The fintech industry in 2023 looks significantly different from its 2021 counterpart. Capital is in short supply, and valuation multiples have declined due to the broader tech market downturn. Fintech startups worldwide are facing challenges in securing funding. Therefore, when Canopy Servicing, a fintech startup specializing in loan servicing software, announced a new funding round, we decided to investigate further.
Canopy Servicing Demonstrates that Fintech Startups that Secured Funding in 2021 Can Still Attract Investment
We have exclusively learned that the company recently secured a $15.2 million Series A1 funding round. Canopy had previously raised funds in August 2021 when it experienced rapid customer growth during a thriving period for fintech products and startups.
Intrigued by Canopy’s ability to secure additional capital in the current environment, we interviewed the company’s CEO, Matt Bivons, to gain insights into their progress. We also discussed the reason for opting for a Series A1 round instead of the expected Series B.
Beating the Drought
Canopy’s ability to secure additional capital, even during a challenging period in fintech, can be attributed to its strong performance. According to Bivons, the company boasts gross margins exceeding 80%, net revenue retention closer to 200% than 150%, and anticipates processing over $1 billion this year through its software. Most notably, Canopy projects a 2.5x to 3x increase in annual recurring revenue for this year. Such robust top-line growth aligns with the preferences of venture investors.
Why did Canopy opt for a Series A1 round rather than a Series B? According to Bivons, the company wasn’t prepared to pursue the Series B route just yet. He explained that the A1 round will enable them to grow their annual recurring revenue to $10 million within the next 15 months. This strategic move will position the startup to have more flexibility in choosing its preferred partners. This decision is logical because larger rounds at lower valuations can result in greater ownership dilution.
In the Series A1 round, Canopy’s current investors significantly increased their investment, described by Bivons as “super pro-rata.” This round was co-led by Foundation and Infinity Ventures. Canopy had previously secured funding from investors such as Canaan and Homebrew.
However, despite strong investor interest, rapid growth, and favorable financials, Canopy accepted a lower valuation. According to the CEO, the initial Series A round, valued at $15 million, had a pre-money valuation of $48 million and a post-money valuation of $63 million. In contrast, the A1 round had a pre-money valuation of $35 million and a post-money valuation of $50.2 million. Bivons mentioned in an email that his company typically does not disclose these figures publicly, as valuations are subject to market fluctuations.
It’s evident why previous investors in Canopy were eager to increase their investments. They had the opportunity to invest more in a company they had already supported—a company that had demonstrated strong performance since their initial investment. It made sense for them to increase their commitment.
It’s safe to assume that loan servicing isn’t something many of us think about regularly. Personally, I don’t either. However, this doesn’t diminish the importance of loan servicing—it’s significant. Moreover, introducing technology to modernize the loan servicing process can be highly beneficial.
Frequently Asked Questions
Did Canopy Servicing Experience a Change in Valuation During its Funding Rounds?
Yes, Canopy Servicing underwent a valuation adjustment. The initial Series A had a higher pre-money and post-money valuation compared to the A1 round, reflecting market fluctuations.
Why did Canopy Servicing Choose a Series A1 Round Over a Series B?
Canopy Servicing opted for a Series A1 round to focus on scaling its annual recurring revenue to $10 million within the next 15 months, positioning itself for better partnership opportunities in the future.
How did Canopy Servicing Achieve this Funding Success?
Canopy Servicing’s ability to secure funding can be attributed to its strong performance, robust financials, and projected growth, making it an attractive investment opportunity.
What is the Significance of Canopy Servicing’s Funding?
Canopy Servicing’s funding round demonstrates that fintech startups that raised funds in 2021 can still attract investment in 2023, even in a challenging funding environment.
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