SpotOn raises $300M at a $3.15B valuation and acquires Appetize

Last year at this time, SpotOn was on the brink of announcing a $60 million Series C funding round at a $625 million valuation.

Fast forward to almost exactly one year later, and a lot has changed for the payments and software startup.

Today, SpotOn said it has closed on $300 million in Series E financing that values the company at $3.15 billion — more than 5x of its valuation at the time of its Series C round, and significantly higher than its $1.875 billion valuation in May (yes, just three and a half months ago) when it raised $125 million in a Series D funding event.

Andreessen Horowitz (a16z) led both the Series D and E rounds for the company, which says it has seen 100% growth year over year and a tripling in revenue over the past 18 months. Existing investors DST Global, 01 Advisors, Dragoneer Investment Group, Franklin Templeton and Mubadala Investment Company too doubled down on their investments in SpotOn, joining new backers Wellington Management and Coatue Management. Advisors Douglas Merritt, CEO of Splunk, and Mike Scarpelli, CFO of Snowflake, also made individual investments as angels. With the new capital, SpotOn has raised $628 million since its inception.

The latest investment is being used to finance the acquisition of another company in the space — Appetize, a digital and mobile commerce payments platform for enterprises such as sports and entertainment venues, theme parks and zoos. SpotOn is paying $415 million in cash and stock for the Los Angeles-based company.

Since its 2017 inception, SpotOn has been focused on providing software and payments technology to SMBs with an emphasis on restaurants and retail businesses. The acquisition of Appetize extends SpotOn’s reach to the enterprise space in a major way. Appetize will go to market as SpotOn and will work to grow its client base, which already includes an impressive list of companies and organizations including Live Nation, LSU, Dodger Stadium and Urban Air. 

In fact, Appetize currently covers 65% of all major league sports stadiums, specializing in contactless payments, mobile ordering and menu management. So for example, when you’re ordering food at a game or concert, Appetize’s technology makes it easier to pay in a variety of contactless ways through point of sale (POS) devices, self-service kiosks, handheld devices, online ordering, mobile web and API integrations.

Image Credits: SpotOn

SpotOn is taking on the likes of Square in the payments space. But the company says its offering extends beyond traditional payment processing and point-of-sale software. Its platform aims to give SMBs the ability to run their businesses “from building a brand to taking payments and everything in between.” SpotOn’s goal is to be a “one-stop shop” by incorporating tools that include things such as custom website development, scheduling software, marketing, appointment scheduling, review management, analytics and digital loyalty.

The combined company will have 1,600 employees — 1,300 from SpotOn and 300 from Appetize. SpotOn will now have over 500 employees on its product and technology team, according to co-founder and co-CEO Zach Hyman. It will also have clients in the tens of thousands, a number that SpotOn says is growing by “thousands more every month.”

The acquisition is not the first for SpotOn, which also acquired SeatNinja earlier this year.

But in Appetize it saw a company that was complementary both in its go-to-market and tech stacks, and a “natural fit.”

SMEs are going to benefit from the scalable tech that can go with them, including things like kiosks and offline modes, and for the enterprise clients of Appetize, they’re going to be able to leverage products like sophisticated loyalty programs and extended marketing capabilities,” Hyman told TechCrunch. 

SpotOn was not necessarily planning to raise another round so soon, Hyman added, but the opportunity came up to acquire Appetize.

“We spent a lot of time together, and it was too compelling to pass up,” he told TechCrunch.

For its part, Appetize — which has raised over $77 million over its lifetime, according to Crunchbase — too saw the combination as a logical one.

“It was important to us to retain a stake in the business. We were not looking to cash out,” said Appetize CEO Max Roper. “We are deeply invested in growing the business together. It’s a big win for our team and our clients over the long term. This is a rocketship that we are excited to be on.” 

No doubt that the COVID-19 pandemic only emphasized the need for more digital offerings from small businesses to enterprises alike.

“There has been a high demand for our services and now as businesses are faced with a Covid resurgence, no one is closing down,” Hyman said. “So they see a responsibility to install the necessary technology to properly run their business.”

One of the moves SpotOn has made, for example, is launching a vaccination alert system in its reservation management software platform to make it easier for consumers to confirm they are vaccinated for cities and states that have those requirements.

Clearly, a16z General Partner David George too was bullish on the idea of a combined company.

He told TechCrunch that the two companies fit together “extremely nicely.”

“It felt like a no-brainer for us to want to lead the round, and continue to support them,” George said.

Since first investing in SpotOn in May, the startup’s growth has “exceeded” a16z’s expectations, he added.

“When companies are growing as fast as it is organically, they don’t need to rely on acquisitions to fuel growth,” he said. “But the strategic rationale here is so strong, that the acquisition will only turbocharge what is already high growth.”

While the Series E capital is primarily funding the acquisition, SpotOn continues to double down on its product and technology.

“This is our time to shine and invest in the future with forward thinking technology,” Hyman told TechCrunch. “We’re thinking about things like how are consumers going to be ordering their beer at a Dodgers game in three years? Are they going to be standing in line for 25 minutes or are they going to be interacting and buying merchandise in other unique ways? Those are the things we’re looking to solve for.”

