Hypergrowth, High Value Partnerships, and Hyperlocalization at Mollie, All By Putting the Customer First

Growth Hacks – Moving the Metric

Mission statements, company values, guiding principles — every company has them. Yet even at the most mission-driven companies, it can be easy to focus more attention on activities such as unlocking growth and winning market share, than it is to make sure the company values are being consistently conveyed.

On this episode of Growth Hacks, Kunal and Katja speak with Ken Serdons, chief commercial officer at online payments processor Mollie, about how being loved by customers is more than just words on a mission statement. Ken takes us deep into the strategy of how Mollie restructured its hiring process, reengineered its partnerships with external service providers, and strategically chose the number of markets it entered, all in pursuit of creating a Mollie experience that its customers loved. In the process, the company gained tremendous market share in each of its local markets.

Key Takeaways:

  • Why Mollie adopted a customer-first mentality. After seventeen years of growth, the Mollie team realized they’d outgrown their initial mission statement that cited values such as passion, courage, and impact. When they coined “Be Loved” as the first of three new company values, they found that applying it to every part of the customer experience helped them offer a vastly different consumer experience from their competitors. Whether it was figuring out how to “Be Loved” by customers based on how they price their product, or on the breadth and functionality of partnerships with other apps and services, that hyper-focus on the soup to nuts customer experience has helped Mollie gain market share year over year.
  • How to drive partnerships that unlock their full potential. Because of Mollie’s global footprint, the team has inked countless partnerships with companies of all sizes that also provide services to online merchants. But signing a partnership and building an integration is just the start of a successful partnership. Ken’s team also innovates on ways to create value for partners outside of monetary incentives, whether that’s joint marketing activities, or providing trend analysis for partners using Mollie’s transaction data. To successfully maintain such robust partnerships, Mollie split the traditional partner manager role into two jobs — the first for “hunters” who love finding and structuring creative new partnerships, and the second for partner success managers, who continually think about ways to create joint growth with Mollie’s partners.
  • How a localization strategy that prioritizes fewer markets can unlock hypergrowth. When Ken first joined the Mollie team in 2019, like most companies, Mollie had ambitions to scale to as many markets as possible. Yet they made a conscious decision to focus on markets where they knew they could see demonstrable success. One example was when Mollie pulled back on expanding into Italy, in order to focus its efforts and resources on growing in Germany, France, and the UK. Though the number of countries Mollie was available in was lower, the company’s market share has soared in each market, seeing successes in Belgium in 2020, and growing more than 1000% in Germany year over year.
  • Why they don’t do any bespoke development at Mollie. A hyper-focused localization strategy doesn’t mean the company doesn’t want to be able to hit the ground running when expanding into additional markets. That’s one reason why Mollie decided early on never to create bespoke development. “Bespoke development creates legacy technology, and that’s expensive to maintain and it’s also not scalable,” says Ken.
  • How to hire candidates for their future roles. Because of the pace that Mollie is growing, effectively doubling its headcount year over year, Ken has learned that hiring the right candidate for right now is short-sighted. Instead, they aim to hire people slightly overqualified for the initial role, knowing that Mollie is going to continue expanding, and the job with it. “That only works if you hire low ego people. People who put the customer first and the company first,” cautions Ken.

To learn more, tune in to Growth Hacks: How Mollie’s Mission to Be Loved by Its Customers Has Fueled Hypergrowth.

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The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This interview and blog post are not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.


Be Loved, Be Bold, Be Authentic – Core Values to Fuel Mollie’s Hypergrowth!

When online payment processor Mollie redefined its key values to put “being loved by customers” at the top of the list, the Amsterdam-based fintech company found that they began to approach every business decision they made quite differently — from hiring, to partnerships, to adopting a unique localization strategy that focused on fewer markets while still unlocking global growth.

In this episode of Growth Hacks, Katja and Kunal are joined by Ken Serdons, the chief commercial officer at Mollie. Ken explains how Mollie’s key value of being loved by customers has influenced every part of the company’s DNA, from how they assign responsibilities, to who they hire, and how the company structures and manages its relationships with external partners. Ken also explains to us how Mollie has reworked its partnership model in a way that helps them extract full value, something he credits to — you guessed it — Mollie’s hyper-consumer-centric mindset.

Here’s what you will learn:                

  • Why Mollie adopted a customer-first mentality
  • How to drive partnerships that unlock their full potential
  • How a localization strategy that prioritizes fewer markets can unlock hypergrowth
  • Why they don’t do any bespoke development at Mollie
  • How to hire candidates for their future roles

To hear more on this, settle in and press play.

Please find the transcript below, which has been edited for brevity and clarity.

Katja Gagen: Today we’re thrilled to speak with Ken Serdons, Chief Commercial Officer at Mollie, one of the largest and fastest growing FinTech companies in Europe.

A little bit about Ken – he likes to grow things which was clear from an early age. As a child, he used to grow all sorts of vegetables and pumpkins, and his passion for growth is now focused on helping customers grow their e-commerce business through the financial services that Mollie offers. Welcome to Growth Hacks, Ken.

Ken Serdons: Thanks for having me, Katja.

Kunal Mehta: Ken, it’s such a pleasure to have you here. Where does this podcast find you today?

Ken Serdons: I’m working today out of our headquarters here in Amsterdam.

Katja Gagen: Nice. And Ken you are Chief Commercial Officer at Mollie. Tell us about Mollie and what your role is.

Ken Serdons: So at Mollie we provide online payments to now over 125,000 active customers across Europe.

We differentiate by offering not just great products, but we also really care about design and making sure that the checkout is optimized for conversions and in some cases we can improve conversion by up to 7% versus more traditional players.

We are hyper localized in every market that we operate in. And we absolutely love the customer, which is definitely a unique selling point in the payments industry. So I look after commerce, which includes partnerships, sales, and marketing.

Kunal Mehta: Awesome. You know Ken, I’m a huge fan of partnerships because it just creates this multiplier effect. And what we observe is partnerships rarely see their full potential because they’re not activated well. And Mollie’s philosophy on activating partnerships drives a win-win for everyone. Maybe you can talk a little bit about how you get that.

Ken Serdons: Yeah, you’re right, Kunal. Partners are absolutely critical to the success of our business. They provide a super scalable growth channel. Our customers work a lot with different types of software and tools to run their business. So at Mollie, it’s important to work with as many of them as possible.

I’ll give you a couple of examples, how we get to a proper win-win situation. I think the first thing is, we don’t just care about the partners, but we actually also care about their customers, who of course, are also our customers.

We try to do our utmost best to provide the best possible experience to these merchants. If something goes wrong, we not just try to solve it with the customer, but we also inform our partners. And that creates a lot of transparency and a lot of trust. Again, happy merchants create happy partners.

