The spectacular crash of WeWork in September 2019 was a wake-up call to the global tech sector.
The American co-working space company – which presented itself as a tech firm – was preparing for an IPO, having raised investment at a whopping $47 billion valuation to fund its launch in more than 110 cities around the world.
“I had some of the very best funds in Europe lean in and offer us term sheets without having to run an extended process,” Barnaby Hussey-Yeo, founder and CEO of Cleo, says of the FinTech app’s “surprisingly easy” seed and Series A rounds prior to the WeWork collapse. “We had incredible consumer traction and were growing active users at a crazy rate.”
When concerns were raised over WeWork’s plans for profitability, the float was canned and co-founder Adam Neumann fired as CEO. WeWork, forced to change its business model, is worth $3.75bn today.
Hussey-Yeo, who had founded Cleo in 2016, says venture capitalists around the world were also taking note of the losses at another hyper-growth company, taxi app Uber.
Speaking to TechBlast, he explains: “It all changed at our Series B: it was just after WeWork had crashed and the Uber moment so VCs were suddenly paying far more attention to the unit economics of the business and not just top-line growth.
“We had purposefully – and perhaps naively – focused on growing our user base and doing everything we could to help them improve their financial health while not having spent a huge amount of time building the business model. That made the Series B far more challenging than previous rounds, and even though we ended up with multiple term sheets and a great investor, it took six months to close versus a couple of weeks for earlier rounds.”
Cleo is a digital assistant that supports people throughout their financial lives, from their first paycheque to their first home. The company seeks to positively impact the lives of millions of young people with limited financial literacy.
By reaching these people at the start of their journey with clear and simple guidance – delivered in a fresh, engaging tone of voice that pulls no punches – Cleo says it can completely change the trajectory of their financial life.
The London company has just raised a £66m Series C round as it seeks to double-down on the US market.
“We learnt from [our Series B experience] and really doubled down on building the business model ahead of the Series C raise,” says Hussey-Yeo. “So, even in a really challenging market we were able to quite easily raise a great round because the metrics made sense and there was a clear path to further growth and profitability.”
Cleo has helped millions of users on their financial journey, with over half converting to one of its paying subscription tiers within the first 12 months of downloading the app.
US-first growth strategy
The Series C fundraise was led by Belgium-based investment company Sofina, supported by participation from existing investors, including EQT Ventures & Balderton Capital.
It caps a remarkable success story for the British startup, which has deliberately embarked on a US-first growth strategy to displace traditional US financial services providers that make excessive profits by charging customers unfair and unnecessary fees.
“We built Cleo on Facebook Messenger initially, which is where we got our first million users,” the entrepreneur explains. “At the start, we were 100% focused on the UK and in fact only launched in the US as we had so many users asking when we were launching over there. Knowing there was a receptive audience, we built a version to work in the US as a test in five days and launched with fairly low expectations.
“One week later and we were growing faster than our UK product ever had – 10,000 users a day were signing up and connecting their bank accounts to Cleo. This was the moment we knew the US should be our primary market and we focused fully on making that happen.
“Today we’re a $30m revenue run rate business growing 3x year on year, valued at half a billion dollars.”
Hussey-Yeo says banking data partner Plaid made clearing regulatory hurdles across the Atlantic “really easy”.
“They had launched in the UK, which is why we were using them, but their main market was the US. They handled a lot of the ‘heavy lifting’ for us initially.”
Cleo will use the new funding to expand its headcount from 140 to over 220 and continue iterating and improving on its product suite.
‘The team is everything’
So what advice would Hussey-Yeo offer to fledgling entrepreneurs?
“The team truly is everything,” he says. “Never, ever lower your bar and be proactive in hiring and coaching employees for the next set of required roles.
“Talk to founders that have done it before – they’re the only people truly qualified to give you advice on scaling your business.
“But, always remember each business is wildly different and there are multiple ways to be successful so don’t be put off either. It’s certainly not an easy path, but it’s an extremely rewarding one.”