The fintech sector is facing a wildly different world in 2023 than it did in 2021. Capital is scarce and valuation multiples have plummeted as the broader tech market pulled back, and fintech startups everywhere are struggling to raise money. So when Canopy Servicing, a fintech startup building software to facilitate loan servicing, reached out with news that it had raised fresh capital, we couldn’t resist taking a deeper look.
The company recently raised a $15.2 million Series A1 round, TechCrunch has exclusively learned. The company last raised funding in August 2021, and at the time, it had reported fast customer growth during a hot moment for fintech products and startups alike.
We were curious how Canopy was able to raise another tranche of capital in this climate, so we caught up with the company’s CEO, Matt Bivons, to find out how things are going. We also talked about why the company is raising a Series A1 instead of the Series B we had expected it to secure next.
Beating the drought
There’s a straightforward reason Canopy has been able to secure more capital despite raising funds during what might have been the hottest year in fintech: its performance. Bivons said the company has gross margins above 80%, is closer to 200% net revenue retention than 150%, and will process more than $1 billion this year with its software. More importantly, Canopy expects to increase its annual recurring revenue by 2.5x to 3x this year. That’s precisely the sort of top-line expansion that venture investors like to put their dollars behind.
But why raise a Series A1 instead of a Series B? According to Bivons, the company was simply not ready to take the latter path — the A1 round will allow it to scale its annual recurring revenue to the $10 million mark in the next 15 months, he said, noting that the startup would then be in a much stronger position to choose the partners that it wants. That makes sense because larger rounds at lower valuations cause more dilution.
Canopy’s existing investors picked up what Bivons called their “super pro-rata” in the Series A1 round, which was co-led by Foundation and Infinity Ventures. Canopy previously raised from Canaan and Homebrew, among others.
Still, despite existing investor demand, quick growth and solid economics, Canopy took a valuation haircut. Per the CEO, Canopy’s Series A, worth $15 million, was raised at a $48 million pre-money and $63 million post-money valuation. The A1, in contrast, was raised at a $35 million pre-money and a $50.2 million post-money valuation. Bivons added in an email that his company doesn’t normally share those figures publicly since valuations rise and fall with the market.
You can see why prior investors in Canopy wanted to buy more. They got a discount in a company that they had already bet on — one that had performed well since they last invested. Why not double-down?
A good representation of the startup ethos
I presume that loan servicing is not something that you spend a lot of time thinking about. I most certainly do not. However, that doesn’t mean that loan servicing doesn’t matter (it does) or that it could not benefit from a slug of technology to help bring the process into the modern era.