New User Pipeline

I made an investment in the 2020 funding round and am considering an investment in the new round. One stat that I am interested in is the pipeline of new customers month on month. Whilst the service was free it would have been relatively easy to sign-up new users. Then the on-off conversion of non-paying users to paying users occurred with a good take-up. But now is the tricky part, how do you attract new sign-ups to a product that charges? Before I invest I’d like to see some stats on the new user sign-up.

My other concern is the way I became aware of Coconut and became a customer was because of the current account facility. I made a conscious decision to look for an alternative, technology lead bank aimed at new businesses that weren’t one of the old guard. Comparison sites listed Coconut along with Tide, Starling and Revolut. But with the removal of current accounts for new customers I would never have become a customer of Coconut.



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Paul - when did this happen? I don’t remember reading any investor update or general update about removing the current account. This is concerning to me.

I can’t find where the announcement was originally made but it was re-iterated again during the investor presentation this week, starting at 2 minutes 30:

Coconut Crowdfund 2021 | Investor Webinar Highlights on Vimeo

The decision is to focus on open banking and not offer a current account to new customers. Existing customers with a current account are not impacted.

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Sounds like a cost cutting exercise to me, I’ll have to watch the recording as was unable to watch it due to driving for a living

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Short and sweet the video was…

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Hi @Paul-B @ryev @Kevin, excited to get rolling with the fundraising round. Particularly because, as you know, we get great questions like this and I love to dive in.

I think you’ll benefit from having a look at the longer recording of the webinar here:

On top of this, I’m doing an AMA tomorrow at 17.00 and will answer these, you can sign up here: AMA Sign Up

In this, I cover all the big decisions we’ve made and why. But let me also cover them below.

Revenue & Clarity of Value Proposition

Whilst funnel is important, getting the right customers through the funnel is key. And also ensuring that we’re driving value and monetising in the most profitable way possible.

So now we’re only bringing on paying customers (no free tier). This will be our sole focus going forward.

What we discovered was that it’s not necessary for people to have a current account with us to, firstly, join us and, secondly, to convert to a paying customer. And in fact, it was creating confusion about what we represent to customers, sometimes inhibiting their use of our bookkeeping and tax tools and preventing them moving to paying.

It was harder for customers to understand what value we provide to them, around tax and accounting, if they came to us for a current account. It was also hard to cut through with accountants as a tool that they can use for managing all their sole trader clients, regardless of where they bank - by offering current accounts, they lumped us in with other banking products.

So now we have clear cut through: Sam O'Connor on LinkedIn: Awesome to be working with fast-growing accounting practices like


When you look at the market context too and how things have developed, there are a lot of bank accounts in the market today vs 3 years ago. And they have a lot of different benefits ranging from FX to Crypto to Personal banking.

So long story short, bank accounts were disproven as a good way of growing paying customers for us. When you factor in the costs of running them and the overhead of building features that other accounts do well, it didn’t really make sense to continue with them for new customers.

This isn’t a new concept and quite a natural development for us. I started writing about this back in 2018 and we’ve been cautiously optimistic about Open Banking but now very much see it as the future. One that we’re ahead of the game on. This is an incredible and vast opportunity covering Europe and the US, so a great time to dive in.

On top of this, we identified that whilst there are a few hundred thousand new sole traders each year, very few are going to switch or open a new account. Suddenly our Open Banking proposition is a real differentiator and we can work with anyone regardless of where they bank, or whether they use a personal account or business account.

Since shifting to pure Open Banking, we are no longer seen as a bank account. The number of sole traders who have been in business for more than 1 year has increased significantly in the last few months and is continuing to rise. We’re starting to tap into businesses that are more established and therefore more comfortable paying for our product.

SaaS 100% Margin

Unless you are a regulated bank and invest in a very competitive treasury or partnership function, current accounts are unprofitable. Having proven that they are not necessary for growth, this then made the decision easy to move to an Open Banking SaaS model to increase margin. Subsequently, gross margin by June will be 40% vs -6% last year.

Sole traders

Another big decision to be the first mover in the sole trader space and double down. But made perfect sense. Making Tax Digital will require all sole traders (and landlords) to complete 4 tax submissions each year instead of 1 and use a digital product to do it.

Interestingly, this is also where we realised we have some secret knowledge. 80% of our base is sole traders and no other company has proven that sole traders really need a product like ours and are willing to pay for it.

So we want to put sole traders on the map in the UK and lead the charge on MTD. But more broadly, unincorporated businesses are a huge and homogenous group around the world. And by focussing wholly on this group we can continue building a transformative product and developing our moat - not a hand-me-down accounting product that was really built for limited companies.

Shareholder Value

To Kevin’s point about cost-cutting, if we weren’t deploying capital effectively, I would expect you to be worried. The changes we’ve made are data-driven and enable us to focus resources in a much more targeted way and on building value for shareholders, through better products and services for customers. We reduce our competition, we give ourselves focus to move faster and we become a product that leads a category, rather than a copycat.

This is 100% about focussing spend on the right areas and cutting costs on things that are not driving value for customers or shareholders.

Business Context

As with any startup our business context has changed signficantly through Covid and as the market has naturally evolved. But most significantly our context has changed as we’ve learned, gathered data and become more sophisticated in our thinking.

One of the things I think has been most impactful to our longer term success over the last 12 months (which have not been for the faint-hearted as I’ve shared in my emails) is what we’ve said “no” to. I don’t believe you can build a breakout success unless you say no to things.

So we’re making the most of the position we have in the market and the opportunity the market has presented: sole traders will soon have to do 4 tax submissions a year instead of 1. And we’re the market-leading tax product for sole traders in the UK. And now we’ve proven that sole traders are a profitable and underserved segment for us.

That said, it does mean we are slightly behind plan and I’ve not quite delivered the uptick I wanted in share price that I wanted to. Whilst there are many reasons for that, it’s regretful. But in the longer-term I think we will surpass what was possible as a result of the decisions we’ve made and the work we’ve done, and that means we will get back to driving our valuation up through solid and reliable revenue growth and strong unit economics.

We’re all very excited.

So to summarise

  • We can now work with banks such as Starling, Tide, Monzo, Barclays, Lloyds rather than against
  • Our revenues are now 100% gross margin
  • We’re starting to acquire much more established businesses who are paying us more and more for the value in the product, we’re not back to growth just yet as we’re doing some product work to optimise our funnel for converting a trial to paying, but we expect to be back to 10% MOM growth by the end of the year - and that’s in paying customers, not just sign ups…
  • We can move 10x faster with a narrower focus and lead a category, rather than compete on ad spend
  • Our proposition is much clearer to customers and accountants and now accountants are able to move all their sole traders to us rather than just the ones that want to bank with us

On the funnel question, this is a really good one. I’ll share a bit more about funnel and CAC in the webinar tomorrow night and on the forums. But our new funnel is a lot clearer - we acquire paying customers only and our unit economics including Lifetime Value and Payback Period are a lot easier to measure, enabling us to build more profitably. On top of this, I’ll share more about our growth channels.

Does that answer the questions?

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Sam, thank you for going in to detail. It definitely has answered my questions.

You may have sent updates but for some reason I just forget reading it.

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