The round added several new investors to the seven-year-old company’s cap table, including BDC Capital, Kensington Capital Partners, iA Financial Group and Chicago-based Impact Engine. Existing investors Portag3 Ventures, White Star Capital, Equitable Bank and National Bank’s NAventures also participated in the round.
The funding — which brings Borrowell’s total equity financing to $55 million — comes nearly two years after the firm’s US$20-million Series B, and two months since it reached an agreement to purchase Refresh.
Andrew Graham, co-founder and CEO of Borrowell, told The Logic the funding round and acquisition were mutually dependent on each other, and that coordinating favourable terms for everyone involved was a balancing act. “It’s complex enough to do a fundraise on its own, but to do it alongside an acquisition is doubly complicated,” said Graham.
Talks to raise money for the buyout began last spring and ramped up in the fall, with the parties reaching an agreement late last year. The companies are not disclosing the terms of the deal, but Graham said the cost to acquire Refresh was less than the $25 million it raised in the process.
For several years prior to buying the B.C.-based company, Borrowell — which offers free credit scores and financial literacy tools — had partnered with Refresh by directing its customers to use the startup’s credit-improvement services and taking a fee for referrals. “That model was effectively limiting Refresh’s growth because it takes capital to spend those marketing dollars, whether it’s with Borrowell or with someone else,” said Graham. “We found that there were more people that could use their product than they could afford to advertise to.” For Borrowell, the acquisition instantly doubles its revenue and headcount, which now sits at about 130 employees.
Refresh is Borrowell’s first acquisition, but likely not its last, said Graham. “This acquisition shows that it is part of our growth strategy,” he said. “We’ve built really strong relationships with over 1.5 million people who use Borrowell. The question we’re asking ourselves is, ‘What are other problems we need to solve for our customers’? Some of those solutions we’ll build, some of those solutions we’ll partner on and some of them we’ll acquire.”
Borrowell and Refresh are part of a growing niche in the fintech space that’s aiming to help increase upward financial mobility for customers who are low-income or stuck in a position where they can’t build their credit through traditional means like using a credit card.
“A lot of impact investors, when they think about financial inclusion, they think about emerging economies, but we think that in a lot of developed markets, there are a lot of customers and households that aren’t being served by traditional services because those companies can’t figure out a way to profitably serve them,” said Priya Parrish, managing partner at Impact Engine. “In order to profitably serve customers, they have to charge high interest rates and it doesn’t end up helping them get out of the debt cycle. That’s why you end up with these fintech companies that can profitably serve customers, but not do well by them.”
Parrish — whose firm has also invested in Climb Credit, a New York-based startup that provides loans to students, regardless of customers’ credit status — said having a suite of services to help customers at different stages of their financial growth lets Borrowell keep rates low for those in the most dire positions, and also incentivizes the company to help clients get out of debt. “By helping them improve their credit, that doesn’t mean they’re no longer your customer,” she said.
