There are fintech companies out there targeting different segments of the population as well as companies in different stages of development.
A new company has emerged recently targeting a popular startup niche, specifically looking to 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, Ark describes itself as “a community of premium software companies” that help SaaS startups borrow, save and spend. Offers a way to have an “all-on-one tech platform.” And it is doing this as part of a partnership with Stripe, one of the largest and most valuable private fintechs in the world.
Simply put, Ark 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 cost of reducing their ownership. If they use Ark, CEO and co-founder Don Muir, the same founders can avoid “the restrictive contracts, guarantees and insolvency risks associated with raising debt.”
Muir said, “Early-stage SaaS startups face the infamous cash-for-growth tradeoff – they need funding the most, yet are at their most vulnerable to raising capital, as they experiences the highest dilution for every dollar raised.” , “This is exacerbated by the time mismatch between monthly cash receipts from subscription software revenue and the upfront capital outlay to acquire new customers.”
muir, Nick Lombardo (Chairman) and raven xiang (CTO) Founded Ark in January of 2021 and incorporated the company in April. The trio set up Ark from Muir’s living room in Menlo Park during his final year at the Stanford Graduate School of Business, when the campus went 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 in capital to finance mature, late-stage companies. It was during that time, Muir says, that the pair first experienced the drawbacks 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 the data room and building stable models in Excel to close a financing transaction, which ultimately takes into account the opportunity cost of management time for the company. costs millions of dollars.” Muir said.
After meeting at Stanford, the trio came up with the concept behind Arch and then teamed up with Y Combinator to meet with hundreds of software founders in the San Francisco Bay Area. Arch was an early member of YC’s Winter 2022 batch, which began earlier this week.
“We quickly realized they shared a common pain point – startup funding is expensive and distracting. Even in a zero-interest rate environment, underwriting is extraordinarily expensive for startup founders. At the same time, outdated underwriting policies And offline and bureaucratic banks with limited bandwidth are structurally unable to service phase I opportunities,” explained Muir. “Even premium recurring revenue software startups are neglected by traditional lenders. We founded Ark to give founders an alternative to the status quo. We’re on a mission to help startups grow – with and without underperforming technology.”
Since the company launched its introductory product — Ark Advance — last summer, more than 100 startups have signed up for the Ark platform. To date, most of its clients are VC-backed B2B SaaS companies, which are trying to accelerate their growth spend while lengthening their runway before raising additional equity. So far, VCs have been a strong customer acquisition channel for Ark, noted Lombardo, who pointed to the fact that Ark’s biggest partnership today is with Y Combinator, which promotes Ark across its portfolio of thousands of software companies. has been Ark is also partnering with traditional capital providers, including VCs, banks and venture loan lenders. In fact, a large proportion of its clients are VC-backed and seek capital from Ark “as an efficient way to meet funding needs between episodic VC rounds,” Lombardo told Nerdshala. ,
For example, he said, “A Series A SaaS company is raising $1 million each quarter from Arc before its Series B launch later this year to accelerate spending — drive headcount and revenue growth and This could result in a higher Series B valuation. In this example, the Series A investor benefits financially from the lower dilution and higher valuations that unlock Arc’s capital.
Also among Ark’s clients are bootstrapped companies outside of Silicon Valley, Lombardo said.
In the coming months, the startup plans Release “a complete suite” of financial tools designed to empower SaaS founders to grow their businesses efficiently and retain control.
how is it different and similar
Ark differs from traditional financial institutions that can deploy an army of analysts to manually underwrite transactions, its founders say, in that it uses technology to algorithmically value the risk inherent in startup financing. does.
“APIs provide real-time access to financials, machine learning enhances data value and cloud analytics unlocks 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 operates Backend API integration from companies like Plaid so that it can reduce credit risk through real-time access to a startup’s financial data. It is using machine learning “to significantly improve the interpretation of the financial information it receives compared to manual analysis alone.” And finally, by leveraging Stripe’s banking-as-a-service technology, Ark’s customers can store and spend their funding from Ark “on a single platform designed for software companies,” the startup says.
To be clear, Arch isn’t the first company that wants to help SaaS companies without being underpowered. buzzy fintech Pipe was founded in September 2019, with the mission of giving SaaS companies a way to drive their revenue by connecting 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 verified group of financial institutions and banks.”) The goal of that platform is to give companies with recurring revenue streams access to capital by accepting outside capital. Don’t dilute your ownership or be forced to take on debt.
One thing that arch and pipe have in common? Both allow founders to grow against their company’s future revenue without reducing their capital.
For its part, Ark emphasizes that its model differs from that of competitors, even though the missions are similar.
“We are not a marketplace where we sell customer contracts on a platform like Bloomberg Terminal. Instead, we build a more comprehensive relationship with our customers to help them grow over the long term,” the company says. The approach lends itself to a recurring and full-service relationship with customers, rather than a contextual financial transaction. This enables Arch to be more flexible on terms and more dealing with customers. Arch has long supported SaaS founders and is building a vertically integrated product suite to meet their financial needs.
Its vertical focus on SaaS also sets it apart, Muir believes.
“While competitors have prioritized horizontal expansion, Arch has doubled down on SaaS,” he told Nerdshala. “Our vertical focus allows Arc to serve the unique working capital needs and predictable, recurring revenue characteristics of this premium customer profile.”
This vertical industry focus also presents a SaaS startup with “a unique opportunity to generate a network impact” with other SaaS companies, including financial benchmarking insights and community deals that “benefit all members,” Muir said.
NFX led Ark’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. Atlay also provided the credit portion of the investment. A large number of high-profile angel investors also contributed to the round, with more than 100 founders from Y Combinator-backed companies such as Vouch, Observe.AI, Eden Workplace, Teleport, RevenueCat, Quicknode, Dover, Middesk, Instabug and RainforestQA. Are included. , as well as “several founders of Decacorn Fintech.” Ax Stripe Angel Syndicate also invested money in the affair.
NFX founder James Currier, who led the fund’s investment in Ark, has joined the startup’s board of directors in conjunction with the financing.
“Arc is building a digitally native Silicon Valley bank for SaaS startups,” Currier said. “The market for non-diluted capital for SaaS startups is huge and still too early.”
Y Combinator general partner Jared Friedman compared Ark to more mature fintechs like Stripe and Brex, saying that the company has “built a fintech product with mass appeal for startups.”
And that appeal was another draw for NFX.
“Ark’s vertical focus in SaaS prioritizes the SaaS founder rather than the buy-side investor and lets them build network effects across their software to benefit community members,” Currier said.
Over the past six months, Ark has grown the team from three co-founders to 15 employees, including senior software engineers coming from Google and LinkedIn, and finance and strategy people 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.