of businesses from small companies to enterprise clients.
Novo’s valuation bump stands out in a market where fintech valuations have dropped sharply over the past year. The $35 million deal does not have favorable liquidation preferences for GGV Capital, CEO Rangel says, which means investors are not guaranteed returns if the company fails or is sold. Liquidation preferences have become more common as companies attempt to raise in a tougher environment without lowering their valuations. In the public market, fintech stocks are down 47% year-to-date.
Robin Li, a principal at GGV Capital, will join Novo’s board as an observer. The additional capital brings the company’s total equity funding to $170 million. Its last fundraise was a $90 million series B round led by private equity firm Stripes in January of this year. Novo has landed spots on the Forbes Fintech 50 and Forbes Next Billion Dollar Startups lists.
As for what the funds will be used for, Novo plans to continue developing its recently launched small business lending product. Additionally, the company aims to streamline small businesses’ cash flow through products like Novo Boost, which gives companies same-day access to revenue processed by its partner Stripe.