Why we invested in Lili Banking

Group 11 Announces Investment in Lili Bank

Earlier this week, it was announced that Lili Bank, the all-in-one, digital banking platform designed for Freelance workers, has raised $10 million in a Series Seed round led by Group 11. Alongside Group 11, Foundation Capital, AltaIR Capital, Primary Venture Partners, and Torch Capital also participated in the round. As part of this round I also joined the Lili Bank Board of Directors.

Dovi Frances, Managing Partner Group 11

I wanted to share with you why we decided to lead this financing round and why we strongly believe that Lili has all of the components needed to become a category-defining neobank. Lili, which is led by a veteran team of FinTech executives, serves a growing US market of freelance workers who lack adequate mobile banking solutions and are in need of financial education. Inline with Group 11’s fintech portfolio and investment thesis, Lili is a uniquely positioned, financial technology that empowers a growing and underserved market.

Strong Demographic Tailwinds

Lili’s winning product-market fit can be attributed to two major demographic shifts. The first is the rise of the digital-native, mobile-first generation of customers: Millennials (born 1980–1994). Today, Millennials comprise 50% of the global workforce (1.5BN people), spend almost 6 hours a day on their mobile devices, and 94% own a smartphone. This new generation of customers demand transparent, automated, mobile, and above all, fast interactions. Additionally, as Millennials were old enough to witness the impact of the Great Financial Crisis (2007–2009), they are unified in their strong distrust of traditional financial institutions. Like most upcoming generations, Millennials often lack sophisticated financial literacy and are also concerned with issues like work-life balance, commute, health and wellness, and family dynamics.

The second shift is macroeconomic: the Freelance Workforce is one of the fastest growing demographics in the labor force. The Freelancing Workforce consists of:

  1. Independent Workers who derive their primary income from newer, platform-based marketplaces (Uber, Postmates, Fiverr, etc.), instead of traditional W-2 salaries
  2. Self-Employed Workers who derive their income from their own businesses (usually sole proprietors such as general contractors, florists, fitness instructors, etc.)
  3. 1099 Workers who derive their income from any 1099 source
  4. Anybody who receives a W-2 salary and derives ancillary part-time income from any combination from the above.

In 2019, the US Freelance Economy generated over $1.4TN in revenues (more than 5% of US GDP). Pre-COVID, there were 60 million Freelance Workers in the US (more than 1 in 3 Americans in the workforce). It is projected that by 2027, over half of the US economy will be made up of Freelance Workers. As more Millennials joined the Freelance Economy, the Freelance Workforce increased from 28% in 2014 to 36% of the US workforce market in 2019. This workforce is growing because freelancing allows the new generation of professionals, who are not attracted to traditional work schedules, to have flexible and independent lifestyles whilst generating income.

While this is a rapidly changing and growing demographic, incumbent financial institutions and emerging neobanks do not offer tailored products that match this partucular demographic’s unique needs. The Freelance Workforce in the US has specific financial concerns such as: limited credit history, lack of tax knowledge, inability to afford high banking fees, and lack of proper attention to managing their business bank account which results in lack of proper itemization of work related expenses vs. life related expenses.

The reason incumbent financial institutions, such as Bank of America, don’t have tailored products is because their savings, credit, and investment products were created for and by older generations, and built for W-2 employees who have consistent incomes and credit histories. Many neobanks, such as Chime, are more consumer-oriented but don’t necessarily provide the accounting features that help with tax categorization, business advice, or budgeting. Because Freelancers are also business owners, who often do not have dedicated accountants or tax professionals, financial literacy is paramount as it directly impacts their livelihood and tax exposure. Until recently, there were no other mobile banking solutions helping the self-employed navigate this complicated financial landscape.

Freelancers: Do Your Thing, Lili Will do the Rest

Enter Lili’s mobile bank for the Freelance Economy. Lili is a bank that offers customized financial tools to help Freelancers manage and build their businesses. Lili’s tailor-made features and services include: zero monthly fees or hidden charges, proactive insights to improve financial planning, automated tax and expense reporting, instant paycheck, foreign currency exchange, and cash flow monitoring. The app requires zero physical paperwork and offers cash back and rewards for spending through Lili’s debit card. Their bank is available 24/7 via the mobile app (no bank holidays!) on both iOS and Android and has a great in-app chat feature and phone customer support.

Lili provides customers these insightful features via automation and machine learning. It takes the headache out of financial management so Freelancers can focus on what matters: doing their thing and growing their business.

Not Their First Rodeo

In addition to the stellar UX and product, what drew our attention from the onset was Lili’s founding team — Lilac Bar David and Liran Zelkha.

Lilac and Liran are seasoned fintech entrepreneurs with years of experience in digital banking. Prior to founding Lili in 2018, they partnered with Bank Leumi to successfully launch Pepper in 2015 in Israel. Pepper was the first 100% free, digital bank in Israel and onboarded a record 550,000 customers in its first year of operations (5% of Israel’s 8 million population in 2015).

Already equipped with the regulatory, operational, and tech knowledge to successfully build a digital bank, Lilac and Liran set their eyes on the US market. They saw tremendous opportunity to build a company that would redraw and disrupt the traditional banking model for this vastly underserved workforce of over 60 million people in the US. Since launching in 2019 out of their New York headquarters, Lili has grown its user base significantly and is rapidly emerging as the bank of choice for the growing US Freelance Economy.

We are excited to continue supporting Lili as it redefines banking for the Freelance Economy.

Dovi Frances is a financial services entrepreneur and founding partner of Group 11, a venture capital firm based in Los Angeles, California.