That’s the core part, being extremely customer centric, both on the partner side and on the customer side.

Second is we look at creating value for our partners and value that goes beyond the traditional money incentives. For example, one of our partners did not have a very good view on their own customers. At Mollie we process payment transactions, so we see a lot of data about our customers, and we could help that partner with understanding which of their customers are growing, which industries they’re playing in, etc. All that information we could provide to them so they could actually identify for themselves which segments to focus on.

And finally, we spend a lot of effort in building amazing integrations with our partners. And that’s really helpful for developers that actually drive a lot of the decision-making on which PSP to select.

Katja Gagen: That sounds great, Ken. It looks like you have a really good playbook in place. It also sounds like there’s a lot of resources involved to activate a partnership. What types of resources and skills come in handy here?

Ken Serdons: That’s right, Katja. So first of all, we have split the job of partner managers in two. We have hunters who go after new deals, who get the thrill of signing up a new deal. And there you of course looking for the traditional sales skills, but also the creativity of how to structure deals.

We then we split that role from managing those relationships for success in the future. So we have what we call partner success managers. They really think about how we can create joint growth with the partner.

We also have technical people. Solution engineers who help design the integrations, technical partner managers who help them solve problems, etc. And overall, we have people that think about creating programs for partners, standardized programs, including joint marketing activities, etc.

Kunal Mehta: Katja and I have had a chance to work with you on round tables, and Mollie and you are deeply introspective. I’m just curious. What are some of the lessons you’ve learned along the way?

Ken Serdons: We try to do many bold things and sometimes things work – sometimes they don’t, and if they don’t work we course correct quite quickly. Looking at partnerships I think one of the mistakes that we made was that we were too focused on creating new deals, on the hunting part.

We did not spend enough effort into nurturing those relationships going forward. When we identified that some of these partnerships were not reaching the ambitions that we had when we created the deals, we started investing a lot more in those partner success management capabilities. And it really has created more trust with partners. And obviously more businesses flowing through right now.

Katja Gagen: That’s right, and Mollie has been on an expansion path, which Kunal and I have seen firsthand. We see your competitors carpet bomb their way into markets, but Mollie takes a different approach.

I remember reading all your German materials when you went into that market. And I know localization is really important to you. Tell us a bit about your strategy for expansion and going into new markets.

Ken Serdons: Yes. As you said, Katja, we believe that a very localized approach is required to create a truly unique experience for our customers and their shoppers.

They’re probably about three components in our international strategy. First one is focus. The second one hyper localization, and the third one is creating and standardizing the playbook that we talked about.

In the beginning we did not have this international expansion playbook in place and then it’s actually very difficult to roll out new markets at speed. And when I joined, we were active in about six markets, and we wanted to be present in as many markets as soon as possible. But I quickly identified that that was probably not the right way to differentiate ourselves.

We took the decision to focus. Drop Italy, for example, where we had a very small sales team in place, to really focus our efforts and resources on the markets where we saw a lot of traction. Mainly Germany and France, and later on the U.K. as well.

Hyper-focused on what really works, we’ve managed to achieve really fast growth. So Germany, for example, last year we were growing at a thousand percent year over year.

The second point about hyper localization. And this is really how we differentiate from, for example, the global PSPs, that process transactions across the world. Every market in Europe is different. They have their own nuances, their own local payment methods.

We localize our offering to not just include all the local payment methods, but also to make sure that the integration of those payment methods is optimized for conversion. So there’s never a redirect. You always stay as a shopper within the branded experience of the website that you shop at.

We also have localized the onboarding experience, tapping into local databases, using the right language. So we make sure our customers understand the documentation that they need to provide to us. Obviously, we also provide localized customer service in the local language. A German person likes to talk to a German support agent and it’s the same thing in every single market.

Finally, on creating that playbook. So when you go to a lot of markets at the same time, you really need to know about what you need to do at which sequence. We have created a playbook that includes how you set up partnerships upfront, how you start hiring the right sales teams, how you structure the team at different stages of the journey. That playbook really helps now to speed up the expansion to different markets.

Kunal Mehta: Ken, talking about focus. How is this reflected in the choice of the customer segments that Mollie serves?

Ken Serdons: One of the guiding principles from the get-go was that we never wanted to do any bespoke development. Bespoke development creates legacy technology and that’s expensive to maintain, but it’s also not scalable.

When we started, we focused on the small customers first, with a simple and easy to integrate product. We started off with a focus on one payment method back in the day, which was iDEAL, which is the preferred payment method in Netherlands. We really optimized that user experience and over time we really created an amazing journey for our customers.

Kunal Mehta: I love hearing two growth hacks in one answer. No bespoke development. It’s just too expensive to maintain and start with SMB because you just learn at scale in that segment. That’s really great.

Ken Serdons: Indeed yeah, I think it’s an easier way to disrupt the market if you start from the smaller end, add more features then as they go up market. The other way around is a lot more painful when you have to really simplify a complex product that you are using for larger customers to simplify it down, to go off smaller customers. That’s a really tricky job.

Katja Gagen: And what we’ve seen is that Mollie has grown up a lot in the last 17 years and learned a lot. But we also at TCV really focus on value and mission driven companies. So, how have your values evolved over time at Mollie?

Ken Serdons: Yes, they have evolved quite a bit, actually. So, we started off with five rather generic values. It’s a typical thing that you see at pretty much every corporate companies. We had passion, impact, courage, honesty, and friendship, and those values were good values, but they didn’t really resonate. So, we decided to upgrade those values and we selected three values that fully reflect what we do and who we are.

The first one is “Be Loved”. We aim to be the most loved partners for our customers, for our partners, but also be the most loved employer for our “Mollies”. And that’s important because for our customers, we always try to do the right thing. Every person you speak to at Mollie is absolutely passionate about our customer. We take care of them. We provide them an honest service. There’s never hidden fees at Mollie. And we’re super transparent on pricing, which is quite unique in our industry.

The second value is “Be Bold”. We’re not afraid to fail. We try lots of different things, make bold moves, and then if things don’t work out, we quickly iterate at a fast pace.

A good example of being bold is that we never locked our customers into a long-term contract. Our customers can leave at any point in time. And while that sounds a little bit scary sometimes, it actually is the best sign of confidence that we believe in our own product.

Finally, the third value is to “Be Authentic”. We want people, our colleagues to bring their best self to work. They can truly be who they are. We have lots of different nationalities, people from different backgrounds, et cetera. And it creates not just a fun environment, but also an environment where we encourage diversity of thought.

Kunal Mehta: You often don’t see “be loved” as a value. And that’s so refreshing to see, how does that show up at Mollie?