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All the reasons why you should launch a credit or debit card

Over the previous two or three years we’ve seen an explosion of new debit and credit card products come to market from consumer and B2B fintech startups, as well as companies that we might not traditionally think of as players in the financial services industry.

On the consumer side, that means companies like Venmo or PayPal offering debit cards as a new way for users to spend funds in their accounts. In the B2B space, the availability of corporate card issuing by startups like Brex and Ramp has ushered in new expense and spend management options. And then there is the growth of branded credit and debit cards among brands and sports teams.

But if your company somehow hasn’t yet found its way to launch a debit or credit card, we have good news: It’s easier than ever to do so and there’s actual money to be made. Just know that if you do, you’ve got plenty of competition and that actual customer usage will probably depend on how sticky your service is and how valuable the rewards are that you offer to your most active users.

To learn more about launching a card product, TechCrunch spoke with executives from Marqeta, Expensify, Synctera and Cardless about the pros and cons of launching a card product. So without further ado, here are all the reasons you should think about doing so, and one big reason why you might not want to.

Because it’s (relatively) easy

Probably the biggest reason we’ve seen so many new fintech and non-fintech companies rush to offer debit and credit cards to customers is simply that it’s easier than ever for them to do so. The launch and success of businesses like Marqeta has made card issuance by API developer friendly, which lowered the barrier to entry significantly over the last half-decade.

“The reason why this is happening is because the ‘fintech 1.0 infrastructure’ has succeeded,” Salman Syed, Marqeta’s SVP and GM of North America, said. “When you’ve got companies like [ours] out there, it’s just gotten a lot easier to be able to put a card product out.”

While noting that there have been good options for card issuance and payment processing for at least the last five or six years, Expensify Chief Operating Officer Anu Muralidharan said that a proliferation of technical resources for other pieces of fintech infrastructure has made the process of greenlighting a card offering much easier over the years.

#banking, #business-intelligence, #cardless, #credit-card, #debit-cards, #ec-column, #ec-fintech, #expensify, #finance, #financial-services, #financial-technology, #fintech-infrastructure, #fintech-startup, #marqeta, #mastercard, #mobile-payments, #online-payments, #payment-processing, #payment-processor, #payments, #startups, #synctera, #tc

Embedded finance won’t make every firm into a fintech company

A short decade after software started eating the world, along came headlines about every company becoming a fintech thanks to innovation and growth in embedded finance business models.

This narrative oversimplifies the evolution that’s happening in the financial services sector. Storing and moving money and extending credit in a regulated environment is difficult. And differentiating your offering from incumbent financial institutions requires much more than superficial tweaks.

What really makes a fintech company extends far beyond user interface enhancements and delivering financial services to end customers. It’s what’s “under the hood” — the full-stack approach that allows fintech companies to truly innovate for their customers.

What really makes a fintech company extends far beyond user interface enhancements and delivering financial services to end customers.

Embedded finance helps companies and brands outside of the core financial sector distribute financial services. This requires varying levels of effort from the company and looks like anything from Starbucks offering an integrated wallet and payments within its app to Lyft offering a debit card to their drivers. But that doesn’t make Starbucks or Lyft fintech companies.

The fallacy behind the hype

The “every company will be a fintech” stance investors are bullish on conflates multiple approaches to inlaying financial offerings, coupling the resurgence of white-labeled financial services (which have been around for decades) with the rising banking, payments and lending-as-a-service players. The latter approach allows companies to customize their financial product experience while outsourcing many core financial services tasks. The former is simply distribution through embedded delivery.

There are four core tenets to fully operate as a financial services provider: a customer-facing product, transactional infrastructure, risk management and compliance, and customer servicing. In the case of lending, there is a fifth tenet: Companies also need to be able to manage capital. Embedded financial services help companies sidestep the majority of what it really means to be a fintech.

White-labeling versus “becoming a fintech”

While embedded finance is hot today, white-labeled financial services have been around for decades. Branded credit cards, for example, are a common paradigm for white-labeling. They quickly became a lasting way to incentivize consumer loyalty but don’t signal real effort or know-how in financial services. United and Alaska don’t run credit checks, configure billing or handle disputes for cardholding customers, nor do they assume any risk by embossing their logo on a card. The partnerships are major money makers for airlines while the risk stays on the financial institutions’ side (Chase, Bank of America and Visa). This risk can even account for significant loss on the financial side: According to American Express, 21% of its outstanding credit card loans belonged to people with a Delta credit card a few years ago.

This white-labeling approach is becoming common for other services, coming to life in forms like banking offerings from cell carriers, and it’s by design: Financial services are complex and highly regulated, so brands prefer to defer most of the work to the experts. So while United, Delta or T-Mobile offer financial services under their brand, they are definitely not becoming fintech companies.

In contrast, some corporations are seeing the opportunity to build financial services from the ground up. Walmart’s move to snag Goldman Sachs talent to lead its foray into finance (with Ribbit at the helm) shows promise for a true fintech spinout.

The investment in expertise in compliance and risk management furthers the company’s potential to build detailed and relevant infrastructure from the get-go — a significant step beyond the retailer’s many existing white-labeled financial partnerships.

