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Arc wants to build the de facto finance solution for SaaS startups

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There’s financial technology (fintech) companies out there targeting all sorts of different segments of the population, as well as companies at various stages of growth.

A new company recently emerged that is targeting a popular startup niche, wanting to exclusively help early-stage SaaS (software-as-a-service) companies with their financial needs.

Coming out of stealth today with $150 million in debt financing and $11 million in seed funding, Arc is building what it describes as “a community of premium software companies” that gives SaaS startups a way to borrow, save and spend “all on a single tech platform.” And it’s doing it as part of a partnership with Stripe, one of the world’s largest, and most valuable private fintechs.

Put simply, Arc wants to help SaaS companies grow through alternative financing methods so that they don’t have to turn to venture capitalists to fund growth at the price of diluting their ownership. Those same founders can also avoid the “restrictive covenants, guarantees, and insolvency risk associated with raising debt” if they use Arc, CEO and co-founder Don Muir said.

“Early-stage SaaS startups face the infamous cash-for-growth tradeoff — they are the most in need of funding yet are also in their most vulnerable state to raise capital in that they experience the highest dilution for each dollar raised,” Muir said. “This is exacerbated by the timing mismatch between monthly cash receipts from subscription software revenues and the upfront capital outlay to acquire new customers.”

Muir, Nick Lombardo (president) and Raven Jiang (CTO) founded Arc in January of 2021 and incorporated the company in April. The trio founded Arc out of Muir’s living room in Menlo Park during their last year at the Stanford Graduate School of Business when the campus had gone into lockdown due to the COVID-19 pandemic. Prior to business school, Lombardo and Muir worked in private equity and investment banking in New York, collectively raising tens of billions of dollars of capital to finance mature, late-stage companies. It was during that time, Muir says, the pair experienced firsthand the shortcomings of traditional capital raising — namely, the “slow, offline, and transactional nature” of the deal process. 

“An army of investment bankers, credit analysts and lawyers will spend months toiling in data rooms and building static models in Excel to close a financing transaction that ultimately costs a company millions of dollars, before taking into account the opportunity cost of management’s time,” Muir said.

After meeting at Stanford, the trio came up with the concept behind Arc and then teamed up with Y Combinator to meet with hundreds of software founders in the San Francisco Bay Area. Arc was an early member of YC’s Winter 2022 batch, which commenced earlier this week.

“We quickly realized that they shared a common pain point — startup funding is costly and distracting. Even in a zero interest rate environment, dilution is extraordinarily expensive for startup founders. At the same time, offline and bureaucratic banks with outdated underwriting policies and limited bandwidth are structurally unable to serve earlier-stage opportunities,” Muir explained. “Even premium recurring revenue software startups are neglected by traditional lenders. We founded Arc to give founders an alternative to the status quo. We’re on a mission to help startups grow — with technology and without dilution.”

Since the company launched its introductory product — Arc Advance — last summer, more than 100 startups have signed up for the Arc platform. To date, the majority of its customers have been VC-backed B2B SaaS companies seeking to accelerate their growth spend while also prolonging their runway before raising additional equity. So far, VCs have been a strong customer acquisition channel for Arc, noted Lombardo, who pointed to the fact that Arc’s largest partnership today is with Y Combinator, which is promoting Arc across its portfolio of thousands of software companies. Arc is also partnering with traditional capital providers, including VCs, banks and venture debt lenders. In fact, a large portion of its customers are VC-backed and seek capital from Arc “as an efficient way to smooth funding needs between episodic VC rounds,” Lombardo told TechCrunch. “

For example, he said, “A Series A SaaS company is raising $1 million each quarter from Arc before its Series B late this year in order to accelerate spend — driving outsized headcount and revenue growth and resulting in a higher Series B valuation. In this example, the Series A investor also benefits financially from the reduced dilution and higher valuation that Arc’s capital unlocks.”

Also among Arc’s customers are bootstrapped companies outside of Silicon Valley, Lombardo added. 

In coming months, the startup plans to release “a full suite” of financial tools designed “to empower SaaS founders to scale their businesses efficiently and retain control.”

How it’s different and the same

Arc differs from traditional financial institutions that might deploy an army of analysts to manually underwrite transactions, its founders say, in that it uses technology to algorithmically price the risk inherent in startup financing. 

“APIs offer real-time access to financials, machine learning enhances data value and cloud analytics unlock scalable, automated processes,” Muir said. “The result is more flexible, efficient and affordable capital that is offered programmatically to our customers.” 

