X1, a consumer fintech startup which recently launched an income-based credit card to the public, has raised an additional $15 million in funding.
This round caught our attention for a few reasons. For one, a consumer fintech raising in this environment is a bit counter to the narrative that startups in the space are generally struggling. (For example, digital bank Chime recently laid off 12% of its workforce, or about 160 people.)
Also, notably, X1’s latest financing comes just six months after the San Francisco-based company raised $25 million in a July Series B round. It also is not only not a down or a flat round, the cash infusion boosts X1’s valuation by 50%, according to Deepak Rao, co-founder & CEO of X1.
Rao unfortunately declined to reveal the new valuation or number of cardholders but he did share some other very interesting information around the company’s financials. When X1 started raising for its Series B in late March/early April, it was generating about $1 million per month in revenue, he said. By October, the startup was doing about $3 million in revenue. With these numbers, the company’s annual revenue run rate is $36 million. Very impressive for a company that only went live in private beta 13 months ago and launched its credit card to the public in mid-September – after amassing 600,000 people on its waitlist.
Gross merchandise value (GMV), also known as spend, too has jumped, according to Rao – from $50 million in July to $55 million in October to an expected $60 million this month. The company is projecting $1 billion in annualized spend for 2022.
That sort of rapid growth caught the attention of several investors, who reached out to X1, Rao told TechCrunch in an interview.
“In the beginning we weren’t considering [raising more money so soon],” he said. “But since it felt like we are one of the few companies in the consumer fintech space getting interest and growing at a good pace and responsibly, we thought we should capitalize on it.”
New investor Soma Capital led X1’s B1 raise, which Rao said was not an extension and closed in early November. Also participating in the latest financing was The Points Guy founder & CEO, Brian Kelly, and Cruise CEO, Kyle Vogt, bringing the series B round total to $40 million. The startup’s long list of previous backers include FPV, Craft Ventures, Spark Capital, Harrison Metal, SV Angel, Abstract Ventures, the Chainsmokers, Global Founders Capital, actor Jared Leto, Box co-founder and CEO Aaron Levie, Jeremy Stoppelman, Affirm and PayPal co-founder Max Levchin and Y Combinator Partner Ali Rowghani.
X1 has raised over $60 million since inception, including a $12 million Series A that closed in 2020 but was announced in January of 2021.
Interestingly, X1 did not fundraise at all in 2021, opting instead to keep its “head down focused on growth and long-term customer value.” This might have actually worked in the company’s favor considering that it was not among the many fintechs that raised at inflated valuations that they are currently trying to defend.
“There just aren’t that many fairly priced companies out there,” Rao told TechCrunch.
In conjunction with the B1 raise, X1 also announced today the launch of a new investing platform that will allow its cardholders to buy stocks with their earned reward points.
The new trading platform will live within X1’s app and will be rolling out to a select number of cardholders in beta in the next several weeks. The plan is for it to be live to the general public by year’s end or early January depending on how the initial rollout goes. Unlike users of current trading apps, X1 cardholders with access will be able to buy stocks by using earned reward points.
“By using credit card points to buy stock instead of cash or their savings, we feel this is a safe way for many consumers to start investing,” said Rao, who admits the company is hoping to compete with the likes of Robinhood. “There is no real downside as their investing is technically free.”
The startup first made headlines for its unique model which allows it to underwrite customers based on their income rather than their credit scores. (Since then, other players have emerged with similar models – such as Tomo Credit, which offers credit based on cash flow rather than credit).
X1 doesn’t charge an annual fee for its stainless steel Visa card, has no late or foreign transaction fees and rewards users with “points.” The company also claims that its card is “smart” in that it has built software features that work with the credit card. For instance, my colleague Romain Dillet wrote in 2020, “you can track your subscriptions from the X1 app, you can also generate an auto-expiring virtual card for free trials that require a credit card. You also get notifications for refunds.”
To date, X1 has given over $10 million in reward points.
Interchange fees on purchases represent X1’s primary source of revenue. But it also makes money by giving users incentives – in the form of additional rewards – to shop directly in the shopping portal inside its app using its card. When its cardholders do shop via that portal, X1 gets commission from the featured merchants, which include the likes of Nike.com, Sephora, Kate Spade, Apple, Macy’s and Warby Parker, among others.
X1’s plans for its new capital is market expansion, building out new products and hiring its product and engineering teams. Presently, the company has 36 employees and Rao claims all its growth thus far has been organic.
In recent months, X1 has already made a couple of very high-profile hires, including luring away Abhi Pabba from Apple, where he worked as manager of credit risk out of the tech giant’s Austin office. for the Apple Card, Abhi Pabba, has left the company. Pabba today serves as X1’s chief risk officer.
The company also recently hired Kieran Brady – a former managing director of Barclays, where he started the British bank’s fintech practice – to serve as X1’s chief financial officer (CFO).
When asked if the CFO hire meant that X1 had its sights on going public, Rao said that is the goal in the longer term.
“We want to do things the right way, and not get caught up in the hype cycle,” he said. “It’s extremely critical for a consumer fintech business to meet all the regulatory requirements and have all the foundations set up to build an enduring business.” (For example, he said the company already does audits – something other companies could learn from).
Rao started X1 with Siddharth Batra, who also previously served as Twitter’s director of engineering, in 2020 after previously founding ThriveCash together.
“There is so much to love about X1 and at the heart of it are Deepak and Siddharth – the visionary founders with an uncanny knack for product and the superlative ability to listen to the customer’s voice,” said Mir Faiyaz, partner at Soma Capital. “X1’s radical product-market-fit, and the team’s ability to be a magnet for top-tier talent and investors alike is a symptom of the perfect storm of founder-market-fit, a bold vision, and brilliant execution.”
X1 is not the only fintech company to raise an up round in recent months. TripActions, which in 2020 expanded from being a travel expense management company to a general corporate spend management startup, in October raised a combination of equity and debt at a post-money valuation of $9.2 billion, up from its prior valuation of $7.5 billion.
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