The limitations of platforms as a service

Tools and turnkey solutions that help non-finance companies build financial applications more recently came into the mix: VCs are enthusiastic about new players building embedded payments, lending and, more recently, banking platform services (also known as BaaS) through APIs and backend tools.

As opposed to financial infrastructure services provided directly by sponsor banks or processors providing payments or ledger services, these platforms abstract the underlying infrastructure, wrap them with friendly-to-use APIs, and bundle core financial elements like risk management, compliance and servicing. While these platforms do offer some self-efficacy for companies to provide financial services, their major limitation is that they’re general purpose by design.

Fintechs found an opportunity to serve customers overlooked and underserved by traditional finance through specialization. Traditional financial institutions long applied the generalist model, carrying hundreds of SKUs and serving all segments. This strategy inevitably led banks to invest more in services for their most profitable customers, optimizing for their needs. Less profitable segments were left with stale and one-size-fits-all offerings.

Fintechs’ success with these underserved segments is derived from a relentless pursuit and laser focus on addressing core customers’ unique needs, building products and services designed for them. In order to deliver on this promise, fintechs must innovate across all layers of the stack — from the product experience and feature set to the infrastructure and risk management, all the way down to servicing.

UI is not nearly enough to differentiate, and addressing customers’ needs while minding overall unit economics is critical. One fintech’s choices on these matters may be completely different from another if they address different segments — it all boils down to tradeoffs. For example, deciding on which data sources to use and balancing between onboarding and transactional risk look different if optimizing for freelancers rather than larger small businesses.

In contrast, third-party platform providers must be generic enough to power a broad range of companies and to enable multiple use cases. While the companies partnering with these services can build and customize at the product feature level, they are heavily reliant on their platform partner for infrastructure and core financial services, thus limited to that partner’s configurations and capabilities.

As such, embedded platform services work well to power straightforward commoditized tasks like credit card processing, but limit companies’ ability to differentiate on more complex offerings, like banking, which require end-to-end optimization.

More generally and from a customer’s perspective, embedded fintech partnerships are most effective when providing confined financial services within specific user flows to enhance the overall user experience.

For example, a company can offer credit at the point of sale through a third-party provider to enable a purchase. However, when considering general purpose and standalone financial services, the benefits of embedded fintech are much weaker.

Building a product of choice

The biggest proponents of embedded finance argue that large companies and brands can be successful with finance add-ons on their platforms because of their brand recognition and install base.

But that overlooks the reality of choice in the market: Just because a customer does one facet of their business with a company doesn’t necessarily mean they want that company as their provider for everything, especially if the service is inferior to what they can get elsewhere.

While the fintech market booms and legacy brands continue to buy into the opportunity, verticalized, full-stack fintechs will trump their generic offerings time and time again. Some aspects of embedded finance and white-labeling will continue to crop up or prevail, like payment processing and buy now, pay later services. But customers will continue to choose the banks/neobanks, lenders and tools built for them and their own unique needs, bucking the “every company is a fintech” fallacy.

#banking, #banking-as-a-service, #column, #embedded-finance, #finance, #financial-services, #fintech, #opinion, #payment-processing, #risk-management, #tc

The next generation of global payments: Afterpay + Square

Sunday was a big day in fintech: Afterpay has agreed to merge with Square. This agreement sets two of the most admired financial technology companies in recent history on a path to becoming one.

Afterpay and Square have the potential to build one of the world’s most important payments networks. Square has built a very significant merchant payment network, and, via Cash App, a thriving high-growth consumer payment service. However, these two lines of business have historically not been integrated. Together, Square and Afterpay will be able to weave all of these services together into a single integrated experience.

Afterpay and Cash App each have double-digit millions of consumers, and Square’s seller ecosystem and Afterpay’s merchant network both record double-digit billions of payment volume per year. From the offline register and the online checkout flow to sending money in just a few taps, Square and Afterpay will tell a complete story of next-generation economic empowerment.

As Afterpay’s only institutional venture investor, I wanted to share some perspective on how we got here and what this merger means for the future of consumer finance and the payments industry.

Afterpay and Square have the potential to build one of the world’s most important payments networks.

Critical innovations in fintech

Every five to 10 years, the global payments industry undergoes a critical innovation cycle that determines the winners and losers for the next several decades. The last major transition was the shift to NFC-based mobile payments, which I wrote about in 2015. The major mobile OS vendors (Apple and Google) cemented their position in the global payments stack by deftly bridging the needs of the networks (Visa, Mastercard, etc.) and consumers by way of the mobile devices in their pockets.

Afterpay sparked the latest critical innovation cycle. Conceived in a living room in Sydney by a millennial, Nick Molnar, for millennials, Afterpay had a key insight: Millennials don’t like credit.

Millennials came of age during the global mortgage crisis of 2008. As young adults, they watched their friends and family lose their homes by overextending on mortgage debt, bolstering their already lower trust for banks. They also have record levels of student debt. Therefore, it’s no surprise that millennials (and Gen Z right behind them) strongly prefer debit cards over credit cards.

But it’s one thing to recognize the paradigm shift and quite another to do something about it. Nick Molnar and Anthony Eisen did something, ultimately building one of the fastest-growing payments startups in history on their core product: Buy now, pay later … and never any interest.

