From left, Griffin Keglevich, Co-founder, Ruslan Nikolaev, Co-founder and Rob Khazzam, CEO and co-founder of Float, at the company’s offices in Toronto on Oct 18, 2021.Fred Lum/The Globe and Mail
Months after Float Financial Solutions Inc. launched its small business financial management platform, it raised US$30-million in venture capital led by New York’s notoriously spendthrift and fast-moving Tiger Global Management. The November, 2021, deal valued the 15-person startup, with C$2-million in annualized revenue, at US$150-million. It was a big price for a tiny company.
Within weeks, the tech bubble popped. The ensuing bear market has been brutal for startups that raised at the peak. Many slashed costs and jobs, as investors pushed them to reach profitability. Several were devalued or failed.
That didn’t happen to Toronto-based Float. Instead, it rose to the top of Canada’s startup class. The company is set to announce Monday that Goldman Sachs Asset Management’s growth equity arm has led a $70-million financing, backed by three other new investors – FJ Labs, OMERS Ventures and Teralys Capital – and past shareholder Garage Capital. Most of the money is going to Float, with an undisclosed amount to employees and investors.
Many financial technology companies are now worth less than their pandemic peaks. But the deal values Float above US$200-million including funds received, about 30 per cent above the Tiger deal, even though the company is not yet profitable and has not committed to a date when it expects to be in the black.
Float has kept up its torrid growth pace, topping $30-million in annual revenues and 4,000 customers across Canada, and avoided sweeping layoffs while keeping its head count to about 100 people – though it plans to hire dozens this year.
“Float lived up to its hype and surpassed it,” said Toronto entrepreneur Michael Hyatt, an early Float backer. “There is a class of companies getting paid for their performance. This is one of those.”
The company is one of a slew of startups aiming to bring alternative financial products and services to small and medium Canadian businesses, or SMBs, that have been chronically underserved by big banks. Since March, 2021, it has offered virtual and physical corporate charge and credit cards for SMBs (backed by People’s Trust Co. and Thread Bank, since Float isn’t a bank) to assign to employees and manage through its software.
That is similar to foreign fintechs Brex Inc. and Ramp Business Corp., which don’t serve Canadian companies here. Float cards don’t require personal guarantees from business owners and are offered as prepaid products to sidestep underwriting risks banks face.
Float clients can assign unlimited cards to employees for use in Canada or the U.S. that finance managers can track and control digitally to limit spending and expense types. The company, which makes most of its revenues on interchange fees from card use, also offers expense reimbursement and bill payment features as well as a yield product in partnership with an unnamed bank, enabling clients to earn 4 per cent on cash stored with it.
It also repays 1 per cent cash to companies that charge more than $25,000 in expenses to cards. That’s enough for many to recoup the monthly $10 fee per card user that larger customers who move beyond Float’s basic “freemium” service (which also offers the cash back feature) pay. Float says that between personnel savings, efficiencies, cashback and yield, clients save an average 7 per cent on spend by using its platform.
Josh Andler, director of finance with Jane Software, said the Vancouver company earned $7,000 cash back last month using Float, and has been able to forego hiring one to two people to its finance team: “It more than pays for itself.”
Clare Greenan, vice-president with Goldman Sachs Growth Equity, said Float has “done an incredible job doing a really complicated build of financial services while marrying that with software and a delightful user experience” matched to client needs.
Float was founded by University of Waterloo students Ruslan Nikolaev and Griffin Keglevich in 2019, initially under a different name. In 2021 it began offering card programs for SMBs and hired former Uber Technologies Inc. executive Robbie Khazzam as chief executive officer. Facing little competition, Float quickly picked up other domestic tech companies as clients including Klue, Neo, Clutch and Ada raised seed financing in mid-2021 and the Tiger-led round that fall.
Mr. Khazzam, who had overseen deep cuts while leading Uber Canada, said in an interview he knew from the outset “we would have to be prudent about how we deployed the capital.” Float raised an extra US$5-million from its investors months after the Tiger deal to give it flexibility and hired cautiously as it more than quadrupled revenues over the next year.
As the downturn hit clients by early 2023, Float all but stopped expanding head count for several quarters and tightened spending. It also shifted its focus to sell to more conventional small businesses such as food and beverage operators and professional service providers.
That brought its share of venture-backed clients to less than one-third, from 90 per cent in 2021. Float also raised a $50-million off-balance sheet credit facility last year from Silicon Valley Bank to support a credit program for select clients. Thanks to its efforts, Float has grown revenues by almost 20 times and revenue per employee fourfold since 2021.
Mr. Khazzam, asked when Float will become profitable, replied, “We will be a profitable company one day, but right now we are focused on our product innovation road map.” Only the fastest-growing startups, generative artificial intelligence companies and quantum computer developers can still get away with that kind of answer today.