Canopy Servicing announced this morning that it recently closed a $ 15 million Series A. The startup sells software to fintechs and others, allowing clients to create loan programs and manage the resulting products.
The company raised a funding round of $ 3.5 million in 2020. Canaan led its Series A, with participation from Homebrew, Foundation and BoxGroup, among others. By Canopy, its valuation has been multiplied by 5 from its round of funding to its series A.
The company has raised $ 18.5 million to date.
So far, this looks like any other article announcing a new round of seed funding, starting with an array of information regarding the cycle and the people involved in the deal. Next, we’ll likely note the competitors, growth, and what investors in the business in question have to say about their recent purchase. This morning, however, I want to talk a little bit about the future of fintech and how the financial tech stack of the future can be built.
TechCrunch spoke with Canopy CEO Matt Bivons Last week. He has an interesting vision of the direction fintech is taking. Let’s discuss it and work on what Canopy is doing.
As with many startups, Canopy was designed to scratch the itch. Bivons had encountered problems with servicing loans in previous jobs. He then founded a startup that aimed to create a student credit card. But after working on this project, Bivons and his co-founder Will Hanson pivoted the company towards B2B-focused construction loan service technology.
Behind this decision, a market study undertaken by the Canopy team revealed that a large number of fintech startups wanted to enter the credit market. It makes sense; credit products can offer a much more attractive savings to fintech startups than, for example, checking and savings accounts. Knowing that the loan department was a burden and a half to manage, Canopy decided to focus on it.
Bivons designed Canopy as a modern loan servicing API that can be used to create and manage loans at any point in their lifecycle. He noted that what the startup is doing is akin to what several successful fintech companies have done, which is to take a part of the fintech world and make it better for developers.
This is where Bivons’ vision for the future of fintech products comes in. According to the CEO, going forward, companies won’t buy a monolithic financial tech stack. Instead, he believes, they’ll buy the best API for every slice of the fintech world they need to implement. This is important because we could say that Canopy is targeting too small a product space. Not that its market isn’t big – debt and servicing are huge issues – but seeing a company find a niche to focus on makes more sense when its executives expect targeted fintech products to win. on large sets of services.
Bivons added that much of the focus on fintech over the past five years has been on throughput, citing Chime, Step and Greenlight as examples. The next decade, he said, will focus on credit products. This would be good news for Canopy.
Critically, and for financial nerds, Bivons told TechCrunch that its loan management technology does not require the company to take credit risk and that it has gross margins of around 90%. I never trust a number that is too round, but the number indicates that what Canopy has built could turn into an attractive business.
Today, Canopy is traditional SaaS, although Bivons has said it wants to move towards on-time usage-based pricing. Its service costs about 50 cents per account per month, or about $ 6 per year in its current form. Today, around 40% of Canopy’s customers are A-scale startups, although Bivons noted that it is moving up the customer size chart over time.
The resulting growth is impressive. Canopy’s customer base increased 4.5 times from February to May 2021. Of course, Canopy is a young company, so their overall customer base could not have been massive at the start of the year. Still, it’s the kind of growth that makes investors sit back and pay attention, which makes the Canopy Series A somewhat surprising.
Fintech growth doesn’t appear to be slowing down much, which means the market for what Canopy sells is set to expand. Provided his view that the best, more unique fintech products beat bigger stacks in the market, he could have an interesting trajectory ahead of him. And now that he’s picked up his Serie A, we can start to annoy him with more concrete questions about his growth from now on.