Afterpay’s product is simple. If you have $100 in your cart and choose to pay with Afterpay, it will charge your bank card (typically a debit card) $25 every two weeks in four installments. No interest, no revolving debt and no fees with on-time payments. For the millennial consumer, this meant they could get the primary benefit of a credit card (the ability to pay later) with their debit card, without the need to worry about all the bad things that come with credit cards — high interest rates and revolving debt.

All upside, no downside. Who could resist? For the early merchants, virtually all of whom relied on millennials as their key growth segment, they got a fair trade: Pay a small fee above payment processing to Afterpay, get significantly higher average order values and conversions to purchase. It was a win-win proposition and, with lots of execution, a new payment network was born.

The rise of Afterpay

Image Credits: Matrix Partners

Imitation is the greatest form of flattery

Afterpay went somewhat unnoticed outside Australia in 2016 and 2017, but once it came to the U.S. in 2018 and built a business there that broke $100 million net revenues in only its second year, it got attention.

Klarna, which had struggled with product-market fit in the U.S., pivoted their business to emulate Afterpay. And Affirm, which had always been about traditional credit — generating a significant portion of their revenue from consumer interest — also noticed and introduced their own BNPL offering. Then came PayPal with “Pay in 4,” and just a few weeks ago, there has been news that Apple is expected to enter the space.

Afterpay created a global phenomenon that has now become a category embraced by mainstream players across the industry — a category that is on track to take a meaningful share of global retail payments over the next 10 years.

Afterpay stands apart. It has always been the BNPL leader by virtually every measure, and it has done it by staying true to their customers’ needs. The company is great at understanding the millennial and Gen Z consumer. It’s evident in the voice, tone and lifestyle brand you experience as an Afterpay user, and in the merchant network it continues to build strategically. It’s also evident in the simple fact that it doesn’t try to cross-sell users revolving debt products.

Most importantly, it’s evident in the usage metrics relative to competition. This is a product that people love, use and have come to rely on, all with better, fairer terms than were ever available to them than with traditional consumer credit.

Consumer loyalty and frequency drives powerful network effect, securing the lifetime value of a consumer

Image Credits: Afterpay H1 FY21 results presentation

Square + Afterpay: The perfect fit

I’ve been building payment companies for over 15 years now, initially in the early days of PayPal and more recently as a venture investor at Matrix Partners. I’ve never seen a combination that has such potential to deliver extraordinary value to consumers and merchants. Even more so than eBay + PayPal.

Beyond the clear product and network complementarity, what’s most exciting to me and my partners is the alignment of values and culture. Square and Afterpay share a vision of a future with more opportunity and fewer economic hurdles for all. As they build toward that future together, I’m confident that this combination is a winner. Square and Afterpay together will become the world’s next generation payment provider.

#afterpay, #column, #consumer-finance, #credit-cards, #cryptocurrencies, #debit-card, #finance, #financial-services, #financial-technology, #fintech, #klarna, #ma, #matrix-partners, #mobile-payments, #opinion, #payment-processing, #payments, #square, #startups, #tc

Payments company Paystone raises $23.8M to help service-based businesses engage with customers

Paystone, a payments and integrated software company, secured another strategic investment this year, this time $23.8 million ($30 million CAD) from Crédit Mutuel Equity, the private equity arm of Crédit Mutuel Alliance Fédérale.

The Canada-based company got its start in 2008 as the payment processing company Zomaron, and rebranded itself as Paystone in 2019. Today it provides electronic payments and customer engagement technology to businesses, particularly those that provide services, CEO Tarique Al-Ansari told TechCrunch.

“Paystone is on a mission to help businesses grow, and we were enthralled by their commitment to that mission and their focus on service-oriented verticals,” said Léa Perge, investor at Crédit Mutuel Equity in Canada, via email.

While most of the company’s peers focus on product companies, Al-Ansari saw how underserved the service side was: their needs are different, and unlike retail, aren’t looking to sell online. Rather, they need an online presence and digital marketing to engage with customers, but their focus is being findable and having content that tells people why they should do business with them.

Paystone provides the marketing through content, help with reviews and with loyalty and rewards programs. However, rather than reward for spending, Paystone rewards for behavior. Refer a friend, get a reward. Write a review, get a reward. Al-Ansari calls it “payments as a benefit.” Referrals and reviews are how businesses become more findable, and the more content that’s out there, the more it helps people consider the business trustworthy, he added.

The new funding gives Canada-based Paystone total funds raised in 2021 of $78.8 million in a mix of debt and equity. It raised $54.9 million in January, funds that were barely touched as of yet, Al-Ansari said.

Though he wasn’t actively seeking new funds, Al-Ansari had been speaking with Crédit Mutuel Equity, which used to be CIC Capital Canada, prior to the pandemic, and their deal was put on hold.

Crédit Mutuel Equity came back with similar interest, and taking into account the kind of talent Paystone wanted to go after and its acquisition strategy — the company has already acquired five companies — Al-Ansari decided to take the additional funds. He said it gives the company options to hire more and double down on building the company, as well as enough capital to look for more acquisitions.

