The Inevitability of a Trajectory
By Dovi Frances, Founding Partner, Group 11 and Devon Morris, Partner, Group 11
Tipalti, the early years
In January 2014, Group 11 released a short article in the C-Suite Quarterly Magazine looking at Israeli Software-as-a-Service (SaaS) startups. Titled Software Companies as an Investment Asset Class, we discussed the winding down of real innovation in the realm of consumer-facing internet products, and a significant move towards investments and true innovation in B2B and B2B2C software. Citing some relevant data from PwC, Crunchbase, and the NVCA, we emphasized how important it was to “Get in Early and at an Attractive Valuation” in this category. We showed how Israel was doing a fantastic job of producing great SaaS companies with US target markets, how fintech was maturing, and how many of these target companies were at great prices and would be solid, long-term performing assets.
Back then, Group 11 went by a different brand, we had just formed our fintech thesis, we were more than halfway through investing in what would become our ‘Fund I’, and we were about to start raising outside capital for Fund II. The context and inspiration of that original CSQ article centered around our 2013 investment in global payables automation provider, Tipalti.
At its most fundamental level, Tipalti’s vision is to provide a robust, full-service platform to eliminate over 80% of the manual workload required to manage the supplier payments and accounts payable (AP) operation. Tipalti’s cloud-based platform and suite of AP services would free up finance teams to focus on strategically growing their company instead of using manual, error-prone processes (Tipalti’s name means ‘I Handled It’ in Hebrew). After an introduction from Co-Founder and Tipalti’s largest investor, Oren Zeev, in March of 2013, Group 11 made its first investment in Tipalti when it was valued close to a hundredth of its current value.
Following our first investment in 2013 and realizing the market need and Tipalti’s trajectory in this market, we continued to invest heavily in Tipalti over the following seven years. We led the company’s $14MM Series B in Sept 2016 where our General Partner Dovi Frances joined the company’s Board, and we later tripled and quadrupled down in every financing round. Our involvement didn’t end with our significant investments in Tipalti. The Group 11 team has been active in making many marquee customer introductions to Tipalti’s sales team, holding true to our VC firm’s philosophy to be a growth partner for our portfolio companies.
Perpetual Product Market Fit
Group 11’s conviction in dollars invested is proportional to the verification of Tipalti’s ever-expanding product market fit. Since Group 11 led Tipalti’s Series B in 2016, the company has launched Optical Character Recognition (OCR) and machine-learning for automated invoice processing, obtained its Money Transmitter License in every single US state that required it, provided multi-subsidiary AP management with Multi-Entity, enabled intercompany transfers and FX conversion with Tipalti Multi-FX, accelerated supplier payments by offering NetNow, expanded its AP tax compliance capabilities to an additional 49 countries, launched integrations with major ERP and technology platforms including NetSuite, Intacct, and QuickBooks, opened its Vancouver office, tripled its headcount, surpassed $11BN annual remittance, and manages relationships for over 4 million global suppliers for major customers such as GoDaddy, Twitter, AppLovin, ironSource, Vimeo, Outbrain, ClassPass, Roku, Roblox, and Amazon Twitch to name a few. More of their accomplishments, growth, platform features, and milestones can be seen on Tipalti’s Press and Product page.
Tipalti TODAY: A New Unicorn Emerges
Today, we are incredibly excited to share that Tipalti has closed a massive $150MM round led by Durable Capital Partners with participation from GreenOaks Capital and 01 Advisors. Since its inception in 2019, Durable has raised a $6BN fund and made a few bold investments in other category-defining companies such as: Warby Parker, Xometry, Redfin, DoorDash, Toast, Vroom, and Rapyd.
This brings Tipalti’s total funding to over $280MM and values Tipalti north of $2BN, adding another emerging market leader to the expanding list of fintech unicorns and another to Group 11’s growing stable of unicorns which (as of now…) also includes TripActions and Next Insurance.