Ken Serdons: Yeah, I think in many different ways. So first of all, in all the interactions with our customers. In the way we think about pricing, in the way we optimize our products, et cetera. But we also look at our values in our performance appraisal process.

So every half year, every “Mollie” is being evaluated and we evaluate also our colleagues on which values they represent the most. And also the hiring process. We look at our values when a person is in front of us, we really check is this person reflecting the three values that we have? And one of the key things I like at Mollie is that we always hire people with low egos.

You have to absolutely put the customer first. You have to put the company first, we’re growing so fast.

Katja Gagen: That’s so refreshing, Ken, and such good insight. We also talked about hiring people and that’s really important to Mollie. You’ve said that you’re not just hiring people to do the job now, but the job in the future. Why is that important to you?

Ken Serdons: We’re growing at a very fast pace, effectively doubling every single year. And we also do a lot of things that have never been done before at Mollie. Opening new markets, expanding into different products, and we don’t have the big supporting structures in place that you’d typically find in large corporates.

We need people who not just know what good looks like but who also know how to implement it and how to get the job done. So when we hire people or when we promote people from internally for a job, we often get people who are too big for the initial role, knowing that the company will continue to grow and the job will expand.

If you hire a person that’s just about right for the job right now, the chances are very high that they might struggle the next year when the company is twice the size. And if you think one year ahead, they might be underperforming as the company keeps expanding. So we really want to hire people who can do the job still two years down the line.

And I think that only works if you hire low ego people. People who put the customer and the company first.

Kunal Mehta: Katja and I cover a lot of different companies. And one of the common questions we get asked are, “Hey, what’s the cool facts?” And I’m curious, what are the cool facts about Mollie?

Ken Serdons: Yes, we have about 125,000 customers and we have about 400 customers signing up on a daily basis. I think our biggest onboarding day was around 800 to 900 customers a day. Out of our top 30 best onboarding days 25 of them so far we’re in March 2020 when Corona hit and lots of merchants were scrambling to move their businesses online. So we helped a lot of these companies go online.

We have about 44 nationalities at Mollie, so a really diverse group of people. Last month was the best month ever in terms of hiring, we hired 62 people which is more than 10% of our total population.

Katja Gagen: All right, that’s pretty cool. We also have a few more questions. We always end with a rapid fire. So let’s go ahead. What’s the company you admire the most?

Ken Serdons: I love Apple because I think they’ve set the standard on providing delightful experiences on pretty much every single touch point with the customer.

Katja Gagen: What’s your go- to book, what’s on your nightstand?

Ken Serdons: So I regularly check in on a book called What Got You Here, Won’t Get You There. to really get some reflections on how to get better as a leader.

Kunal Mehta: Cool. Ken, just curious what’s the social media influencer who you follow the most?

Ken Serdons: Yeah. So I like to read stuff from Robin Sharma. He is a leadership coach. He’s a bit over the top, but his advice is always a great reminder on how to do things differently.

Katja Gagen: I totally agree. I like his 5:00 AM club as well Ken, and that gets me up in the morning.

Kunal Mehta: Well, it should make the next question super easy, morning person or night person?

Ken Serdons: Morning person. So I do try to get up early and enjoy the quietness of the mornings to work on myself and to get stuff done.

Kunal Mehta: Fantastic. And what’s your proudest achievement at Mollie?

Ken Serdons: It’s been a really fun journey the past two years, but I think what’s most memorable is I think all the efforts we did to help customers move online when the pandemic hit. And during the time we also expanded our market share substantially in all markets.

Katja Gagen: Well, thanks so much, Ken. We covered a lot today. Partnerships, expansion, culture, hiring, you name it. And I think we could have talked for a few more hours, but thanks for joining us on Growth Hacks today, and for all the insights you shared.

Ken Serdons: Thanks so much. It was my pleasure.

***

The views and opinions expressed are those of the speakers and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the speakers and disclaims any responsibility therefor. This interview and blog post are not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified, if any, are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this interview and blog post, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.


Trade Republic Announces $900M Investment, Led by Sequoia, to Drive Its Mission to Help Close Europe’s Pension Gap

  • $900M Series C investment led by Sequoia as well as TCV and Thrive Capital
  • With a valuation of over $5B Trade Republic is one of the most valuable private FinTechs in Europe
  • Within 24 months, Trade Republic has reached more than one million customers in Germany, France and Austria
  • Over €6B in client assets make Trade Republic one of the largest savings platforms in the market

May 20, 2021 — BERLIN–(BUSINESS WIRE)– Trade Republic, Europe’s leading NeoBroker, today announces a $900M Series C investment led by Sequoia with participation from new investors TCV and Thrive Capital as well as existing investors Accel, Founders Fund, Creandum and Project A. With a valuation of over $5B, Trade Republic is amongst the highest valued private FinTechs in Europe. With this investment, Trade Republic will continue to drive its mission to set up millions of Europeans for wealth creation with secure, easy, and free access to capital markets. This will ultimately open up financial markets for all Europeans to help close the massive pension gap.

“At Trade Republic, we believe everybody should have the right to participate in economic growth. This requires an easy-to-use, accessible and affordable savings platform that is open to everyone,” says co-founder Christian Hecker“Within just 24 months, we have empowered over one million people to put their money to work. For many Germans, French and Austrians, Trade Republic is the home screen app to manage their wealth.”

Demographic change, negative interest rates and inflation are among the greatest challenges for Europeans. Compared to other industrial nations, European countries face a huge pension gap. Trade Republic aims to help millions of people across Europe to invest money into capital markets with an easy-to-use and commission-free offering. This removes barriers for many people, who have missed out on participating in economic growth in the past.

“Fifty percent of Trade Republic’s customers, over 500k people, have never invested in capital markets before in their life. We empower people to start with wealth creation, who have been neglected by big banks for too long, with high fees and opaque products,” adds Thomas Pischke, co-founder“With over €6B in Assets under Management, we are the core savings account for our customers.”

At the heart of Trade Republic’s offering is an ETF or fractional stock savings plan, which allows people to invest free of charge on a regular basis. Trade Republic is already Germany’s largest provider for these long-term investment strategies. In addition to commission-free investing into equities, Trade Republic also recently added crypto currencies so people can adjust their portfolio to reflect inflation and negative interest rates.

The investment is led by Sequoia, which has backed defining companies such as Apple, Google, Stripe and Klarna. This marks one of Sequoia’s largest initial investments ever in Europe. The round is completed by TCV, who has invested into iconic consumer brands like Netflix, Spotify and Peloton until their IPOs and beyond, as well as by Thrive Capital, investors in Nubank and Oscar Health.