This year, Paystone entered the U.S. market for the first time and will do a proper launch later this year. The company has over 30,000 merchant locations on its platform throughout North America, and Al-Ansari expects that to grow by 5,000 this year. The company has 150 employees currently, and another 50 are expected to come on board by the end of the year.

In addition, Al-Ansari expects growth to accelerate for the rest of the year. The company processes around $6 billion in credit card payments and is on track to bring in $55.7 million in revenue this year. It is cash flow positive, residuals from the company’s origins of being bootstrapped, he said.

“We want to become the go-to destination for service businesses to set up a digital presence to accept payments and provide loyalty and rewards,” Al-Ansari said. “We will do this by solidifying our market position and growing our platform with the tools that customers want.”

 

#canada, #credit-card, #credit-mutuel-alliance-federale, #credit-mutuel-equity, #enterprise, #finance, #funding, #lea-perge, #loyalty-program, #payment-processing, #payments, #paystone, #recent-funding, #startups, #tarique-al-ansari, #tc, #venture-capital

SpotOn raises $125M in a16z-led Series D, triples valuation to $1.875B

Certain industries were hit harder by the COVID-19 pandemic than others, especially in its early days.

Small businesses, including retailers and restaurants, were negatively impacted by lockdowns and the resulting closures. They had to adapt quickly to survive. If they didn’t use much technology before, they were suddenly being forced to, as so many things shifted to digital last year in response to the COVID-19 pandemic. For companies like SpotOn, it was a pivotal moment. 

The startup, which provides software and payments for restaurants and SMBs, had to step up to help the businesses it serves. Not only for their sake, but its own.

“We really took a hard look at what was happening to our clients. And we realized we needed to pivot, just to be able to support them,” co-CEO and co-founder Matt Hyman recalls. “We had to make a decision because our revenues also were taking a big hit, just like our clients were. Rather than lay off staff or require salary deductions, we stayed true to our core values and just kept plugging away.”

All that “plugging away” has paid off. Today, SpotOn announced it has achieved unicorn status with a $125 million Series D funding round led by Andreessen Horowitz (a16z).

Existing backers DST Global, 01 Advisors, Dragoneer Investment Group and Franklin Templeton also participated in the financing, in addition to new investor Mubadala Investment Company. 

Notably, the round triples the company’s valuation to $1.875 billion compared to its $625 million valuation at the time of its Series C raise last September. It also marks San Francisco-based SpotOn’s third funding event since March 2020, and brings the startup’s total funding to $328 million since its 2017 inception.

Its efforts have also led to impressive growth for the company, which has seen its revenue triple since February 2020, according to Hyman.

Put simply, SpotOn is taking on the likes of Square in the payments space. But the company says its offering extends beyond traditional payment processing and point-of-sale (POS) software. Its platform aims to give SMBs the ability to run their businesses “from building a brand to taking payments and everything in-between.” SpotOn’s goal is to be a “one-stop shop” by incorporating tools that include things such as custom website development, scheduling software, marketing, appointment scheduling, review management, analytics and digital loyalty.

When the pandemic hit, SpotOn ramped up and rolled out 400 “new product innovations,” Hyman said. It also did things like waive $1.5 million in fees (it’s a SaaS business, so for several months it waived its monthly fee, for example, for its integrated restaurant management system). It also acquired a company, SeatNinja, so that it could expand its offering.

“Because a lot of these businesses had to go digital literally overnight, we built a free website for them all,” Hyman said. SpotOn also did things like offer commission-free online ordering for restaurants and helped retail merchants update their websites for e-commerce. “Obviously these businesses were resilient,” Hyman said. “But such efforts also created a lot of loyalty.” 

Today, more than 30,000 businesses use SpotOn’s platform, according to Hyman, with nearly 8,000 of those signing on this year. The company expects that number to triple by year’s end.

Currently, its customers are split about 60% retail and 40% restaurants, but the restaurant side of its business is growing rapidly, according to Hyman.

The reason for that, the company believes, is while restaurants initially rushed to add online ordering for delivery or curbside pickup, they soon realized they “wanted a more affordable and more integrated solution.”

Image Credits: SpotOn co-founders Zach Hyman, Doron Friedman and Matt Hyman / SpotOn

What makes SpotOn so appealing to its customers, Hyman said, is the fact that it offers an integrated platform so that businesses that use it can save “thousands of dollars” in payments and software fees to multiple, “à la carte” vendors. But it also can integrate with other platforms if needed.

In addition to growing its customer base and revenue, SpotOn has also boosted its headcount to about 1,250 employees (from 850 in March of 2020). Those employees are spread across its offices in San Francisco, Chicago, Detroit, Denver, Mexico City, Mexico and Krakow, Poland.

SpotOn is not currently profitable, which Hyman says is “by choice.”

“We could be cash flow positive technically whenever we choose to be. Right now we’re just so focused on product innovation and talent to exceed the needs of our clients,” he said. “We chose the capital plan so that we could really just double down on what’s working so well.”

The new capital will go toward further accelerating product development and expanding its market presence.

“We’re doubling down on our single integrated restaurant management system,” Hyman said. 

