How does a startup raise $30 million and become a market leader in just a few years since opening its doors? This is the million-dollar question, literally, that keeps founders up at night, and determines whether a new venture will have the fuel to make it to the next stage, or crumble. After building my first company without money from investors, for my latest venture, Likeable Local, raising capital has been the toughest part of my job as CEO, and we've only raised $2.7 million to date.
Tipalti, a B2B payments platform (think Square for the enterprise), recently raised $14 million, bringing the company's total funding to just under $30 million. Six years ago, Chen Amit and Oren Zeev founded the startup to help businesses solve the pain point of making global payments, en masse, to vendors, suppliers and employees. In 2011, the company only had three employees. Today, Tipalti has nearly 100 employees, is considered a leader in its space, and offers one of, if not the only solution that automates the entire AP lifecycle.
How did the fledgling payments startup raise $30 million and become a player in its industry? I had a chance to interview co-founder and CEO Chen Amit, who shed light on how his company, and others, can go from scrappiness to success.
1. Differentiate your product to a point of true uniqueness
Make sure your product provides a solution to a very real and significant pain point, says Amit. Don't just create a me-too product, rather make sure that it has features and functions that specialize beyond the competitors in the space.
With many other payment platforms on the market, the way that Amit and his team differentiated Tipalti was to "automate the entire accounts payable and supplier payments operation with one holistic cloud platform, handling much more than just payments." Product differentiation, he says, will be a huge plus to investors.
2. Bootstrap until your product is proven
Sign on plenty of customers before raising capital. This will allow the product to be tweaked, iterated and proven technologically -- and most importantly -- it will generate revenue. Having a respectable list of customers "will have cleared most of the risk concerns investors may have," adds Amit. It shows there is demand for the product and the company is making money.
Proving your product will significantly alter your bargaining power and negotiating position; doing so will make it easy for investors to invest, which will allow you to be picky with who you choose as investors (a crucial step to the success of your business).
3. Vet investors and board members like you would a spouse
"If you choose the wrong investor or board member, it's extremely hard to undo. You cannot un-invest your investors, for the most part." Therefore, do tremendous due diligence on each investor and board member.
"Do it very seriously and thoroughly like you would for selecting a partner in business or in life." Amit and his co-founder, original investor Oren Zeev, are strong believers in developing a network of investors and board members who are true "champions" for the company.
Most of Tipalti's investors were introduced through Zeev's personal network, which not only allowed them to find investors they know and trust, but also helped in offering credibility of the investment opportunity.
The lead investor of their latest round, Dovi Frances from SGVC, specializes in funding disruptive fintech companies - which is exactly the space they are in - and is someone that both co-founders have known personally for many years. "He has been a great champion for the company," even before becoming an investor.
4. Constantly add value to customers and seek growth
The way to keep growing at scale is to keep raising capital, but the way to keep raising capital is to show customer and revenue growth. The best way to grow your revenue and customer roster is by continuously adding value. "We're investing heavily in adding more functionality that will provide more value to our customers," says Amit.
There are risks, though, in expanding your feature set. Amit says it is crucial to be very mindful when going deeper and going wider in terms of product functionality. "Where do we say 'this is not part of our solution' and where do we charge 'all-in' to solve a new industry problem we identified?" The answer: listen to customers closely and pay attention to how they are using the product.
As for Tipalti, when asked how the company will keep growing, Amit says his business, as all companies should, will keep differentiating itself, constantly add value to customers, and pick investors very carefully.