“The democratization of financial markets will be one of the most important consumer trends of the next decade,” says Doug Leone, partner at Sequoia“Trade Republic is on the leading edge of this trend and has attracted an untapped generation of European savers who demand increased financial accessibility. We’re thrilled to partner with Christian, Thomas, Marco and their team as they deliver a product and experience that customers love.”

“We are very excited to partner with Sequoia, TCV and Thrive. The strong continuing interest of leading investors proves Trade Republic’s progress in redefining how people can save their money. We will use this funding to create the most innovative investment products for our customers, expand across Europe and attract the best global talent. We expect this to accelerate our growth so we can reach millions of Europeans and ensure that everyone has access to the simplest, most powerful financial services no matter who they are, where they are in their financial lives and how much they earn,” adds Christian Hecker.

To change the financial system, Trade Republic has built a bank from scratch since 2015 with an easy-to-use product everybody can afford. With an $900M Series C financing round, Trade Republic closes one of the largest venture investments in financial services in Europe. This supports the fast growth of Trade Republic across continental Europe with innovative, secure and commission-free financial products as well as attracting the best global talent on its mission. The Trade Republic team has quickly grown to over 400 employees.

ADDITIONAL INFORMATION AND PRESS MATERIALS:

Website I Facebook I Instagram I Twitter

ABOUT TRADE REPUBLIC

Trade Republic is on a mission to set millions of Europeans up for wealth creation with secure, easy and free access to capital markets. With over one million customers Trade Republic is already the home screen app for many Europeans to manage their wealth. It offers commission-free investing in equities and crypto as well as free ETF and fractional stock savings plans. Trade Republic is a technology company with a German banking license supervised by Bundesbank and BaFin. As Europe’s largest NeoBroker Trade Republic has received investments by Accel, Creandum, Founders Fund, Project A, Sequoia, TCV, and Thrive Capital. The company based in Berlin was founded in 2015 by Christian Hecker, Thomas Pischke, and Marco Cancellieri and employs more than 400 people.

Contacts

Bettina Fries, Trade Republic
presse@traderepublic.com
+49 30 5490 63121

Katja Gagen, TCV
kgagen@tcv.com
+1 415 690 6689


AxiomSL: A Fintech Franchise Takes Off

The financial crisis of 2008 came as a resounding shock for countless companies, including many in the financial industry itself. But not for AxiomSL, a leading provider of cloud-enabled software for governance, risk, and compliance (GRC) regulatory reporting solutions to the financial services industry.

AxiomSL was founded by Alex Tsigutkin and Vladimir Etkin in 1991. As data management experts they had seen disorganized, unintegrated GRC processes even in highly regarded financial firms. “Everywhere I went, it was the same. The data was all over the place, in different systems and different departments,” explains Tsigutkin, CEO of AxiomSL. “We saw a real need to bring all of this enterprise data together at a granular level.”  Large financial institutions soon began adopting AxiomSL’s software to assemble data they used for assessing risks and reporting financial results to investors and regulators.

Then the repeal of the Glass-Steagall Banking Act in 1999 freed financial institutions to diversify into a wide range of new activities, and GRC processes took a back seat comparatively. The new priority was financial innovation and growth, to extend the United States’ position of prominence in global finance. “For years, the government and regulators didn’t put that much pressure on financial institutions,” Tsigutkin points out. “That changed completely after the 2008 financial crisis, and that’s when AxiomSL really took off.”

By this time, the company’s software data management platform and related algorithms organized operating data to align with the latest requirements of various regulatory authorities in multiple countries globally. These category-leading capabilities spurred AxiomSL’s sales growth into double-digit territory. International business began climbing too. “We were growing like wheat in the fields,” says Tsigutkin, a native of Ukraine.

But growth also brought some challenges. AxiomSL had always given its customers attentive support, especially when they were new to automating GRC processes. With rapid growth, that level of care was becoming harder to sustain; a successful strategy for landing and expanding clients was reaching its limits. “It’s very difficult to do everything on your own, especially dealing with a large and growing client base at the same time,” Tsigutkin says. “I felt this was a great opportunity to put some expert disciplines together. When I got advice on how to do that, it was to bring top notch growth equity into the mix.”

So Tsigutkin invited growth-stage investors to present their ideas for AxiomSL, including TCV, a firm he knew well from regular interactions in the past. With around $2 billion already invested in fintech, TCV understood that AxiomSL’s business could grow even faster for three interrelated reasons: an explosion of data in the financial world, proliferating regulations around the globe, and sharply higher consequences for financial companies that mismanaged them. With tighter financial discipline, more proactive sales efforts and scaling up systems and processes, AxiomSL believed it could become not just a category leader but the global standard for risk management and regulatory infrastructure solutions for the financial services industry.

“As we talked with private equity firms, TCV was distinctive in a number of aspects,” recalls Etkin, the company’s CTO. “They had proven success with fintech and GRC companies, so their long-term vision for AxiomSL and their approach to collaborative business-building really stood out.”

TCV invested in AxiomSL in June of 2017, and the new partnership moved fast. “TCV knows how to focus on what’s key for scaling a company, not just growing in the same way,” Tsigutkin explains. For example, TCV pinpointed the need for industrializing sales, sales leadership as well as more robust processes for planning and budgeting. “They also helped us understand how to use equity to attract and reward people,” Etkin notes, which enabled the company to recruit multiple new executives with significant experience scaling similar organizations.

“TCV saw in AxiomSL a category leading industry-specific software business with next generation technology, a highly satisfied client base, a mission-critical use case, – and most importantly, product-centric co-founders and partners in Alex and Vlad who had deep subject matter expertise and a strong growth orientation.” recalled Nari Ansari, TCV general partner and former board director at AxiomSL.

The collaborative approach between AxiomSL management and TCV helped AxiomSL accelerate growth, increasing software revenue over 150% in three years. Its ControllerView® intelligent data management and analytics platform could provide thousands of reports across dozens of jurisdictions and more than 100 regulatory agencies. From 60 employees during the financial crisis, the company had grown to nearly 900 globally. According to Tsigutkin, “having such a strong team really helped us to build a world-class organization.”

Consistent with TCV’s longstanding investment thesis for governance risk and compliance solutions, change and complexity can provide for significant opportunities for leading software vendors.  Indeed, AxiomSL’s positioning for its offering set has been as a “Platform for Change” given the constantly evolving regulatory environment for financial services market participants.  As the business entered 2020, that change orientation would become even more paramount.

“As COVID-19 started in early 2020, the world changed quickly, and the swiftness of market happenings was adding increased complexity for banks and regulators alike. During this period, AxiomSL’s value proposition in understanding and managing risk continued to demonstrate its importance and the business saw sustained momentum throughout 2020,” remarked Amol Helekar, a TCV principal. 