The raise marks the first time that a16z has put money in the startup, although General Partner David George told TechCrunch he was familiar with co-founders Matt Hyman and Zach Hyman through mutual friends.

George estimates that about 80% of restaurants and SMBs use legacy solutions “that are clunky and outdated, and not very customer friendly.” The COVID-19 pandemic has led to more of these businesses seeking digital options.

“We think we’re in the very early days in the transition [to digital], and the opportunity is massive,” he told TechCrunch. “We believe we’re at the tipping point of a big tech replacement cycle for restaurant and small business software, and at the very early stages of this transition to modern cloud-native solutions.”

George was also effusive in his praise for how SpotOn has executed over the past 14 months.

“There are companies that build great products, and companies that can build great sales teams. And there are companies that offer really great customer service,” he said. “It’s rare that you find two of those and extremely rare to find all three of those as we have in SpotOn.”

#advisors, #andreessen-horowitz, #business-software, #chicago, #cloud, #denver, #detroit, #dragoneer-investment-group, #dst-global, #e-commerce, #finance, #fintech, #franklin-templeton, #fundings-exits, #krakow, #mexico, #mexico-city, #mubadala-investment-company, #olo, #payment-processing, #payments, #point-of-sale, #poland, #recent-funding, #saas, #san-francisco, #series-c, #spoton, #startup, #startups, #tc, #venture-capital

Pipe, which aims to be the ‘Nasdaq for revenue,’ raises more money at a $2B valuation

Fast-growing fintech Pipe has raised another round of funding at a $2 billion valuation, just weeks after raising $50M in growth funding, according to sources familiar with the deal.

Although the round is still ongoing, Pipe has reportedly raised $150 million in a “massively oversubscribed” round led by Baltimore, Md.-based Greenspring Associates. While the company has signed a term sheet, more money could still come in, according to the source. Both new and existing investors have participated in the fundraise.

The increase in valuation is “a significant step up” from the company’s last raise. Pipe has declined to comment on the deal.

A little over one year ago, Pipe raised a $6 million seed round led by Craft Ventures to help it pursue its mission of giving SaaS companies a funding alternative outside of equity or venture debt.

The buzzy startup’s goal with the money was to give SaaS companies a way to get their revenue upfront, by pairing them with investors on a marketplace that pays a discounted rate for the annual value of those contracts. (Pipe describes its buy-side participants as “a vetted group of financial institutions and banks.”)

Just a few weeks ago, Miami-based Pipe announced a new raise — $50 million in “strategic equity funding” from a slew of high-profile investors. Siemens’ Next47 and Jim Pallotta’s Raptor Group co-led the round, which also included participation from Shopify, Slack, HubSpot, Okta, Social Capital’s Chamath Palihapitiya, Marc Benioff, Michael Dell’s MSD Capital, Republic, Alexis Ohanian’s Seven Seven Six and Joe Lonsdale.

At that time, Pipe co-CEO and co-founder Harry Hurst said the company was also broadening the scope of its platform beyond strictly SaaS companies to “any company with a recurring revenue stream.” This could include D2C subscription companies, ISP, streaming services or a telecommunications companies. Even VC fund admin and management are being piped on its platform, for example, according to Hurst.

“When we first went to market, we were very focused on SaaS, our first vertical,” he told TC at the time. “Since then, over 3,000 companies have signed up to use our platform.” Those companies range from early-stage and bootstrapped with $200,000 in revenue, to publicly-traded companies.

Pipe’s platform assesses a customer’s key metrics by integrating with its accounting, payment processing and banking systems. It then instantly rates the performance of the business and qualifies them for a trading limit. Trading limits currently range from $50,000 for smaller early-stage and bootstrapped companies, to over $100 million for late-stage and publicly traded companies, although there is no cap on how large a trading limit can be.

In the first quarter of 2021, tens of millions of dollars were traded across the Pipe platform. Between its launch in late June 2020 through year’s end, the company also saw “tens of millions” in trades take place via its marketplace. Tradable ARR on the platform is currently in excess of $1 billion.

#alexis-ohanian, #baltimore, #banking, #chamath-palihapitiya, #corporate-finance, #craft-ventures, #finance, #funding, #fundings-exits, #greenspring-associates, #hubspot, #investment, #isp, #joe-lonsdale, #marc-benioff, #maryland, #miami, #okta, #payment-processing, #pipe, #raptor-group, #recent-funding, #saas, #shopify, #siemens, #social-capital, #startups, #streaming-services, #tc, #telecommunications, #venture-capital

Pornhub under investigation by Visa, MasterCard amid abuse allegations

Pornhub under investigation by Visa, MasterCard amid abuse allegations

Enlarge (credit: Panpreeda Mahaly | EyeEm | Getty Images)

Paying for adult entertainment may become more challenging in the near future, as both Visa and MasterCard are investigating Pornhub following allegations that the site allows and profits from content depicting rape and child sexual abuse and exploitation.

Visa and MasterCard on Sunday each issued separate statements saying they were investigating Pornhub and its parent company, MindGeek, in the wake of a new report.

