VANCOUVER — A Calgary-based fintech launched by two of the co-founders of SkipTheDishes has raised $25 million in investment in its first major financing round, from backers including Shopify CEO Tobi Lütke and a venture capital firm co-founded by Peter Thiel.

Neo Financial announced the Series A investment Wednesday, along with $25 million in debt financing, as the challenger bank launches its first two products: a high-interest savings account and cash-back credit card. Its co-founders believe it can earn a piece of the everyday banking market dominated by Canada’s Big Five—and targeted by a number of other new players—with its digitally native approach to business and focus on new products.

“This round, what it really enables us to do is continue investing in our growth and innovating on the product,” said Andrew Chau, Neo co-founder and CEO, in an interview with The Logic. 

New York-based Valar Ventures led the round. The firm, co-founded by tech mogul Thiel—who co-founded PayPal and controversial big data firm Palantir, and was an early investor in Facebook—mainly invests in financial companies. 

Valar’s investment made up “the great plurality” of the $25-million total, said Andrew McCormack, a Valar founding partner, in an interview with The Logic.

The firm was drawn to Neo for a number of reasons. “Canada has got an excellent ingredient for a challenger bank to succeed,” said McCormack. The country’s historically concentrated banking sector leaves a large part of the population somewhat underserved or lacking choice, he said, and the traditional banks struggle to adapt to new technology or to offer the kinds of digital products that younger consumers in particular now expect. “That setup, I think, is very positive,” he said.

As for why Neo over its many competitors in the space, McCormack said in an investment at this early stage, the differentiator is the team, rather than any particular aspect of a business model. “We were pressing the ‘I believe’ button on them.”

Chau and one of Neo’s co-founders, Jeff Adamson, started food delivery platform SkipTheDishes alongside three others in 2012. Just Eat purchased the company for $186 million in 2016, after it had grown to 4.4 million customers and 2,300-plus employees. “We just really love the team,” said McCormack. “They had such great and efficient success with SkipTheDishes…. I think that that sort of experience of success and the desire to do a lot more is always a really promising circumstance.”

Other investors in Neo’s Series A like Lütke, Toronto-based Golden Ventures and the Bay Area’s Afore Capital seemed to follow the same train of thought, having previously invested in SkipTheDishes. While Chau said he couldn’t speak for individual funders, he believes “the investors that we attracted this time around, they saw the massive opportunity that we’re going after here in Canada.” Among them are new backers including Maple VC and District Ventures, founded by Arlene Dickinson.

The company would not disclose its post-fundraising valuation. ATB Financial, an Alberta Crown corporation, is providing the $25-million debt facility.

Chau said two main factors differentiate Neo from its competitors. The company has strategic bank partnerships that provide deposits with Canada Deposit Insurance Corporation insurance. The second, he said, is its innovative products. Neo claims its high-interest savings account allows people to earn up to 30 times more than at a traditional bank, with no monthly fee, minimum balance or transaction limit. It also offers a cash-back credit card, with users earning rewards with some 2,000 business partners. These were in a beta test in some Western Canadian cities, said Chau, and this week will be launched across Canada (excluding Quebec), starting with those on Neo’s 40,000-person-long waitlist.

Since its founding in 2019, Neo has grown to more than 110 staff, Chau said, and the company is hiring to fill more than 70 positions. The pandemic prompted its business to accelerate, he said, with consumers looking for digital-banking options and merchants seeking new ways to engage customers.

“[We’re] really looking to scale up and support a lot of our growth that we have for us right now.”

Neo is far from the only fintech hoping to break into the Canadian consumer banking market, with domestic startups like Koho and foreign players like Revolut keen to compete for Canadian clients. Canada lags many of its peer countries in creating an open banking environment, in which consumers would have greater control over their financial information and in which new companies could access financial data and more easily offer services. In its 2018 budget, the federal government announced it would review whether open banking would be good for Canadians. As part of that broad review, a government panel has been consulting with stakeholders in the financial industry. It delivered a preliminary report in January, but paused the second stage of its consultations this spring, amid the COVID-19 pandemic—to the chagrin of many of the country’s fintechs—but resumed the consultations in November.