When the pandemic hit, AxiomSL as an organization had to adapt as quickly as its customers. “Being with TCV during this period was absolutely a blessing,” Tsigutkin recalls. “First they helped us to stay calm and provided very sound advice about our talent strategy and the welfare of our valued Axiom team members. Then they helped us focus on execution and growth. Moving more into digital marketing, for example, really enabled us to keep growing in 2020.  TCV also supported us as we increased our investment in cloud offerings which became even more important in a distributed COVID world for our bank clients.”

AxiomSL’s hyper-growth during the TCV partnership resulted in consistent market share gains. Along with the company’s strong profitability, blue chip client list and technology leadership, these attributes brought interest from outside parties, particularly private equity firms. As Rick Kimball, TCV founding general partner and former AxiomSL board director remarked, “Alex, Vlad, and the team transformed the organization during our partnership while deftly executing a growth agenda that expanded the business on multiple dimensions.”

In the fall of 2020, TCV worked collaboratively with Alex, Vlad, and the AxiomSL management team to assess this external investment interest and prepare the business to explore various alternatives. Ultimately this brought an offer from private equity firm Thoma Bravo to acquire a majority stake in the company.  The new investment closed in December of 2020 in one of the largest GRC transactions of its kind, and Tsigutkin took a moment to reflect, “Our growth is due in no small part to the contributions of TCV, who has been a critical partner for AxiomSL for the past three years as we grew the franchise at a record pace.”


Wealthsimple announces CAD $114 million investment led by TCV to transform financial services in Canada

TORONTO, Oct. 14, 2020 /CNW/ – Wealthsimple, the company behind Canada’s leading digital investing and stock trading platforms, today announced it has raised CAD $114 million on a valuation of CAD $1.4 billion. The investment was led by TCV, one of the largest growth equity investors focused on technology, alongside Greylock, Meritech, Two Sigma Ventures and existing investor Allianz X. Concurrent with the funding, David Yuan, General Partner at TCV, will join Wealthsimple’s Board of Directors.

Founded in 2014, Wealthsimple has evolved the financial services industry in Canada by bringing smart, simple and affordable financial products and services to market; today over 1.5 million Canadians use Wealthsimple products. The company is known for its client-centric approach to financial products, which include automated investing, commission-free stock and crypto trading, a savings account, and a tax filing software. Wealthsimple will use the new capital to expand its market position, build out its product suite, and grow its team in Canada.

“Our growth over the past six years shows how ready Canadians, and especially younger Canadians, are for a new model of financial services designed around their needs. But too many people still don’t have access to great financial products or are paying too much for them,” said Mike Katchen, co-founder and CEO of Wealthsimple. “There’s still so much room to grow, and to have investors of this caliber join us is an incredible vote of confidence in both our mission and our ability to deliver on it.”

“We have been watching Wealthsimple’s rise in the Canadian market and love the way the company is bringing simplicity, humanity, and delight to personal finance,” said David Yuan, General Partner, TCV. “TCV is focused on businesses that have the potential to transform industries, and we are thrilled to work with Mike and the Wealthsimple team to build a leader in financial services and an important consumer platform.”

TCV invests in tech-focused companies with an ambition to become market leaders. The growth equity firm has backed over 350 technology companies, including Airbnb, Klarna, Netflix, Nubank, Peloton, Revolut, Spotify, and Zillow. Greylock, a longstanding venture capital firm that focuses on enterprise and consumer software, has invested in companies including LinkedIn and Airbnb, and has partnered with over 180 companies through IPO, while Meritech has partnered with 200 companies globally including Salesforce and Snowflake. The investment also marks the first time that Meritech has invested in the Canadian market.

About Wealthsimple
Wealthsimple is a financial company on a mission to help everyone achieve financial freedom by providing products and advice that are accessible and affordable. Using smart technology, Wealthsimple takes financial services that are often confusing, opaque and expensive and makes them simple, transparent, and low-cost. The company was founded by a team of financial experts and technology entrepreneurs, and is headquartered in Toronto, Canada. To learn more, visit www.wealthsimple.com.

About TCV
Founded in 1995, TCV provides capital to growth-stage private and public companies in the technology industry. Since its inception, TCV has invested over $14 billion in leading technology companies, including more than $2 billion in fintech, and has helped guide CEOs through more than 120 IPOs and strategic acquisitions. TCV is headquartered in Menlo Park, California, with offices in New York and London. For more information about TCV, including a complete list of TCV investments, visit https://www.tcv.com/.

SOURCE Wealthsimple

For further information:
Wealthsimple
Sarah Pattillo, spattillo@wealthsimple.com, 416-567-7844

TCV
Katja Gagen, kgagen@tcv.com, 1-415-690-6689

Related Links

https://www.wealthsimple.com/

Revolut raises $500 million in Series D funding as it sets sight on profitability and daily adoption in 2020

  • Revolut raises $500 million in Series D funding, valuing the business at $5.5 billion, making Revolut one of the highest valued fintech companies in the world
  • The round was led by US-based investor TCV, with a number of existing investors also participating in the round
  • Revolut will use the capital to further strengthen product development in existing markets, roll-out banking operations in Europe and increase daily engagement

LONDON, 25 February 2020 — Revolut, the global financial platform with over 10 million customers worldwide, has today raised an additional $500 million in Series D funding, taking the total amount raised by the company to $836 million.

The new funding round was led by US-based growth capital firm TCV, with a number of existing investors also participating. The latest funding round values the business at $5.5 billion, making Revolut one of the highest valued fintech companies in the world.

The new capital was secured on the back of high customer demand and engagement and a strong financial performance last year. In 2019, Revolut increased customer growth by 169%, the number of daily active customers by 380%, and saw financial revenues in 2018 grow by 354%.

The new capital will be focused on the customer experience and used to strengthen Revolut’s core retail and business offering in existing markets, with a particular focus on product development that will help accelerate daily usage of accounts. Future plans include lending services for retail and business customers, extending high interest savings accounts beyond the UK, further improving customer service and rolling out banking operations across Europe. 

Revolut will also focus on further developing its Premium and Metal subscription accounts, which have proven to be a successful revenue stream for the business, growing by 154% last year. Revolut’s Premium and Metal accounts include a variety of benefits for customers, such as unlimited foreign exchange, airport lounge access, commission-free stock trading and travel insurance. 

