Our Series C and how we’re building the future of commercial finance

Jul 26, 2021 by Jeremy Almond

On Friday, we announced our $50-million Series C round of funding. We’re thrilled to add incredible new investors like NewView Capital, SoftBank’s Opportunity Fund, King River Capital, Transform Capital, and Industrious Ventures as long-term shareholders who will be joining us on our mission to reboot commercial finance, starting with B2B payments. But, beyond a funding announcement among numerous capital raises in the tech industry, I wanted to take a moment to share what this means not only for Paystand, but for the vision behind our commitment to building an open commercial finance industry.

The full shift to digital transformation

There’s no question that the last 15 months represent one of the most fundamental shifts in our lifetime. Certainly, historians will be writing about the social implications of the pandemic for years to come. However, when we zoom in on the business level, it’s clear that companies everywhere were forced to replace essential, human-driven functions with digital alternatives almost overnight – not because they wanted to, but because they had to in order to survive. What’s even more fascinating is that, post-pandemic, this trend is not slowing down. 

Compare that with the world of B2B payments: at the start of 2020, a significant portion of commercial payments – which totals $125T globally – were still being processed through paper checks. In large part, that’s because there are few viable options to move payments to digital alternatives when our financial infrastructure is built on the backs of archaic, paper-based systems and credit card networks that are inherently tied to revenue-draining fees. This reality makes it difficult for B2B payments to see the same kind of innovation that has blossomed in consumer fintech. Aesthetic UX designs laid over a fundamentally broken system will do little to change the fact that card networks continually increase fees (they are again considering an increase of 0.05% to 0.10% for online transactions in 2022), and merchants everywhere will continue to see their ROI bleed. 

As the pandemic moved into full swing, the fundamental gap in the evolution towards full digital transformation for the enterprise grew wider. While most companies had already moved their systems of record (think CRMs, ERPs, etc.) to the cloud so they could scale with increased automation, the pandemic further proved that teams could operate remotely as businesses everywhere were forced to shift to a digital-first model. This held true except at the last and most important mile: revenue – a critical component of the business that was exposed during the pandemic as hopelessly paper-based, expensive, and out of date. In addition to this, finance teams found themselves forced to return to the office at the height of COVID-19 outbreaks just to pick up checks and deal with cash flow – something that clearly exposed the backwards nature of the legacy payment system. Suddenly, it became abundantly clear that for businesses to remain capital efficient and competitive in the increasingly digital-native economy, the outdated infrastructure that B2B transactions are built on must change. 

A mission-driven payment model

At Paystand, we’ve been quietly chipping away at completing this last critical mile of B2B payments for many years. We raised our Seed Round in 2014 led by Cervin Ventures, our Series A in 2017 led by BlueRun Ventures, and our Series B in 2019 led by DNX Ventures – all the while growing the business nearly 3x year-over-year. Our thesis was that while everyone knew that B2B payments needed to evolve, the existing financial infrastructure and fee-based model simply wouldn’t work to drive that evolution.   

So, we started with a first-principal view that money has now become software. It exists now as ones and zeros on digital bank ledgers that, like email, can move instantly and automatically, for significantly lower costs – just like the shrinking of DVDs to effortless, on-demand streaming via Netflix or the shrinking of CDs to unlimited, instantly accessible music through Spotify. Both of those companies also famously leveraged a subscription model for their delivery and consistently offer an ever-increasing level of customization for consumers.  

That’s why we started with a new model that fundamentally transforms the way businesses send and receive money. It’s called Payments-as-a-Service, and it operates as a B2B payment network that creates tremendous ROI and capital efficiency. This model is designed to shift manual and check-based payments into digital, automated, self-driving cash which supercharges labor efforts and reduces DSO by as much as 62%. And, it radically improves the company bottom line by taking fees out of the equation. We call it the Journey to Zero: a cashless, feeless, and intuitive system for the office of the CFO.

The revolution will be automated

But that’s just the beginning. In these last 5 quarters in the pandemic, we’ve doubled down on that foundation by releasing products that allow for a fully automated cash cycle:

