Citi backs Crowdz, a Pipe competitor that just raised $10M for its blockchain-powered invoice financing marketplace
Recurring revenue as an asset class is a relatively new concept, and made more popular by startups such as Pipe, which has built a marketplace connecting investors to companies with businesses that have predictable, recurring revenues.
While Pipe has gone on to so far raise over $300 million and was valued at $2 billion last year, another player has quietly been building a company in the same space with a laser focus on small and medium enterprises (SMEs) operating in global supply chains. That player, Crowdz, recently secured $10 million in financing co-led by Citi and Dutch growth equity firm Global Cleantech Capital, with participation from Bold Capital Partners, TFX Ventures and Augment Ventures.
Put simply, Crowdz started out by giving small and medium-sized businesses a way to sell invoices for financing to funders. Now, the company aims to help companies with recurring revenue access upfront capital they need without having to dilute their equity by taking venture dollars or take on loans. Specifically, its latest offering is designed to serve subscription, membership and SaaS (software-as-a-service) service companies. For its part, Pipe came out of the gate with the same SaaS focus but has since expanded to working with non-SaaS companies as well.
Payson Johnston and Steven Lee started Crowdz in 2014 after working as B2B supply-chain senior managers for global processes at Cisco. That experience led the pair to start Crowdz, and they bootstrapped the company for its first five years. In 2019, Barclays Bank and Bold Capital Partners co-led a $5.5 million Series A funding round for Crowdz. To date, the startup has raised a total of $25.5 million.
“A major challenge when running a business is getting enough funds to cover operating costs, especially in the early stages,” Johnston said. “While revenue you generate from the sale of products and services can pay for some expenses, it may not be enough to cover costs that need lump-sum working capital -- for example, opening a new store, marketing new products or buying expensive equipment. We are focused on how we can help the SMEs improve their cash flow so they can thrive. That's really a main driver for us.”
With this latest investment, Crowdz and Citi plan to collaborate based on that goal of giving SMEs “rapid and efficient access to the working capital needed to keep their businesses running." Crowdz claims to be the only non-bank fintech that is offering both invoice-based and recurring revenue financing.
Over time, Crowdz has financed $55 million in receivables by funding more than 20,000 invoices. In other words, it has provided more than $55 million in working capital for SMEs. The company has loaded about $2.2 billion of receivables on its platform, and its goal is to help more than 25,000 SMEs by financing over $1 billion in receivables by next year. It recently partnered with Facebook/Meta and Supplier Success in a signficant deal to finance up to $100 million worth of invoices for minority and diverse-owned businesses throughout the United States. Crowdz makes money by taking a basis point from dollars funded. With its new recurring revenue offering, it is starting to look at subscription models.
So while Campbell, California-based Crowdz operates a marketplace -- as Pipe does -- the startup says it goes beyond connecting SMEs with investors. It also integrates with SMEs’ accounting, payment processing and banking systems with the goal of allowing SMEs “to get paid early at competitive rates.” By offering invoice and recurring revenue financing, Crowdz says it wants to help SMEs have a greater shot at success by opening up access to capital.
“We both service the SMEs by being able to buy receivables, invoices and SaaS contracts through our marketplace, which brings other funders together,” said Johnston, who serves as the company’s CEO. “Or, we can white label it out with organizations like Citi, Meta and the city of Detroit. Our big thing now is signing these channel agreements that we are going to expand very rapidly."
The company’s strategy is currently focused on that white label offering, which today generates about 80% of its revenue, Johnston told TechCrunch.
“We’re not trying to go directly to SMEs -- we're really going through enterprises and financial institutions,” Johnston said.
But perhaps what is most unique about what Crowdz is doing is that it was built on Ethereum since 2017.
“We are a tech play underneath,” Johnston explains. The startup has filed 10 patents so far and Johnston and Lee say data science is at the heart of everything the company does.
For example, Crowdz has developed what the startup describes as “proprietary” risk scoring that gives banks, financial institutions and DeFi lenders “access to attractive risk-adjusted, diversified returns, while helping to plug the SME finance gap.”
“Right now the way banks and other financial institutions risk rate companies is they look at their financial statements, their cash flow, balance, cash flow statements, and profit and loss. They may use nine months of historical data to try to predict future behavior,” Lee told TechCrunch. “Through the use of these micro-transactions called invoices, we’re able to incorporate that data and be able to predict the financial health of a company in almost real time.”
The company’s latest financing is part of an ongoing $200 million investment from Citi into technology creating social impact, and was led by its Spread Products Investment Technologies (SPRINT) team, the strategic investing arm of the bank’s Global Spread Products division. It follows Crowdz' recent partnership with Meta to power the social media giant’s SME financing program.
Katya Chupryna, Citi, head of SPRINT, told TechCrunch via email that her team set out initially looking for a company focusing on SaaS receivables space.
Its thesis, she added, was that the uniformity and reliability of enterprise SaaS fees would make such cash flows attractive targets for asset-backed financing and, eventually, securitization -- essentially creating a new asset class.
“We quickly found that most incumbents focusing solely on the financing of SaaS receivables lacked reliable data and market traction to sufficiently validate their business models,” Chupryna said. “Crowdz, however, had an established invoice receivables marketplace product and a stress-tested risk scoring methodology, two key elements that gave us confidence in their ability to expand to recurring revenue financing.”
She said Citi saw an opportunity to build “accretive” relationships between the startup and the financial institution’s existing portfolio companies, “many of whom could greatly benefit from reliable access to non-dilutive working capital.”
Chupryna believes Crowdz product offerings are both multifaceted and flexible and applicable to a wide range of disparate business areas.
“When we analyze potential investment opportunities, we lean towards companies that can solve multiple pain points and create opportunities for multiple Citi businesses, effectively widening and diversifying our strategic commercialization plan with the company,” she said. “In other words, SPRINT is looking for long-term partners with whom we can commercialize various undertakings.”
For his part, co-founder Lee said he grew up in a “pretty rough part of LA” and has “always been viewed as an underdog.” He joined the U.S. Army, and is a combat veteran -- an experience that left him disabled.
“Truly for me, Crowdz is an underdog story, because we want to help out the small and medium-sized businesses and put them on a level playing field with the bigger guys,” he told TechCrunch. “My dad himself owned a laundromat so I know how much he struggled as a small business owner. I continue to live this underdog story and the fact that our company is really focused on small and medium businesses is extremely compelling and inspirational for me.”