Revolut will continue to invest in expanding its workforce across multiple locations. The company now employs over 2,000 people, and last year made a number of senior appointments across the business in order to scale up its governance. Last year, Revolut appointed Martin Gilbert, the former Co-Chief Executive of Standard Life Aberdeen, as Chairman of the Board. Caroline Britton, a former Audit Partner at Deloitte, and Bruce Wallace, the former Chief Operations Officer at Silicon Valley Bank, were both appointed as Non-Executive Directors. 

Commenting on the new investment, Nik Storonsky, Founder & CEO at Revolut said: “We’re on a mission to build a global financial platform – a single app where our customers can manage all of their daily finances, and this investment demonstrates investor confidence in our business model. Going forward, our focus is on rolling-out banking operations in Europe, increasing the number of people who use Revolut as their daily account, and striving towards profitability. TCV has a long history of backing founders who are changing their industries on a global scale, so we are excited to partner with them as we prepare for the next stage of our journey.”

Commenting on the investment, John Doran, General Partner at TCV said: “We are delighted to partner with Nik, Vlad and the entire Revolut team. Using a modern technology stack and with a relentless focus on delighting customers, Revolut has built a truly exceptional customer experience that is exceeding anything that existing banks can offer. We look forward to supporting the team on their journey to build Revolut into one of the biggest financial services companies in the world.”

Commenting on the investment, John Glen MP, the UK Economic Secretary and City Minister said: “It is clear that the UK fintech sector continues to thrive, and Revolut’s announcement, which comes on the back of record-breaking fintech venture capital investment in 2019, is a clear indicator of our strength as a place for fintech business as we leave the EU.”

— END —

About Revolut 

Revolut is here to transform the way money works.  As an innovative, new kind of financial platform, it gives people the power to spend, invest and transfer money without the sky-high fees charged by the big banks. 

Since launching in 2015 in the UK, Revolut has expanded significantly beyond its origins as an FX product, adding new features all the time, including Commission-Free Stock Trading, Cryptocurrencies, Business Accounts and more.  

Headquartered in London, with 2,000 people in 23 offices, Revolut is now one of the biggest Fintech communities in the world, with over 10 million customers globally. Since launch, Revolut has processed over 1bn transactions worth over $130bn.

Revolut Press Contact 
Chad West, Director, Global Communications 
chad@revolut.com l +447860651737

Kiran Wylie, Senior Communications Manager 
kiran@revolut.com l +447875057754

About TCV

Founded in 1995, TCV provides capital to growth-stage private and public companies in the technology industry. Since its inception, TCV has invested over $13 billion in leading technology companies, including more than $1.5 billion in fintech, and has helped guide CEOs through more than 120 IPOs and strategic acquisitions.

TCV’s investments include Airbnb, AxiomSL, Dollar Shave Club, ExactTarget, Expedia, Facebook, LinkedIn, Netflix, Nubank, Payoneer, Splunk, Spotify, Toast, WorldRemit, Xero, and Zillow. In Europe, TCV has invested $2 billion in companies including Believe Digital, Brillen.de, Perfecto, FlixMobility, RELEX Solutions, RMS, Sportradar, The Pracuj Group, and WorldRemit. TCV is headquartered in Menlo Park, California, with offices in New York and London. For more information about TCV, including a complete list of TCV investments, visit https://www.tcv.com/.

TCV Press Contact
Katja Gagen, TCV Communications 
kgagen@tcv.com l +1 415 690 6689


FULL POTENTIAL SAAS

We believe that SaaS vendors, particularly vertical and SMB, that provide a “system of record” are seeing massive increases in TAM, competitive moats, and economic opportunity. By extending and leveraging their workflow, data, and account ownership, SaaS vendors are delighting end customers while creating platform and networks.

With opportunity comes competition, both from within one’s category (e.g. application area) or from adjacent categories within one’s vertical (e.g. industry). As boards and management teams wake up to the opportunity, they realize that the race is on to capture the full potential of their vertical.

This post is a framework to help leaders of SaaS companies think through the strategic choices and hopefully increase the odds of reaching their full potential.Strategy is implemented by focused alignment of execution, talent, M&A, organizational structure, functional excellence, and financial and governance/board frameworks. I hope to write about these supporting pieces over time, but I wanted to start with strategy first.

Finally, I think it’s important to acknowledge that very few companies have reached “full potential,” and this framework is inherently aspirational. However, “most entrepreneurs aren’t building a house, they are putting bricks in the foundation of a skyscraper” (Naval Ravikant). Aspiration is important, so hopefully this is an articulation of what is possible.

Special thanks to my co-authors John Burke, Katja Gagen, and Payam Vadi from TCV as well as Tim Barash, Kevin Burke, Henrique Dubugras, Mike Ford, Marc Fredman, Noah Glass, Andrew Low Ah Kee, Ara Mahdessian, David McJannet, Aman Narang, Sankar Narayan, Githesh Ramamurthy, Jason Randall, Bob Solomon, Connor Theilmann, Dan Wernikoff, and Dai Williams for great insight and support in creating this framework to date. We’ve also learned a ton from working with great management teams in the TCV portfolio[1] as well as across a broad network of friends.

Lead the Category

This phase of the SaaS strategy is well understood so I won’t spend much time on it. A SaaS company aspires to:

  1. build a great product (and service)
  2. over time, build an efficient and repeatable go-to-market model (marketing -> sales -> onboarding)
  3. and then “add capital” and execution to press its advantage against sluggish incumbents or poorly capitalized competitors

This is the playbook that Omniture and our portfolio company ExactTarget pioneered a decade ago. Despite massive capital inflows into SaaS and deteriorating economics, this model generally still works today.

On the product side, scale in data + AI can create increasing differentiation. For example, when you start to have more data than anyone else, you can flip your product from being reactive to proactive — having the product tell users where to look and how to optimize the system. Both Xero and Shopify have done this well.

Five other things to think about in this early phase that don’t get enough attention:

  • Scalable onboarding: Onboarding friction can be unaccounted drivers of CAC and churn. A great onboarding process builds the trust and confidence that are the foundations of virality/word of mouth, future cross- as well as third party channel strategies. Carefully measure funnel metrics and be attentive to new customer NPS. Automate early as “throwing bodies at it” can create process debt that will be difficult to unwind later.
  • Expansion: Expansion drives net revenue retention and most of the strategies we are about to discuss. With all sales processes, it’s a lot easier to learn, iterate, and optimize with fewer bodies and less complexity.
  • UI and Architecture: Like onboarding, these can be long-lead time fixes that compound as your business scales and gets more complex. A specific call out is to plan for an API strategy. It can facilitate future partner strategies and increase the value and stickiness of your offering.
  • Pricing structure/strategy: You will constantly revisit tactics, but it’s important to have some sense of how your pricing structure might change over time.
  • Foundations for global, including a work culture that can support distributed executives and operations, and good product feedback loops that incorporate non-home market needs.