More specifically, the company is running backend API integrations from companies like Plaid so that it can underwrite credit risk through real-time access to a startup’s financial data. It’s using machine learning “to drastically improve interpretation of the financial information it receives compared to manual analysis alone.” And finally, by leveraging Stripe’s banking-as-a-service technology, Arc’s customers can store and spend their funding from Arc “on a single platform designed for software companies,” the startup says. 

Image Credits: Arc

To be clear, Arc is not the first company to want to help SaaS companies grow without dilution. Buzzy fintech Pipe was founded in September 2019 with the mission of giving SaaS companies a way to get their revenue upfront by pairing them with investors on a marketplace that pays a discounted rate for the annual value of those contracts. (Pipe describes its buy-side participants as “a vetted group of financial institutions and banks.”) The goal of that platform is to offer companies with recurring revenue streams access to capital so they don’t dilute their ownership by accepting external capital or get forced to take out loans. 

One thing that Arc and Pipe have in common? Both allow founders to borrow against the future revenue of their company to grow without diluting their capital.

For its part, Arc emphasizes that its model is different from competitors even if missions might be similar. 

“We aren’t a marketplace where we sell customer contracts on a Bloomberg Terminal-like platform. Instead, we build a more comprehensive relationship with our customers to help them grow over the long term,” the company says. “This approach lends to a recurring and full-service relationship with customers instead of an episodic financial transaction. It also enables Arc to be more flexible on terms and more hands on with customers. Arc backs SaaS founders for the long term and is building a vertically integrated product suite to serve their finance needs, end-to-end.”

Its vertical focus on SaaS also sets it apart, Muir believes. 

“Whereas competitors have prioritized horizontal expansion, Arc has doubled down on SaaS,” he told TechCrunch. “Our vertical focus allows Arc to serve the unique working capital needs and predictable, recurring revenue attributes of this premium customer profile.”

This vertical industry focus also presents a SaaS startup with “a unique opportunity to generate network effects” with other SaaS companies through offerings that “benefit all members,” including financial benchmarking insights and community deals, Muir said.

NFX led Arc’s equity round with participation from Bain Capital, Clocktower Venture Partners, Will Smith’s Dreamers VC, Soma Capital, Alumni Ventures, Pioneer Fund and Atalaya Capital Management. Atalaya also provided the credit portion of the investment. A large number of high-profile angel investors also contributed to the round, including over 100 founders from Y Combinator-backed companies such as Vouch, Observe.AI, Eden Workplace, Teleport, RevenueCat, QuickNode, Dover, Middesk, Instabug and Rainforest QA, as well as “multiple founders of decacorn fintechs.” The ex-Stripe angel syndicate also put money in the round.

NFX founder James Currier, who led the fund’s investment in Arc, has joined the startup’s board of directors in conjunction with the financing.

“Arc is building the digitally native Silicon Valley Bank for SaaS startups,” Currier said. “The market for non-dilutive capital for SaaS startups is enormous and still very early.”

Y Combinator General Partner Jared Friedman likens Arc to more mature fintechs such as Stripe and Brex, saying that the company “has created a fintech product with mass appeal for startups.”

And that appeal was another draw for NFX.

“Arc’s vertical focus in SaaS prioritizes the SaaS founder rather than the buy-side investor and lets them build network effects into their software to benefit community members,” Currier said.

Over the last six months, Arc has grown the team from three co-founders to 15 employees, including senior software engineers coming from Google and LinkedIn, and finance and strategy folks hailing from Brex, Silicon Valley Bank and BCG. The company plans to double the team size in the first quarter of 2022, with a focus on engineering, data science, underwriting and sales.

Source: Tech

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Crypto.com expands venture arm to $500 million to back early-stage web3 startups

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Crypto.com, a popular cryptocurrency exchange, has extended its venture arm’s fund size to $500 million as it looks to more aggressively back early-stage startups to help the nascent ecosystem grow, following similar moves by rivals Binance, Coinbase and FTX.

The broadening of Crypto.com Capital comes less than a year after the Singapore-headquartered firm unveiled its maiden fund of $200 million. The fund, unlike those of many of its rivals, has no LPs (meaning, it’s fully financed by the firm’s balance sheet.)

The maiden fund, whose individual checks run up to $10 million in size, has been so far deployed to back about 20 startups including YGG SEA, multi-chain crypto portfolio tracker DeBank, cross-chain token infrastructure Efinity and Ethereum scaling solution Matter Labs.

