Wilmington-based venture fund Canapi Ventures led the Series A funding round for New York-based MondernFi, the fund announced this week.
Canapi’s investment was supplemented by Silicon Valley-based venture fund Andreessen Horowitz, which has a portfolio of investments including Airbnb, Facebook, Instacart and Lyft. Neil Underwood, a general partner at Canapi, told the Greater Wilmington Business Journal his fund invested $12 million and added $3 million from bank partners Huntington National, First Horizon and Regions banks, totaling $15 million. Andreessen Horowitz and New York-based Remarkable Ventures brought the Series A to $18.7 million, according to company documents.
ModernFi is a technology startup that aims to help banks manage deposits. The startup’s co-founders Paolo Bertolotti and Adam DeVita created a digital marketplace for banks to exchange deposits.
“We ran into ModernFi and ModernFi saw our (Limited Partner) base,” Underwood said, “as a result, they selected us to lead the round.”
Canapi’s Limited Partner base is a network of 70 banks that back the venture fund with capital, unlike traditional venture funds that gain capital from private investors or endowments. This proximity to the banking world was the motivation to fund a startup that could help banks experiencing deposit and liquidity issues, which have impacted the sector due in part to bank failures in 2023.
The bank failures compounded by interest rate hikes have impacted banks across the country, according to a news release from Canapi. Depositors retrieve their money and find other methods of saving due to distrust in the banking system's stability. Fintech companies have also contributed to a lack of liquidity in the banking sector, the release states.
This deposit runoff, or a lack of deposits in the banking sector, disproportionately affects regional banks, as distrust in the sector can cause depositors to put their funds in larger institutions, Canapi’s release states. ModernFi’s product aims to give banks a kind of deposit insurance, incentivizing more customer depositing.
Underwood said this business model was one his team considered incubating themselves, but when they found ModernFi, the startup was about two years ahead.
Canapi has many investments in common with Andreessen Horowitz, Underwood said. Andreessen Horowitz is one of the top venture capital firms in the world by assets under management and has raised $32.4 billion across 27 funds, according to Crunchbase.
Canapi’s bank-backed business model helps the firm win lead investments, Underwood said, because the startups it invests in usually go on to service the Limited Partner network of banks behind Canapi.
Underwood said 2024 is hopefully going to be a soft landing for the banking sector after the instability of last year. Regional banks are going to continue to lose depositors to “too big to fail” banks or other institutions unless companies like ModernFi step in to help, he said.