Payments startup QPay wants to be the challenger bank for millennials and has $570,000 from Sydney Angels to get there

Born from an online student-focused ticketing, merch, and memberships marketplace, payments startup QPay’s newest vision is to be the challenger bank for millennials — and the founders reckon they’ll be first to the punch.

The startup originated in early 2015 in Canberra, operating as a small online marketplace where students at the Australian National University could buy tickets to upcoming concerts and events. Co-founder Andrew Clapham remembers the first event they ticketed, a tiny graduation dinner.

“We did a payment for a little graduation party, I think we sold about 30 tickets. The next event we did we sold 2400 tickets for a music festival, and it spread from there,” Clapham told StartupSmart.

The online marketplace offering still exists, but Clapham and his co-founder Zakaria Bouguettaya have taken advantage of Australia’s upcoming open banking regime to try and become a challenger bank focused at millennials and students, and is currently rolling out its own Mastercard to allow its users to spend and earn bonuses.

“Though we can’t call ourselves a bank, we have a vision of being a challenger bank, and the first step towards that is giving highly relevant deals to our students and building on our experience with QPay to get things started,” Clapham says.

“Other challenger banks are still launching their Mastercard or Visa offerings so I think we’ve beat them to the punch.”

Clapham also calls on QPay’s youthful positioning as a young startup to help them get the edge with the millennial crowd, saying no companies in Australia are “better positioned” to target the demographic than QPay, with over 150,000 uni students on the platform already.

Half a million raise in the bag

The startup has also recently finalised a $570,000 capital raise from investment group Sydney Angels and its Sidecar Fund, which follows a $400,000 raise in 2016 from the same group. Clapham says there’s no new investors on board for the second raise, something he says was highly valuable in the raise process.

Due to this, the capital was in the startup’s pockets in just a couple of months, a time period that might have been even shorter if the raise process wasn’t conducted over Christmas, says Clapham. The funds from the raise will be used to help fuel the rollout of the startup’s Mastercard offering.

“You never want to raise more capital than you should raise, so we looked to raise just enough. Sydney Angels has some really really high quality people on board, and a number of them were investors in us already,” he says.

“They already understood our mission and what we’re trying to achieve, and that made closing the round much easier for all involved.”

Rayn Ong, lead investor in the round and also non-executive director of QPay, said the proof of concept demonstrated through QPay made it an attractive bid for investors.

“QPay’s viral acquisition strategies have created a high level of adoption and engagement even at this early stage. It makes sense to take it one step further by bundling relevant deals into the Mastercard offering,” he said in a statement.

Having completed two angel-fuelled rounds in a row, Clapham says he might look to traditional venture capital funding further down the road, along with considering strategic investment from bank-backed venture capital arms.

To SAFE or not to SAFE

But despite going back to the same investors, getting them all on board again wasn’t such an easy ask thanks to the founders implementing a simple agreement for future equity (SAFE) note. This effectively allows investors to purchase shares in a future priced round, which then convert to equity, and it can be harder for founders to raise on SAFE notes due to the perceived greater risk for investors.

Clapham says while the method is well-established in the San Francisco startup scene, it’s a bit fresh Down Under, and therefore took some explaining before investors came around.

“I’d encourage startups to try the SAFE note, but be aware than some investors are allergic to it, and it can create some friction,” he says.

“But for us because everyone was an existing investor and we just wanted to raise capital quickly it was easy and investors were quite happy with the result.”

QPay is currently growing three times faster in the UK markets where it has presence at prestigious universities such as Oxford and Cambridge, and Clapham says the team is “laser-focused” on that market and wants to iron it out before pursuing expansion into other regions.

For first time founders, he says the best thing to do is just get started.

“Just like having a baby or getting married there’s no good time to start a startup, and doing it is defintely the scariest thing. But ask yourself if you’re going to regret it more if you do it, or if you don’t?” he says.

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