Crypto.com will continue to focus on backing early-stage startups, said Jon Russell, who joined the firm as a general partner this month, in an interview with TechCrunch.

With the fund, Crypto.com is broadly focusing on gaming, decentralized-finance and startups innovating on cross-chain solutions. But he cautioned that the industry could change and expand, as it has in recent years, to areas “we don’t know about,” hence the firm is keeping an eye out on everything.

Tuesday’s announcement also further illustrates the growing involvement of cryptocurrency exchanges in being the rainmaker – and beneficiary – of the ecosystem which encompasses the industry in which they operate.

FTX, which has backed over 15 startups, last week announced a $2 billion crypto fund. Its founder, Sam Bankman-Fried, also owns Alameda Research, a venture firm that has backed close to 100 web3 startups.

Coinbase Ventures, the investment arm of the only crypto exchange that is publicly traded, and Binance, the world’s largest cryptocurrency exchange by trading volume, are also among the most prolific investors in the web3 space.

Venture investment in crypto / web3 in 2021 by category (Image credits: Galaxy Digital)

The funding activity in the space, even as most of the aforementioned names often co-invest in startups, is at an all-time high. VCs invested more than $33 billion in crypto/web3 startups in 2021, more than all prior years combined, Galaxy Digital, another prolific investor in the space, wrote in a recent report.

“Valuations in the crypto/blockchain space were 141% higher than the rest of the venture capital space in Q4, highlighting a founder-friendly environment and the intense competition among investors for deal allocations,” the report added.

Scores of venture capital firms have also raised new funds for their crypto investments. Just last year, Andreessen Horowitz added a $2.2 billion crypto fund, Paradigm unveiled a $2.5 billion fund, and Hivemind Capital Partners announced a $1.5 billion fund. Katie Haun, who co-led a16z’s $2.2 billion crypto fund, has left the firm to launch her own crypto-focused fund.

Russell – a former journalist who previously had stints at TechCrunch, The Next Web, and The Ken – said Crypto.com is backing startups to help the ecosystem grow.

“If you’re in the industry, it’s in your interest to help companies grow in the ecosystem and the ecosystem itself to grow,” he said. (Worth pointing out that Solana, Avalanche, Polkadot — as well as some of their major investors — are also aggressively backing startups that are building applications for the native blockchains.)

The startups Crypto.com backs are under no obligation to list their tokens on Crypto.com over any of its rivals or offer the exchange any other preferential treatment, he said. The exchange team similarly doesn’t have a soft spot for the investment arm’s portfolio firms, he added.

(What’s up with the career move? “I’ve been crypto curious for a number of years but I wasn’t gasping to dive in full-time. This project appeals to me because Crypto.com is ambitious but yet it does things the right way. There’s certainly a lot of hype and hot air in crypto and web3 right now, but it’s impossible to ignore the talent that’s pouring into the industry,” he said.)

Crypto.com, which started its life as a blog of professor Matt Blaze (who sold the domain to the crypto exchange), has aggressively expanded in the past year as it looks to court more users. The Singapore-headquartered firm last year agreed to pay more than $700 million for the naming rights of the Staples Center in Los Angeles. The downtown Los Angeles complex has been rebranded as Crypto.com Arena for the next 20 years.

The firm, which bills itself as the “fastest-growing” crypto exchange, said at the time of the announcement that the move is positioned to make cryptocurrencies mainstream. Crypto.com, which processes trade volumes of over $2.5 billion every day, also teamed up with Hollywood star Matt Damon last year to promote the brand and cryptocurrencies.

The Damon-starring ad equated buying crypto tokens and NFTs to one of the greatest and boldest accomplishments in the history of humankind. Hyperbole, to be sure, but having the most mainstream American actor as Crypto.com’s celebrity sponsor has certainly helped bring the trading platform, and all that it sells, into the mainstream. The ad went viral and also attracted criticism for being cringeworthy.

Source: Tech

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Focused on smaller cities, Vietnamese social commerce startup Mio raises $8M Series A

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Mio, the Vietnamese social commerce platform, has raised an $8 million Series A, less than a year after announcing its seed round. The funding was led by Jungle Ventures, Patamar Capital and Oliver Jung, with participation from returning investors GGV, Venturra, Hustle Fund, iSEED SEA and Gokul Rajaram.