Hyperscale Locations, Feed the Beast

A lot of ink has been spilled on forward investing in sales and marketing, and arguably it’s part of a/the “lead the category” strategy. But, it’s worth a call out as it’s important you don’t take your eye off the ball too early. So much of winning and future monetization is getting location market share. When the wind is at your back, go get it done! Market structures have a nasty habit of shifting, future secular tailwinds may abate, or competitors may leapfrog your product or your go-to-market model. If your churn and sales economics are sound, keep “feeding the beast!”

One particularly powerful unlock is Channel. There are verticals and categories, where influencers in a channel are kingmakers and can help you engage with segments that are otherwise difficult or uneconomical to reach.  Furthermore, Channel partners’ engagement and contributions can enrich your products and increase overall customer value. A great example is in tax software, where Xero’s wooing of accountants proved to be an effective source of customers and a formidable competitive moat (thereby disrupting the incumbent provider). Xero went as far as offering free practice management tools to help accountants run and grow their business on Xero.

Win the Control Points: Own Your Vertical

This is where management teams are faced with a paradox of choice: “Where should we go next? How should we spend the next incremental dollar? On increasing ARPU, acquiring incremental locations, or expanding into new verticals, geos or segments?” At this juncture, it is my belief that you should focus on winning the control points. In vertical SaaS, there are typically one or two control points, “systems of record.” Usually one control point in the front office (e.g. Point of Sale, CRM, e-commerce) – “that drives sales, that grows the business, that serves as the cash register.” And one control point in the back office (e.g. general ledger) – “where everything else reconciles to.” Hopefully, you provide one of the systems of record, so go build or acquire the other system(s) of record and secure the high ground! 

Pragmatically, a system of record is the last software package a customer will “turn off” in a tough economic time.

I also like to think about the concept of “gravity”:

  • Workflow gravity – the system that all other systems integrate to – it’swhere the most users spend the most time. Not all workflows deliver the same value; in my experience the system of record workflow tends to deliver the most value.
  • Data gravity – the system that creates and holds the most critical information and is the hardest to migrate. That data can be critical to a client for a wide range of applications, from understanding their customers (e.g. CRM) to managing risk (e.g. compliance). Data also can be critical in two-level situations, such as loan underwriting (e.g. a bank underwriting a merchant’s risk via POS data) or supplier information management (e.g. a client managing risk by validating supplier capabilities and quality). Data depth and scope also create gravity where AI technologies can be highly productive.
  • Account gravity – the user/sponsor of the system is the highest-ranking individual in the customer organization; it’s the system that requires the biggest financial outlay, etc.

Winning the other system of record is not easy. By definition, a system of record is hard to displace and unless the market is greenfield pen and paper, competition can be challenging. You may be able to do it organically with product innovation, but M&A can be the more desirable path if “integration debt” is manageable. If M&A is not possible, a slow winnowing of your competitor may be the only approach available to you.

If you own multiple systems of record in a vertical, the benefits are enormous:

  • Customer delight: automation from integrated workflows and potentially unified data and data models allow efficiencies and offerings unavailable before
  • “SaaS as a Platform and SaaS as Network” opportunities
  • Stronger account ownership to capture incremental spend and drive more efficient growth
  • A new level of durability and stickiness

A good example is Veeva. The company started in 2007 with the launch of a CRM and a sales automation platform for pharma sales reps (e.g. record their activity, keep track of the doctors they meet with or drop off samples for, etc.). After becoming the dominant player in that category, Veeva saw an opportunity to move backward into research and development for their life science customers (developing new drugs, conducting clinical trials and bringing those drugs to market). In 2011 Veeva launched Vault, a suite of applications that first centered on the core content management needs for clinical trials, regulatory submissions, and quality documentation. The company then expanded to include a series of core data applications that help manage clinical trials, quality processes, safety processes, etc. Veeva is expected to finish 2019 with $1.1B in revenue (26% YoY Growth) and 37% EBIT margins. Vault represented 51% of total revenue and grew 38% YoY. Analysts also estimate Vault meaningfully expanded Veeva’s addressable market. 

Another recent example might be front office player Shopify’s $450M acquisition of 6 River Systems to move into back office fulfillment and warehouse management. Some financial analysts estimate that merchants spend up to ~10-15% of their GMV on logistics which could potentially provide multiples of Shopify’s current take rate.

Expand Headroom

With category leadership comes high market share and potentially high saturation. Long-term growth is driven by location growth, as there’s generally a finite share of wallet you can access. It’s important to invest in the S-curves of geos, segments, and adjacent verticals that can unlock new location TAM. This can take a couple of tries before you’re successful, so start this during your growth phase when there’s less pressure on maximizing profitability.

Extend Through the Value Chain

This stage of growth can be transformative. By leveraging the strengths of your core customers, you can expand into a new market with a new set of customers. Typical patterns include moving from front office software to extend to your customer’s customers, or from back office software and extending to suppliers. These can be riskier bets, but success can pay out big here:

  • Increased TAM
  • Workflow that spans multiple parties and creates increased customer value and vendor stickiness
  • Two-level network effects

Supplier

Extension seems to work best by “following the money” and leveraging purchasing power. TCV portfolio company Ariba articulated the “golden rule”— He with the gold rules! By using their leadership in procurement software at large corporate buyers, Ariba extended to build a robust suppliers software business for merchants that serviced those corporate buyers. More recently, Avetta has followed a similar path in the supplier information space by building a strong two-level network effect. We believe corporate clients want to be on Avetta because it has the largest network of suppliers, and suppliers want to be on Avetta because it has the most corporate clients. Avetta’s advantage gets stronger as it scales. Moreover, Avetta has an opportunity to help suppliers do more than just manage compliance information. As a result, Avetta sees growth in helping suppliers grow and operate their business.  

CCC is on the third generation of this approach. They started by serving large auto insurance carriers and then extended into autobody repair shops that serve the carriers. CCC is now in the process of expanding to parts suppliers. By getting all the key constituents on its software platform, CCC is able to leverage AI and automation to massively reduce friction and provide a great customer experience across all steps of the auto insurance process.

Employee

The employee opportunity is similar to the supplier opportunity in terms of “following the money.” Companies can use integrated payroll or time & attendance offerings to establish a relationship with the employee. Employees are also consumers who represent significant B2C opportunities such as consumer lending, insurance, etc. There are big dollars here, but perhaps less opportunity to build significant network effects.

