For a long time, we’ve been told that “content is king”. That quote comes from a 1996 essay by Microsoft founder Bill Gates. In it, he describes the future of the Internet as a marketplace for content. While the quote is more than 20 years old, it still resonates given today’s intense focus on content marketing strategies.
We’ve also often been told that “cash is king”. Apparently, GE titan Jack Welch was fond of saying, “Cash is king. Get every drop of cash you can get and hold onto it.”
And we’ve also long known that the primary reason most small businesses fail isn’t because of insufficient content. According to Score and a U.S. Bank study, 82% of businesses fail due to poor cash flow mismanagement. So cash flow is a clearly identified small business pain point.
Study, then Execute
Sometime in early 2018, Israeli entrepreneurs Matan Bar, Ziv Paz, and Ilan Atias set up an accounting company in the U.S. The firm was really more of a laboratory than a stand-alone accounting firm. The laboratory was focused on figuring out business-to-business payments, and specifically one important factor: the volume of payments made by check in the U.S. The answer? A cool $18 trillion a year.
Using a variety of means, the three convinced dozens of small businesses to use their accounting laboratory. Then to expand their understanding they interviewed 100 small businesses to learn more about their payment processes.
With the research results in hand and the accounting laboratory operating under the steady hand of Dafna Barkat, they set out to “understand the nuances within the workflow. It helped us create a precise product much faster, and saved us a lot of time.”
And thus was born the business-to-business payment system Melio.
New Technology Solves an Old Problem
Today, the company has put thousands of businesses on its platform. And within a year the volume of payments has rocketed to billions of dollars on an annualized basis. Melio has raised $144 million to date. Of that total, $128 million came in two funding rounds this year, in late April and in August. The company’s initial investors were the Aleph and Bessemer funds; the latest round was led by Coatue, with the participation of General Catalyst. The latest round placed Melio’s valuation at more than $700 million.
The company leadership is loaded with ex-IDF experience with Atais and Paz spending time in the world of machine learning and computer vision. Paz and Bar were high school mates in the Hafia area of Israel and decided to finally work together on Melio.
Forward to earlier this year and the pandemic, here’s what CEO Bar had to say. “In March, we didn’t know if the coronavirus would be good for us or not. Because we serve small businesses, we thought it would be more negative. We didn’t expect that so many companies would move online. As with every startup, we have an aggressive plan and a more conservative plan. When we saw that there was a unique opportunity to grow, and that the transition to online had accelerated, we knew how to make greater investment. We knew what we would do with another 30 engineers or 100 salespeople.”
Leaning into the Headwind
The company has used its new funds to grow its workforce from 35 to 150.
“In March, we didn’t know if the coronavirus would be good for us or not. Because we serve small businesses, we thought it would be more negative. We didn’t expect that so many companies would move online. As with every startup, we have an aggressive plan and a more conservative plan. When we saw that there was a unique opportunity to grow and that the transition to online had accelerated, we knew how to make a greater investment. We knew what we would do with another 30 engineers or 100 salespeople,” Bar said.
The company also grew rapidly, and in less than a year its workforce increased from 35 to 150. In January, for example, the company had only eight development workers.
Bar went on to say, “it’s easier to develop a solution for a company like Nike, and then you have 100,000 payments a month. A small business is like a private consumer, you can’t deal with them one by one… This is true in every field. Small businesses get fewer tools, they are under-served. These solutions are too complex for a wine shop owner or a dentist. These businesses don’t care about automation. It doesn’t provide value, because they make 60-70 payments a month. What interests them is cash flow. “
Keep it Simple for SMBs
We’re in sync with Bar. But we have been for a long time. Small business owners don’t want or need fancy, highly complex solutions. They need simple, effective, and straightforward options. What they want is the money they’re owed as soon as possible and the ability to pay others at the very last minute.
This is where Melio comes in and acts as the middleman. Melio allows the payer to use available credit (i.e. money is transferred immediately, but the amount is deducted from the bank account only after the credit card balance is paid), while Melio itself pays the provider by check. For many businesses, checks are still the preferred form of payment as there is no commission. By paying with checks they also get to benefit from the float that comes with checks. Melio also offers to transfer the money to the recipient’s bank account immediately thereby saving the few days it takes for the check to be deposited and cleared.
That the company earned 3rd place in Globes most promising startups this year is a testament to its drive to solve the cash flow problem for small businesses. Oddly enough, Melio wants to be seen as a payments company. While this choice probably expands the TAM, any messaging around the notion that “cash is king” we would think reaches a pretty wide audience.
With offices in Tel Aviv and New York, we expect to hear more from the three entrepreneurs, and Melio, in the coming weeks and months. The Startup of the Year rankings are part of the Enterprise Technology Summit held by “Globes” and JP Morgan.