“We are aware of the allegations, and we are actively engaging with the relevant financial institutions to investigate, in addition to engaging directly with the site’s parent company, MindGeek,” Visa told the Associated Press on Sunday. If the investigation finds Pornhub to be in violation of the law or the company’s existing banking agreements, it will be prohibited from using Visa for payments.

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#abuse, #child-exploitation, #exploitation, #mastercard, #payment-processing, #policy, #pornhub

All B2B startups are in the payments business

The COVID-19 pandemic has forced businesses to rethink how they accept and make payments. Paper invoices, checks and point-of-sale payments have given way to “corona-free payments” through mobile apps, electronic invoicing and ACH. Although significant, this is the sideshow to a more significant reshuffling of the payments industry.

Nearly $150 trillion in worldwide B2B and B2C transactions take place every year, but only a tiny portion are digital. A lot of technology companies want their piece of that massive pie. Until recently, though, only payment facilitators (aka, “payfacs”), gateways, banks and credit card companies had access to it.

That’s changing. Whether they know it yet or not, B2B tech platforms are becoming payments companies. Payfacs are competing to integrate their technology into these platforms, which drive an ever-growing number of transactions. Revenue-sharing deals are on the table, and payfacs are pushing the competitive advantages they can offer to the clients of these B2B platforms. Capabilities like cross-border payments, seamless customer onboarding, fraud protection, marketplace payments and B2B invoicing influence, which payfacs win in “integrated payments” (the jargon for this space) and which don’t.

B2B companies that use to leave the choice of gateway to their clients need to become savvy in payment technology, both to control the user experience and to tap this new business. There’s a massive amount of revenue on the table, and it’s just too easy to blow this opportunity and alienate clients in the process.

How we arrived here

A decade ago, the revolution in cloud computing led to a wave of B2B tech platforms promising to “disrupt” every industry. Gyms got gym management platforms. Hospitals got clinic management platforms. Retailers got commerce management platforms. Media companies got subscription management platforms. Many of these fill-in-the-blank management platforms — all independent software vendors (ISVs) — helped clients manage their operations and interactions with consumers or other businesses.

But ISVs didn’t get involved in payments, which was odd, given how complementary payments were to their platforms and how much money was at stake. Mastercard says there is about $120 trillion annually in B2B payments worldwide, and paper checks still dominate about half of the U.S.’s $25 trillion payment volume. Meanwhile, retail e-commerce sales account for $4.2 trillion out of $26 trillion in total retail, or about 16.1%, according to eMarketer. Less than 8% of global commerce is thought to occur online.

You’d think B2B software companies would find a way to generate revenue on some of that $146 trillion in transactions, but most did not. Payment processing is its own, messy, complicated niche. Payfacs go through a grueling underwriting process to provision a merchant account, which includes know-your-customer (KYC) and anti-money laundering (AML) checks. If a merchant defaults, the payfac is next in line to make good on the transactions.

When you run a venture-backed B2B platform, you have enough to worry about already.

So, B2B platforms stayed clear. They formed integrations with a basket of payfacs (Stripe, PayPal, Square, my company BlueSnap, etc.) and then let their clients choose which one to use. That’s a lot of integrations to maintain.

#b2b, #column, #coronavirus, #covid-19, #e-commerce, #ecommerce, #extra-crunch, #finance, #financial-services, #fintech, #market-analysis, #paymate, #payment-processing, #payments, #paypal, #startups

If we let the US Postal Service die, we’ll be killing small businesses with it

Since moving to the United States, I’ve come to appreciate and admire the United States Postal Service as a symbol of American ingenuity and resilience.

Like electricity, telephones and the freeway system, it’s part of our greater story and what binds the United States together. But it’s also something that’s easy to take for granted. USPS delivers 181.9 million pieces of First Class mail each day without charging an arm and a leg to do so. If you have an address, you are being served by the USPS — and no one’s asking you for cash up front.

As CEO of Shippo, an e-commerce technology platform that helps businesses optimize their shipping, I have a unique vantage point into the USPS and its impact on e-commerce. The USPS has been a key partner since the early days of Shippo in making shipping more accessible for growing businesses. As a result of our work with the USPS, along with several other emerging technologies (like site builders, e-commerce platforms and payment processing), e-commerce is more accessible than ever for small businesses.

And while my opinion on the importance of the USPS is not based on my company’s business relationship with the Postal Service, I want to be upfront about the fact that Shippo generates part of its revenue from the purchase of shipping labels through our platform from the USPS along with several other carriers. If the USPS were to stop operations, it would have an impact on Shippo’s revenue. That said, the negative impact would be far greater for many thousands of small businesses.

I know this because at Shippo, we see firsthand how over 35,000 online businesses operate and how they reach their customers. We see and support everything from what options merchants show their customers at checkout through how they handle returns — and everything in between. And while each and every business is unique with different products, customers operations and strategies, they all need to ship.

In the United States, the majority of this shipping is facilitated by the USPS, especially for small and medium businesses. For context, the USPS handles almost half of the world’s total mail and delivers more than the top private carriers do in aggregate, annually, in just 16 days. And, it does all of this without tax dollars, while offering healthcare and pension benefits to its employees.

