Embedded finance continues to evolve and reshape how businesses serve their customers and make cash flow. As much as $9.35 billion will pass through software platforms by 2025.1 Business software providers, including enterprise resource planning (ERP) and marketplaces and independent software vendors (ISVs) must look beyond payments to a broad embedded future.
But where to start?
Our Maasterclass series helps these businesses better understand the potential opportunity embedded finance offers. We talk to battle-hardened fintech leaders about their successes, how they overcame roadblocks, and best practices for selecting and integrating the right solutions.
During our inaugural session, Secrets to a $200M Sale, Maast CRO Ernie Moran spoke with Fintainium CEO Richard Jackman. They explored what venture capitalists (VCs) and private equity (PE) firms look for when evaluating software as a service (SaaS) companies and how embedded solutions can help raise their profiles.
A seasoned start up and fintech pioneer, Jackman co-founded and built Money Network, ultimately leading to a $200M sale. The secret behind this exit strategy? Jackman identified three characteristics.
Find a real-world problem to solve
Those wanting to form a company from the ground up must methodically investigate their intended market, thoroughly understand the competition, and perform comprehensive Voice of Customer (VoC) research. The business must solve a real-world problem.
For example, before Fintainium launched in January 2018, there was a void of solutions integrating payments into their SaaS offerings. Point solutions existed for accounts receivable (AR) and/or accounts payable (AP), but companies offering embedded payments – a seamless experience where the software provided an opportunity to collect – were thin on the ground. So, Fintainium set out to solve that problem, from scratch.
Owning a unique solution is a necessary element to business success, but it’s not enough.
Have a solid plan to make money
Businesses with a unique solution and a way to monetize it trailblaze a path to success. In the early 2000s when Jackman founded Money Network – the pre-fintech days – starting a software company involved growing revenue, expanding the customer base, and scaling. This has changed dramatically.
In today’s investing environment, VCs and PEs want a roadmap: a five-year plan with a moat surrounding it and a path to profitability and cash flow. They also want to see quick progress in the technology buildout. A good rule of thumb for SaaS startups is to have 80% of the technology built out within the first four years.
If a startup can’t show positive earnings before interest, taxes, depreciation and amortization (EBITDA), problems will follow. Jackman’s advice? Raise as much money as quickly and efficiently as possible and use those funds to get more revenue and EBITDA.
Capture money in motion
Once a business is formed, they need two things: a business checking account to pay their employees and vendors, and a way to collect money from their customers. Almost every SaaS helps customers move money through their platforms; and the ones who become unicorns often learn how to monetize the flow.
Jackman’s advice to any business or entrepreneur with a platform is to “stay in the money flow.” In doing so, customer engagement increases along with the value the organization gives and receives. Consider, for instance, how frictionless it is to order and pay for a product or service in one portal rather than being redirected to a third-party platform.
“It’s an across-the-board win if it can be done properly,” he said.
Make cash flow
At Maast, we wake up every morning thinking about how to help SaaS companies make business easier for their customers. We’ve opened the door for software providers to offer business checking accounts by adding a single link to their platform. We’ve bulldozed the operational and compliance roadblocks to integrated banking and payment acceptance. The cherry on top, it’s integrated into your software, under your brand. When we go to sleep at night, we dream of how we can unlock additional cash flows for our partners.
Visit joinus.maast.com/maasterclass to explore other Maasterclasses and register for upcoming events.
1 Source: Boston Consulting Group, "SMB Merchant Acquiring: Software is eating the world (and revenue pools), May 2022, pg 6.