    • Expanding NetSuite – In addition to the already robust integration we have with NetSuite, we’re now tying collections plans to workflows. These new features give AR teams more speed and efficiency by putting invoice collection on autopilot, speeding up DSO, and reducing the costs of manual labor.
    • Releasing Sage Intacct – Our Sage Intacct integration allows Sage customers to have access to the full Paystand experience, all from within their trusted ERP. Now, Sage users can create smart invoices with embedded payment options, streamline cash flow management with automatic reconciliation of daily bank transfer data, and save time through automated cash application.
    • Smart Lockbox – Our most recent product launch is a next-gen take on traditional lockbox services, minus the fees and trips to the bank. Smart Lockbox is a one-click migration experience for existing paper check payers that digitizes all future check payments. It also offers remote remittance processes, immediate visibility into cash flow, a centralized collections process, and reduced receivables risk with 24/7 payment tracking, check information, reconciliation status, and transaction details that are fully integrated into every user’s ERP.
    • Payer Incentives – Our Payer Incentives Module is a simple yet elegant tool that shifts the power away from the card networks back to where it belongs – in the hands of businesses. It gives merchants the ability to set payment incentives (in the form of invoice discounts) for choosing the zero-fee Paystand Bank Network or other non-card payment methods. It also lets businesses set convenience fees for credit card payments at a rate of their choosing.

To date, we’ve processed over $2B in payment volume over our bank-to-bank payment network, and over 250k businesses have made transactions on our platform. This momentum just confirms the emerging opportunities around open financial infrastructures as a whole, and it’s the beginning of an entirely new category of financial services. 

Meanwhile, in almost an entirely different universe, the belief that money should be able to be transferred instantly, automatically, and at nearly no cost – has evolved not so quietly. This evolution has happened far away from the office of the CFO, and instead, it’s being born at the controversial, bleeding-edge technology movement known as DeFi. But, while the volatility that’s inherently tied to the early ecosystem of cryptocurrencies has seemed easy to dismiss – and also less applicable to corporate finance – the underlying technology of crypto (blockchain) and its broader applications of DeFi represent a new kind of financial infrastructure. And we believe this underlying technology will be as transformative as the emerging internet was for communication in the 90s. 

In the very near future, I have no doubt that blockchain will become the new cloud. Blockchain’s ability to create immutable and secure systems of record will help teams in every organization work, operate, and collaborate together more effectively, and be used to replace the broken transaction fee-based and pre-internet financial infrastructure. Because of this, we believe something much more transformative is emerging, and it’s bigger than just Paystand alone. 

Scaling the future of B2B DeFi

With this background, we decided to raise our Series C. We intend to build an enduring company that changes the nature of B2B DeFi and paves the way for open and equitable commercial finance that allows companies to grow without the barriers of transaction fees and paper-heavy processes.  

Because our mission is to entirely reboot the commercial finance industry, we were very intentional about working with investors who had a thesis with a true commitment to transforming the space and the conviction to go long. We are so honored to be partnering with NewView Capital – the same team that led the Venmo / Braintree / Paypal deal, which is especially meaningful since we often say Paystand is most simply understood as a B2B version of Venmo or Paypal. And, beyond that iconic investment, NVC has continued to invest in top-tier, next-gen commercial fintech infrastructure like Plaid, Verify, Human Interest, Forter, and other household names.

We’re also thrilled to be partnering with Softbank as they are no stranger to bold bets or building category-defining companies – making them an obvious pick for a company with our level of ambition. And we were lucky to have King River Capital join with a deep banking background and investments in other enterprise blockchain companies (something that’s still a rarity even with so much emphasis on blockchain’s potential to upend every component of the enterprise). We rounded out the raise with Industrious Ventures, who is delivering excellent customer counsel to our team, and Transform Capital, who is reimagining the VC model to have a double impact on the bottom line (a great fit since any disruption in financial services is something we feel right at home with). Lastly, we of course want to thank our previous investors – most of whom continue to reinvest in the company. Thank you for your leap of faith and conviction in our early days.

With this capital, we’ll be putting our money where our mission is. That means we’re not only going to continue to invest in our core product, customers, and employees – we’re going to look towards the horizon of a much bigger platform, and we plan to do that in the following ways:

  • Scaling an entirely new type of commercial payment network, one that is cashless, feeless, and built on open financial infrastructure.
  • Leveraging this DeFi infrastructure to build a radically better CFO stack.
  • Enabling more radically decentralized financial services that remove gatekeepers and intermediaries and ultimately provide a more fair and efficient economic system.

Of course there is a lot to be unpacked in the bullets above, and we’re really just at the beginning of inning two. There is so much more to come, and we believe that this new DeFi infrastructure has a future that’s as big as the internet itself. However, as fired up as we are to be working on a movement that’s bigger than Paystand alone, one thing we know through multiple rounds of funding is that company-building happens brick by brick, customer by customer, and employee by employee. So, to that, I extend my heartfelt gratitude to every customer, employee, investor, and stakeholder who has already bet on us. Seriously, thank you.  

 

And of course, if this mission interests you, we’d love to connect