Although we were unable to participate in the recent round which was vastly over-subscribed, Group 11 has grown its stake to become the second largest investor in Tipalti even following this new financing.
The Next 10 Years — From Disrupting to Dominating a Market.
The newly raised capital will help further grow Tipalti’s global footprint with mid-market companies’ finance and accounting departments. As it stands today, Tipalti has only scratched the surface of its potential with less than 1% penetration of its total addressable market. As we explained in our Seven Good Years (and the best is yet to come) Medium article released in Sep 2019, the global market for business-to-business payments is expected to reach $1.5TN in less than 10 years. Other than Tipalti, there is no apparent market leader and there is no comprehensive, globally-minded payables solution for the ~195,000 mid-market companies in the U.S. and ~400,000 outside of the U.S.
Group 11 has mentioned this situation a number of times in public pieces. The lack of sufficient incumbent solutions in this space is primarily because traditional financial institutions have failed to digitally re-imagine themselves amid a changing customer, market, and regulatory landscape. Large legacy banks and incumbent SaaS providers overlook the mid-market and continue to pursue a product-based approach to sales rather than focusing on understanding their customers’ ever-evolving needs. Mid-market companies need to focus on scaling efficiently and rapidly. Their finance leaders must enable those priorities and they can no longer afford to lose work hours chasing and manually confirming invoices and payments, while exposing their businesses to audit, fraud, regulatory and tax compliance risks.
Especially following COVID, companies are even more obsessed with the automation of repetitive, error-prone tasks and improving their operating margins as we clearly laid out in our Equities Gone Wild — Bubble or Beginning Medium article released in September 2020. We view this need and drive towards automation as a multi-decade trend, not the end. We predict this is the start of a new normal, one that was at a tipping point anyway, but got pushed forward from happening within the next five years to happening in six weeks due to the macroeconomic effects of COVID.
‘I Handled It’
Tipalti’s CEO and Co-Founder Chen Amit envisioned it since inception: the automation of the workload-intensive payables function certainly saves margins, but most importantly it frees significant talent to be deployed on mission-critical and strategic growth initiatives. Once onboarded, Tipalti ‘handles it’. Then, their customers’ CFOs and controllers get a kind of efficiency, control and visibility that transforms their perception of the AP department. Where once they saw a cost-center, compliance quagmire, and time-sink, they now see a department that is a lever for global growth and strategic enablement. Ultimately, this elevates and enables the entire finance function to be a true enabler of long-term business success.
Again, as laid out in our Equities Gone Wild piece, the simple truth often ignored by many of our peers in the VC industry is that new technology does not simply get added to an existing environment but rather, restructures it in its image thus opening many initially unforeseen doors. This is what Tipalti does for Accounts Payable, compliance, and global payments. Once Tipalti handles their AP, companies suddenly wonder how they were able to survive beforehand.
Tipalti’s business fundamentals that initially appealed to us as early investors have stayed consistent and are even more attractive in 2020. We were correct in our predictions in that 2013 CSQ article: We ‘got in early, and at an attractive valuation’ and Tipalti has been a solid, long-term performing company.
Scarcity now plays a huge role in determining who will win a market that is up for grabs — Tipalti happens to be at the right place, at the right time with the right management team, the right board of directors, and a lot of fresh powder. All of these components will allow Tipalti to add significant innovations to its platform to add even more value to its client base, significantly widening its leadership position, grabbing greater market share and further expediting its growth trajectory.
On the current, inevitable trajectory, and global market opportunity, the best for Tipalti is yet to come.
Congratulations to Co-Founder and CEO Chen Amit, Co-Founder Oren Zeev, Tipalti’s executive team, all of their employees, new fellow investors Durable, GreenOaks, and existing investors 01 Advisors, and Greenspring Associates.
(For more of Group 11’s thoughts on the larger subject of automation and COVID’s effects on enterprises, see Roxane Googin, Chief Futurist, and Dovi Frances, Founding Partner’s ‘Equities Gone Wild — Bubble or Beginning?’ article on Medium.com)