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BFD Expert Voices - Private Credit

BFD Expert Voices

Brazilian Banking as a Service company QI Tech is valued at over $1 billion after extending its Series B funding to $210 million, it tells Lucinda exclusively.

Why it matters: Regulatory pressure and a broader fintech slowdown have brutalized the Banking as a Service sector stateside. The story seems to be playing out differently in Brazil.

Between the lines: General Atlantic led the round, which was originally announced in October as a $200 million raise at an undisclosed valuation.

QI Tech raised that initial Series B round with the express purpose of making an acquisition, though it didn't have a firm target. QI Tech and General Atlantic agreed that a new valuation would be determined on the successful close of an acquisition.

The fine print: General Atlantic bought call options worth about $40 million as part of that Series B, which could be re-priced at a later date — notably, after it knew what QI Tech had acquired and what the specific financials of the combined company looked like.

How it works: Unlike in the U.S., where BaaS companies are generally not also banks, QI Tech does have a limited bank charter that allows it to lend off  its own equity — though not off customer deposits.

But QI Tech does not hold credit on balance sheets to maturity and instead securitizes loans and sells them to other investment vehicles.

Singulare is an administrator and custodian to such vehicles, with close to $20 billion under management.

What's next: The Singulare transaction enables QI Tech to effectively process more lending — and do so more cheaply.

Previously, QI Tech used its own equity funding — which is more expensive for the company — as a kind of bridge loan on weekends and holidays if customers sought more lending capacity.

QI Tech can now connect customers to credit investors itself and does so on weekends, when capital markets are closed.

"Sometimes you have more operations during the weekends than during the business days," say QI Tech CFO Marcelo Bentivoglio.

The big picture: This is the second Brazilian BaaS company to buck the slowdown. Pismo was acquired by Visa last year in a $1 billion deal.

The bottom line: The company is now one of 18 Brazilian unicorns, based on CBInsights data.

1 big thing: Delayed valuation gratification

Illustration of an upward pointing arrow made from Brazilian coins

Brigit, a cash advance and credit building startup backed by NBA star Kevin Durant, hit over $100 million in revenue and reached profitability last year, the company tells Lucinda exclusively.

Why it's the BFD: The company's track record highlights the demand for earned-wage access products, as well as the growing regulatory scrutiny of the space.

How it works: Brigit makes about 90% of its revenue from subscriptions, charging users $8.99 to $14.99 a month for access to its budgeting app, a credit building product, and cash advances to eligible customers ranging from $50 to $250.

The company doesn't charge additional interest for those advances.

Using cash-flow data, Brigit says, it can personalize the experience, automatically sending customers tips to reduce a bill if it suddenly shoots up. If the user agrees, Brigit can also predict and prevent overdraft fees by fronting capital into an account.

The remaining 10% of revenue comes largely from affiliate links to insurance products, or to side gigs such as DoorDash or Survey Junkie.

Driving the news: The company's revenue grew 90% last year, to over $100 million, CEO Zuben Mathews says. It expects to grow revenue 50% this year and maintain profitability.

Between the lines: The company was profitable both on a EBITDA and net income basis in 2023. But when accounting for the $18 million settlement with the FTC, the company would have posted a net loss.

In that November settlement, Brigit agreed to pay that amount to customers after the FTC alleged that Brigit had trapped consumers into the subscriptions and published misleading advertising.

According to the FTC, the cash advances seemed easily accessible based on Brigit's advertising, when in reality consumers were "rarely able to get an advance for the promised $250." Consumers were also not able to cancel the subscription if they had any outstanding balance, regulators alleged.

What they're saying: "We do fundamentally disagree with the allegation and, quite frankly, some of the facts, but we settled," says Mathews. But he notes that the company has made the changes to how the company advertises and cancels subscriptions, based on the FTC order.

The $18 million settlement also did not affect loans given in 2023, he says.

Zoom in: Earned-wage access companies like Brigit say they have noble intentions of helping those who live paycheck to paycheck. On median, Brigit's customers make about $50,000 a year.

But that's garnered attention from regulators, who worry the industry will take advantage of some of the country's most vulnerable consumers. That's led to scrutiny and created confusion at companies over what products are compliant.

So far, regulation has been a patchwork, with states differing on whether such earned advances should be considered loans and, therefore, subject to more onerous regulation. The CFPB, meanwhile, has signaled it plans to issue its own guidance.