TechCrunch first covered Mio at the time of its $1 million seed funding in May 2021. Founded in 2020, Mio is a group buying platform that focuses on selling fresh produce and groceries in Tier 2 and 3 cities in Vietnam. The company is able to offer next day delivery because it built a logistics infrastructure that enables it to send produce directly from farms to customers.

The Series A brings Mio’s total raised to $9.1 million, and will be used to expand its logistics and fulfillment system, enter new areas in Vietnam and add new product categories like fast-moving consumer goods (FMCG) and household appliances.

Mio co-founder and chief executive officer Trung Huynh said that since TechCrunch first covered Mio seven months ago, it has achieved 10x gross merchandise value growth, a 10x increase in agents, or resellers, and grew its team from 60 people to 240. It now fulfills more than 10,000 pieces of fresh produce per day, operating in Ho Chi Minh, Thu Duc, Binh Duong, Dong Nai and Long An, with plans to expand into northern Vietnam.

The numbers “strengthened our conviction in this model and its potential,” he said. “We need fresh capital to accelerate hiring, product development and supply chain to keep up with the pace of growth as we deepen our presence in existing geographies and expand to new provinces.”

Mio is able to offer next day deliveries because its vertically integrated mayor layers of the value chain, including procurement, warehousing, order sorting and bulk delivery. The startup owns the majority of its logistics infrastructure and uses its own fleet of couriers. Its ability to delivery fresh produce directly from farms to customers in less than 16 hours contributed to higher customer retention and growth, Huynh said, and it will continue to shorten delivery times. .

Mio resellers are called Mio Partners. Huynh said one of the driving factors behind Mio is targeting the right people for the program, or “housewives and stay-home-moms in lower income regions who love sharing value-for-money products to their social circle of friends.”

They aggregate orders, usually from friends and family, and orders are delivered to them in batches for distribution. The startup claims Mio Partners can make up to $400 a month, including a 10% commission on each order and additional commissions based on the monthly performance of other resellers they referred to the program.

“There is a strong possibility” that Mio will expand beyond Vietnam, Huynh said, “but will only be considered at a more appropriate time after we successfully built our playbook for Vietnam.”

Source: Tech

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South Korean HR automation platform flex raises $32M Series B at a $287M valuation

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South Korea-based human resources management platform flex announced today it has closed a $32 million Series B round at a valuation of $298 million. The latest funding, which brings its total raised to $42 million, was led by Greenoaks, with participation from DST Global Partners.  

The startup’s mission is to enable corporations to automate and streamline manual human resources work processes and focus more on people. Its automation tools optimize the employee experience to ensure seamless data flow across groups for use in payroll, e-signature support, on/offboarding and people analytics. It also plans to launch performance review and talents relation management tools in the first quarter of 2022. 

“At flex we define HR as Human Relations, not Human Resources. We believe HR teams deserve world-class software to manage and service their employees, but today it’s clear that many organizations still use spreadsheets or legacy products to make ends meet, said Haenam Chang, CEO of flex.

The two-year-old startup will use the proceeds to scale operations to meet demand, advance its HR automation and SaaS products and increase its headcount.

The Series B funding comes on the back of growth in revenue of almost ten times, compared to last year, driven by a number of product launches and new customers. The startup has primarily been serving SMBs in the IT sector. However, flex plans to expand the addressable market by targeting new industries in the SMB space this year. It did not disclose any user or customer numbers when asked. 

Currently, flex is focused on growing in South Korea by offering a SaaS solution that modernizes the HR functions and processes, which have been slow to adapt to technical progress over the past 20 years. The company said its deep understanding of cultural nuances in people management and the HR regulations in the country help flex to be well-positioned to offer a set of products tailored to South Korean businesses.  

“While some companies have adopted solutions to track and improve how they manage their employees, most still rely on gut instinct or insufficient data to make ad-hoc decisions on employees. At flex, we empower customers with a reliable source of employee data and a rich set of tools to manage their people, maximizing individual and organizational performance. Our goal isn’t just to provide a great HR software solution – it’s to empower companies to better track and manage their most important assets, their people,” Chang said. 

“Korea is one of the world’s largest and most dynamic economies but has historically lacked a native solution for companies to manage and pay their employees – leaving businesses frustrated and left to develop their own homegrown solutions,” said Josh Cho, principal of Greenoaks. “Now, flex is rapidly building the country’s first next-generation human resources information system and payroll platform. We are excited about their vision for an end-to-end product that will let companies handle all their HR functions in a single place, from performance management to recruiting to payroll and more.” 

Source: Tech

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