B2B Payments

What Do $225M and $3.4B Have In Common?

Rome wasn’t built in a day and neither are payments businesses.

That’s something that AvidXchange CEO Michael Praeger knows all too well. It’s been a 15-year journey from an idea to reinvent how middle market companies pay their suppliers to its latest (and pretty massive) growth round of $225 million, led by Bain Capital. (Additional investors include Foundry Group, Nyca Partners, and TPG Special Situations Partners.)

Building that vision didn’t happen overnight, of course, but during those 15 years of building a company, AvidXchange learned what it takes to ignite a successful B2B payments business – and what ultimately compelled investors to open their very big checkbook.

“Focusing on and building out the front end AP automation side was the key to executing our payments business,” Praeger told PYMNTS. “We’re a little bit lucky in terms of how that came together and having what middle market companies needed. But that took time – 13 years of plugging away under the radar and the last two a little more visible. What I think [investors] saw is a company that’s now gotten significant traction.”

Traction as in more than 5,000 customers in North America (with revenue between $5 million and $1 billion) and close to 300,000 vendors.

B2B is very different from consumer payments in many ways, and Praeger believes, “just harder.” Decision processes are slow and business processes well entrenched. Approvals aren’t in the hands of the end user a lot of the time, and there are multiple processes that an invoice has to travel through just to get approved, never mind paid. For that reason, CFOs and Controllers don’t make decisions fast or lightly.

Inertia can be the bane of the B2B payments’ innovators existence – and the silver lining for those with the patience to dig in, slog it out and watch it grow.

“You have accounting systems that you have to integrate, too, that you don’t have on the consumer side. And what we believe — and I think this was the view that was shared by the investor group – is that in the B2B world, to execute a payment, it doesn’t start with executing a payment. It first starts with how the underlining invoices gets managed. The invoice is what drives the payment. If you look at who is out there in the middle market that manages the receipt of the invoice through the execution of payment as it’s integrated to a large number of accounting systems, there isn’t a very big population. That population may only be AvidXchange.”

AvidXchange was a software company before it was a payments company, something that Praeger says is an advantage. Praeger believes that by helping a company better understand how it can apply technology to automate the supplier bill payment process and eliminate the friction from supplier onboarding, it can get those customers up and running faster than many similar-minded companies.

Praeger said that AvidXchange will use some of its newfound capital to use the data that its network has captured over its 15 years in business to create a dynamic cash management option that gives vendors the option – in real time – of choosing when they want to get paid, with AvidXchange reducing their credit underwriting risk since they have all of the history between that vendor and that customer.

“We have the data on every type of invoice that has been approved, gets paid and the analytics related to vendor/buyer relationship – something that I call cash management/financing analytics,” Praeger explained. “Moving forward, one of the benefits of being part of the AvidXchange payment network is that when a supplier submits their invoice to the network, they can determine when they want to get paid – regardless of the invoice terms.”

Another selling point that will certainly spark corporate – and perhaps even investor interest – in the future.

“We’ve been focused on customer acquisition, building out our payment network, adding new capabilities and creating a billing and payments network that middle market companies need,” Pragaer reflected. “We’re in very unique position now that we’ve put all of it together.”

September Falls Before Fall Begins

A bit of a chill came even before the first day of fall for our Investment Tracker, as only one name had triple digit numbers attached to it, representing a continued cooldown of investment activity.

The biggest deal of the week that ended Sept. 18 would be the news that Bain Capital and other investors were putting money behind AvidXchange, the accounts payable automated player, to the tune of $225 million. That would be a vote of confidence for the company’s business model, wherein software and software as a service continue to help speed back office functions.

Quite a bit below that transaction, but still within the realm of venture funding, we find $61 million raised by Lightspeed in an effort by the POS company to boost its retail and restaurant offerings, and the CEO told the financial media that plans are centered squarely on growth, and acquisitions may be on the horizon for the company as well.

Further still down the line, with a shift into the analytics realm, WebAction managed to raise $20 million, via Series B funding, with a series of existing investors including Intel Capital and others offering up the cash. At the same time the company raised the funds, it renamed its software platform, christening it Striim, a nod to its streaming technology for file and large cache management.

Year to date, though we approach the end of a quarter (generally a time for reflection for investors), we can see that even through the year so far, only a few big deals have dominated our coverage, and among them are household names in finance, technology and banking such as General Electric and HSBC and also logistics players.

But the landscape may shift a bit going forward, as new entrants come to the public equity markets. Chief among new kids on the stock market block would be First Data, which seems to be moving ever closer to an IPO. And should that be well-received by investors, other companies may want to test the equity waters, such as Square, which has been long rumored to be doing just that, possibly by the end of the year.

The United States is still the hotbed of activity, and for the month thus far, the tally stands at $3.4 billion of the total $3.5 billion through all sectors. The Fed’s decision last week to hold off on a rate raise has made for some choppy trading in the subsequent days. And continued worries over China’s growth have not exactly helped the situation. But for now it looks like domestic activity remains the rule.

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