Complicating the issue: EWA providers also have differing business models, with some selling through employers and some directly to consumers.

Brigit has argued that it is not a lender.

State of play: Brigit has raised $25 million in equity overall from investors including Lightspeed Venture Partners and Durant's Thirtyfive Venture. It last raised in 2019.

When asked why the company didn't try to raise during the pandemic era, Zuben said: "It was a mistake not to raise more."

The company had planned to raise in 2022, but markets soured. Now, the company may consider a fundraise "depending on how the equity markets are."

2. The BFD: Brigit surpasses $100M in revenue

Illustration of a roll of money falling into a cupped hand

💸 Nasdaq's revenue beats on strong demand for fintech products (Reuters)

Revenue for the company's fintech unit jumped 71%, to $392 million, in the first quarter. The unit sells compliance tech and other capital market tech to banks, brokers and regulators.

Dutch payments platform Mollie grew its net revenue 36%, to €99 million, last year. Operating costs fell 30%, to €126.7 million, in the same period.

The company, backed by Blackstone Growth, EQT and TCV, was last valued at $6.5 billion.

🖥️ Revolut plans to grow headcount by 40% (Finextra)

The neobank started the year with just over 8,000 employees and now has 10,000 globally. It plans to hit 11,500 by year-end, with hires in its sales, customer support, and financial crimes teams.

🤝 Goldman bolsters private equity banking team (Axios)

"Goldman Sachs has hired two senior bankers from JPMorgan to bolster its private equity banking team amid an expected resurgence in dealmaking," Axios' Michael Flaherty writes.

3. Credit score

Illustration of an exam answer sheet with the words "credit score" hand written in red ink.

Go deeper into our full database with the Axios Pro Deals Tracker.

• FinQuery, an Atlanta-based spend management provider, raised $25m led by Periphas Capital with participation from Lavelle Capital. axios.link/4dg8AEw

• Dripos, a New York-based payments platform for coffee shops, raised $11m in Series A funding led by Base10. axios.link/49Y5xhw

• Vixtra, a Latam-focused provider of credit for importers, raised $6m in extended seed funding from investors including Valor Capital, QED Investors, NXTP, Endeavor Scale-Up Ventures and Actyus. It also raised $30m in debt. vixtra.com

• UserHub, a New York-based billing platform for B2B SaaS, raised $3.2m in pre-seed funding led by 468 Capital. userhub.com

• FlashAid, an India-based health care and insurtech company, raised $2.5m led by Piper Serica Angel Fund and SOSV. Z21 Ventures Fund and ZNLGrowth Fund also participated. axios.link/49Sgp0j

• TaxBit, a New York-based crypto tax and accounting compliance solutions, raised an undisclosed amount from In-Q-Tel that maintains the company's last $1.3b valuation. axios.link/49UcbWf

• GTCR agreed to buy AssetMark (NYSE: AMK), a wealth management technology platform for financial advisers, for $2.7b, or $35.25 per share. axios.link/3w893YR

• The FDIC is in talks with potential acquirers of Republic First Bancorp, a Philadelphia regional bank that has traded under $1m in market cap in April, per Bloomberg. A prior deal to inject $35m into the business was canceled in February. axios.link/3Ubi0st

• Finsight acquired T-Rex, a New York-based platform for modeling and managing complex investments. Citigroup and The Westly Group previously backed T-Rex. axios.link/44hyhAP

• Founders Fund took a minority stake in crypto accelerator Alliance. axios.link/3WfFu25

4. Deals!

• Michael J. Stanton was named CEO at Comply, taking over form Amy Kadomatsu, who will become board adviser. He was previously an operating partner at FTV Capital. axios.link/49UaPuD

• Lisa Larson was named chief strategy officer at Percy.ai. She was previously managing director at Restb.ai. axios.link/49NvPDf

5. It's personnel

Situational awareness: The U.S. economy grew at a 1.6% annualized rate in the first quarter — signaling that it's cooling off.

⚔️ @Lucinda is battling her spam inbox.

📚 @George plans to spend much of his week off with his best friends (books).

Thanks to George Moriarty and Rob Reinalda for today's edits.

And thanks to you for reading this edition of Fintech Deals. Please tell your fintech friends and bibliophiles about this newsletter. They can sign up here.

April 25, 2024

1 big thing: Delayed valuation gratification