Pinwheel Raises $50M Series B at $500M Valuation

Pinwheel Secures $50 Million in Series B Funding

Payroll connectivity platform Pinwheel has announced a new funding round of $50 million, led by GGV Capital. This investment follows a $20 million Series A round secured six months prior.

Serving the Fintech Ecosystem

Pinwheel provides application programming interfaces (APIs) to neobanks and fintech companies such as Block, Varo, and Lendly. These APIs connect to crucial payroll, income, and employment data.

Historically, accessing this type of data has been hampered by inefficient and cumbersome systems. Pinwheel’s founders identified this challenge while developing a startup focused on pre-tax employee benefits.

From Roadblock to Innovation

Kurt Lin, Anish Basu, and Curtis Lee, having collaborated in previous roles, encountered difficulties connecting to payroll systems during the implementation of their initial venture. This led them to shift their focus and develop a scalable API solution, as Lin explained in a TechCrunch interview.

Robust Data Access

The company’s APIs grant customers access to comprehensive information regarding individuals’ payroll and employment status. A key differentiator is the tracking of income from “non-traditional” sources, including gig economy platforms like Uber and payment apps like Venmo.

Pinwheel’s core offerings encompass direct-deposit switching, income and employment verification, and paycheck-linked lending. The aggregated data covers approximately 80% of the U.S. workforce, according to the company.

Applications Across Financial Services

Customers can utilize this data for diverse applications, including offering earned wage access – allowing employees to receive funds as they earn them – and facilitating paycheck-linked loans, which are generally considered lower risk than traditional unsecured loans.

Differentiation in a Competitive Landscape

Despite the presence of other companies in the payroll API sector, Pinwheel aims to distinguish itself by constructing a comprehensive “income layer” of data extending beyond standard payroll information.

Significant Growth and Traction

The platform currently processes over 4.6 million transactions monthly, a 400-fold increase year-over-year. Pinwheel also reports leading the market in customer conversion rates.

The company experienced a 177x growth in annual recurring revenue in 2021, though specific historical and current revenue figures were not disclosed by Lin.

Key Factors Driving Success

Lin attributes Pinwheel’s success to three primary elements: strong commercial adoption, a highly skilled team, and a commitment to enhancing financial outcomes for underserved customers.

“For instance, a customer like a teacher or nurse, employed for five or six years with a FICO score of 550, might be denied affordable financial products. We can demonstrate their income stability and predict better repayment performance,” Lin stated.

Leveraging Expertise from Plaid

Pinwheel has actively recruited employees from Plaid, a prominent $13.4 billion API company specializing in bank account connectivity for fintechs.

“We are unique in our ability to attract multiple hires from Plaid, including our VP of Engineering, Head of Commercial, and numerous core engineers who previously built the platform at Plaid. This institutional knowledge provides a competitive advantage,” Lin explained.

Compliance and Data Integrity

Pinwheel is the sole provider of both direct deposit switching and payroll data that is officially classified as a Consumer Reporting Agency (CRA), adhering to the Fair Credit Reporting Act. This means the company is legally accountable for the accuracy of its data.

Operating as a regulated CRA requires substantial effort, but demonstrates Pinwheel’s dedication to data integrity, according to Lin.

Strategic Investors Join the Round

The Series B round included participation from new strategic investors such as AMEX Ventures, Indeed, Kraken Ventures, and Franklin Templeton. Existing investors Coatue, First Round Capital, Upfront Ventures, and TQ Ventures also contributed.

Future Plans and Expansion

Pinwheel intends to utilize the new funding to triple its current workforce of 70 employees, with a continued emphasis on engineering talent. The company also plans to expand its go-to-market strategy, revenue generation, and marketing efforts.

Future expansion may include areas like tax preparation, leveraging its income data to create new opportunities.

Early Validation and Market Potential

Shortly after emerging from stealth mode in June 2020, Pinwheel received over 130 inquiries from major banks like Wells Fargo and Citi, as well as numerous fintech companies.

“This highlighted the potential of our platform as a growth engine for the entire consumer finance industry,” Lin said. “Whether you’re a digital bank, a PFM, a tax product, or a lender, our platform provides the building blocks for both current and future innovation.”