As has been the case for many organizations, COVID-19 has significantly impacted the USPS. While e-commerce package shipments continue to rise (+30% since early March based on Shippo data), it has not been enough to overcome the drastic drop in letter mail. With this, I’ve heard opinions of supposed “inefficiency,” calls for privatization, pushes for significant pricing and structural changes, and even indifference to the possibility of the USPS shutting down.

Amid this crisis, we all need the USPS and its vital services now more than ever. In a world with a diminished or dismantled USPS, it won’t be Amazon, other major enterprises, or even Shippo that suffer. If we let the USPS die, we’ll be killing small businesses along with it.

Quite often, opinions on the efficiency (or lack thereof) of the USPS are very narrow in scope. Yes, the USPS could pivot to improve its balance sheet and turn operating losses into profits by axing cumbersome routes, increasing prices and being more selective in who they serve.

However, this omits the bigger picture and the true value of the USPS. What some have dubbed inefficient operations are actually key catalysts to small business growth in the United States. The USPS gives businesses across the country, regardless of size, location or financial resources, the ability to reach their customers.

We shouldn’t evaluate the USPS strictly on balance sheet efficiency, or even as a “public good” in the abstract. We should look at how many thousands of small businesses have been able to get started thanks to the USPS, how hundreds of billions of dollars of commerce is made possible by the USPS annually and how many millions of customers, who otherwise may not have access to goods, have been served by the USPS.

In the U.S., e-commerce accounts for over half a trillion dollars in sales annually, and is growing at double-digit rates each year. When I hear people talk about the growth of e-commerce, Amazon is often the first thing that comes up. What doesn’t shine through as often is the massive growth of small business — which is essential to the health of commerce in general (no one needs a monopoly!). In fact, the SMB segment has been growing steadily alongside Amazon. And with the challenges that traditional businesses face with COVID-19, more small businesses than ever are moving online.

USPS Priority Mail gets packages almost anywhere in the U.S. in two to three days (average transit time is 2.5 days based on Shippo data) and starts at around $7 per shipment, with full service: tracking, insurance, free pickups and even free packaging that they will bring to you.

In a time when we as consumers have become accustomed to free and fast shipping on all of our online purchases, the USPS is essential for small businesses to keep up. As consumers we rarely see behind the curtain, so to speak, when we interact with e-commerce businesses. We don’t see the small business owner fulfilling orders out of their home or out of a small storefront, we just see an e-commerce website. Without the USPS’ support, it would be even harder, in some cases near impossible, for small business owners to live up to these sky-high expectations. For context, 89% of U.S.-based SMBs (under $10,000 in monthly volume) on the Shippo platform rely on the USPS.

I’ve seen a lot of talk about the USPS’s partnership with Amazon, how it is to blame for the current situation, and how under a private model, things would improve. While we have our own strong opinions on Amazon and its impact on the e-commerce market, Amazon is not the driver of USPS’s challenges. In fact, Amazon is a major contributor in the continued growth of the USPS’s most profitable revenue stream: package delivery.

While I don’t know the exact economics of the deal between the USPS and Amazon, significant discounting for volume and efficiency is common in e-commerce shipping. Part of Amazon’s pricing is a result of it actually being cheaper and easier for the USPS to fulfill Amazon orders, compared to the average shipper. For this process, Amazon delivers shipments to USPS distribution centers in bulk, which significantly cuts costs and logistical challenges for the USPS.

Without the USPS, Amazon would be able to negotiate similar processes and efficiencies with private carriers — small businesses would not. Given the drastic differences in daily operations and infrastructure between the USPS and private carriers, small businesses would see shipping costs increase significantly, in some cases by more than double. On top of this, small businesses would see a new operational burden when it comes to getting their packages into the carriers’ systems in the absence of daily routes by the USPS.

Overall, I would expect to see the level of entrepreneurship in e-commerce slow in the United States without the USPS or with a private version of the USPS that operates with a profit-first mindset. The barriers to entry would be higher, with greater costs and larger infrastructure investments required up-front for new businesses. For Shippo, I’d expect to see a much greater diversity of carriers used by our customers. Our technology that allows businesses to optimize across several carriers would become even more critical for businesses. Though, even with optimization, small businesses would still be the group that suffers the most.

Today, most SMB e-commerce brands, based on Shippo data, spend between 10-15% of their revenue on shipping, which is already a large expense. This could rise well north of 20%, especially when you take into account surcharges and pick-up fees, creating an additional burden for businesses in an already challenging space.

I urge our lawmakers and leaders to see the full picture: that the USPS is a critical service that enables small businesses to survive and thrive in tough times, and gives citizens access to essential services, no matter where they reside.

This also means providing government support — both financially and in spirit — as we all navigate the COVID-19 crisis. This will allow the USPS to continue to serve both small businesses and citizens while protecting and keeping their employees safe — which includes ensuring that they are equipped to handle their front-line duties with proper safety and protective gear.

In the end, if we continue to view the USPS as simply a balance sheet and optimize for profitability in a vacuum, we ultimately stand to lose far more than we gain.

#amazon, #column, #coronavirus, #covid-19, #e-commerce, #ecommerce, #government, #logistics, #online-purchases, #opinion, #package-delivery, #payment-processing, #policy, #shippo, #startups, #us-postal-service, #usps