Consumer

The consumer/demand opportunity is the white whale. We believe that SaaS companies tend to capture ~ 50-100bps of GMV for software subscription, whereas online demand channels can take 15-20% of GMV in categories such as hotels and restaurants. In addition to the massive revenue opportunity, Consumer also represents a strategic flank worth monitoring carefully. Online marketplaces have large competing salesforces that engage with your merchant customers and have strategic interests encroach on the software layer to try to control supply.  Booking.com bought Buuteeq and Hotel Ninjas to vertically integrate into hotel supply. Uber is rapidly expanding its driver offering to over-draft protection, a debit card, and likely lending over time to manage driver churn. This is another example of increasing marketplace + SaaS convergence.

That said, success stories of extending SaaS to Consumer are rare. Few SaaS companies have consumer product DNA, the funds, or the skills to build a consumer brand. While a SaaS provider can have a high market share of merchants in a vertical, it’s rare that it has the supply ubiquity that an online marketplace would require. Eventbrite is one of the few companies that has landed as a software tool for creators, built liquidity, and created a marketplace.

Some derivative Consumer monetization models include:

  • Consumer pay: FareHarbor approaches tour and activity operators with a free to merchant, consumer pay model: “We’ll build your website and booking engine for free, with no work on your part; you just pay us for payment processing and the customer will pay us a booking fee.”  
  • Channel management: SiteMinder offers channel management to help hotels manage existing channels in real time. SiteMinder has extended that value proposition to “Demand Plus,” an offering that helps hotels easily expand into new channels to scale demand.
  • Existing customers: While 15-20% marketplace take rates may be sensible for new customer acquisition/discovery, companies such as Olo are looking to move existing customers to lower cost channels through their dispatch offering while taking a much lower percentage of GMV.
  • Customer Co-opt: By seeing consumer data pass through their systems, some SaaS vendors are building consumer profile databases that they might monetize over time. In the recruiting market, we’ve seen players leverage job distribution tools to build a candidate database. Shopify similarly has built a large shopper profile database across all their merchants. While Shopify hasn’t monetized directly, the uplift in conversion rate is likely significant. This model is the most capital efficient but can create conflicts with the vendor’s core merchant customers.

The biggest benefit of extending through the value chain is that it gives you a beachhead and a right to win in a new vertical to start the “full potential” growth cycle again. As you do this, it’s important to reconsider your end market and focus. When Ariba transitioned from procurement software to supply network, they started to represent a front office “system of record” for their suppliers. In doing so, Ariba was both a large enterprise “procurement company” and an SMB “supplier enablement company.” The question was: “Which priority should dominate?” When extension leads to conflicts, there are no easy answers. As such, it is important to acknowledge that this growth strategy is ever-evolving.

Deepen Functionality/ Monetization

Deepen Functionality/Monetization doesn’t literally mean waiting to pursue this step until all other strategies have been completed. It’s more a reflection of priorities. Acquire as many customers as you can, win the control points, and you will likely have many of these profit pools locked up to pursue in the future.

In winning the key control points, for the same reason a single system of record has a lot of “gravity,” you now have an even stronger opportunity to turn your product into a channel. This enables entry into adjacencies with data, workflow, and account ownership advantages for you as well as for the end customer. The most extreme example is the “platform/ecosystem” play, where you monetize third party vendors that want access to the channel your product has become (e.g. Salesforce, Intuit, Shopify). However, most commonly a SaaS vendor will pursue additional monetization with in-house or white-labeled products.

Another key consideration in prioritizing adjacent function/monetization is consistency with your core go-to-market channel and proximity to key decision makers. Go-to-market will determine the financial leverage of the cross-sell and often the overall success. The core advantage of SMB software here is that often the decision-making is relatively consistent and concentrated across software purchases.

Every vertical is different, but there are some common functionality/monetization patterns emerging. Each of these patterns deserves its own write-up, but for the sake of brevity here are some highlights:

  • “Integrated payments -> integrated banking”: The attachment of payments to SaaS has been well covered. That trend is expanding to the attachment of integrated banking. I had an opportunity to interview two of the smartest people in the business, Tim Barash and Jackie Reses. Square is out front here with broad based merchant and consumer plays. To understand the magnitude of the opportunity, Square’s Subscription & Services (most of which are financial services) are expected to reach $1.3B in 2020. This represents 23% of 2020 total GAAP revenue and 47% of 2020 Total Gross Profit (incremental gross profit is ~90%). Brex is earlier in its progression, but we’re excited to see how the company leverages its initial corporate card and expense management offerings to extend into broader financial services.

  •  “Follow the workflow”: At times SaaS companies have actually observed customers at work or mapped out the physical sites to understand all the areas their workflow touches as areas of expansion.
  • “TAM shark”: HashiCorp CEO David McJannet describes expansion as “TAM Shark,” constantly circling the biggest, fastest growing (most change/opportunity) markets. He requires product managers to report on market size and growth of all adjacent categories to make sure they are focused on the biggest opportunities. Generally, over a 2-3 year period companies have one, maybe two opportunities to build distinct add-on businesses. Make sure you’re picking the biggest markets and therefore the biggest payoffs.

Summary

If the typical SaaS playbook is “Lead the Category” and “Hyperscale Locations,” clearly the full potential for vertical SaaS players is dramatically larger than conventional SaaS wisdom would suggest. We’re excited to work with — and hopefully invest in —the frontier players as they explore the “Full Potential of SaaS.”  

If you found this useful, let me know, and we’ll continue to publish and explore the topic. I look forward to hearing your adds, edits, and challenges.

Caveats

  • There’s a tension between aggregating as big a profit pool as quickly as possible vs. “winning the market.”
  • This framework is characterized as a sequential strategy. In reality, most companies are pursuing multiple steps concurrently, and the sequence is more a reflection of prioritization.
  • Time horizon: this approach is a long-term strategy to winning, which may often be at odds with short-term maximization of valuation multiple and financial performance.
  • This approach is informed by a U.S./western/mature approach. In emerging/more greenfield markets, less focus and value chain expansion earlier in company development may make sense.

The views and opinions expressed are those of the authors and do not necessarily reflect those of TCMI, Inc. or its affiliates (“TCV”). TCV has not verified the accuracy of any statements by the authors and disclaims any responsibility therefor. This blog post is not an offer to sell or the solicitation of an offer to purchase an interest in any private fund managed or sponsored by TCV or any of the securities of any company discussed. The TCV portfolio companies identified above are not necessarily representative of all TCV investments, and no assumption should be made that the investments identified were or will be profitable. For a complete list of TCV investments, please visit www.tcv.com/all-companies/. For additional important disclaimers regarding this document, please see “Informational Purposes Only” in the Terms of Use for TCV’s website, available at http://www.tcv.com/terms-of-use/.

[1] See TCV’s SMB and Vertical SaaS investments at the end of the document.