Citi is backing Pipe competitor Crowdz, who has raised $10 million for blockchain-based invoicing finance marketplace.

Recurring returns as an asset class is a relatively new concept and has become more popular with startups such as Pipe, which have built a market that connects investors with companies with predictable and recurring returns.

Pipe has raised more than $300 million so far and was valued at $2 billion last year, but other players have quietly set up the company in the same space with a laser focus on small and medium-sized enterprises (SMEs) operating in global supply chains. . that player, crowdRecently, the participation of Bold Capital Partners, TFX Ventures and Augment Ventures has raised $10 million in a financing jointly led by Citi and Dutch growth equity firm Global Cleantech Capital.

In a nutshell, Crowdz started by providing small businesses with a way to sell invoices to funders to raise money. Now, the company aims to help recurring profitable companies access the upfront capital they need without diluting their capital by taking up venture dollars or taking out loans. Specifically, the latest offerings are designed to serve subscription, membership, and software-as-a-service (SaaS) service companies. At that point Pipe came out of the door with the same SaaS focus, but has since expanded to work with non-SaaS companies as well.

Payson Johnston and Steven Lee started Crowdz in 2014 after serving as Senior Managers of B2B Supply Chain for Global Processes at Cisco. From that experience, the two started Crowdz and bootstrap the company for the first five years. 2019, Barclays Bank and Bold Capital Partners jointly led a $5.5 million Series A funding round for Crowdz. To date, the startup has raised a total of $25.5 million.

“Having sufficient funds to cover operating costs is a major challenge when running a business, especially in the early stages,” says Johnston. “Revenues from the sale of products and services may cover some costs, but a one-time payment of working capital may not be sufficient to cover the necessary costs, such as opening a new store, marketing a new product or purchasing expensive equipment. . We focus on how we can help small businesses improve their cash flow to thrive. That is a really important driving force for us.”

With this latest investment, Crowdz and Citi plan to work together on the goal of giving small businesses “quick and efficient access to the working capital they need to keep their business running”. Crowdz claims to be the only non-bank fintech to offer. both Invoice-based and recurring revenue financing.

Over time, Crowdz has financed over 20,000 invoices, raising $55 million in accounts receivable. In other words, it provided small businesses with more than $55 million in working capital. The company has loaded approximately $2.2 billion in bonds on its platform and aims to help more than 25,000 small businesses by raising more than $1 billion in bonds by next year. recently signed. important transaction Worked with Facebook to finance up to $100 million in invoices for minority and multi-owned businesses across the United States. Crowdz earns money by taking base points from the dollars it finances. We’re starting to look at the subscription model as a new recurring revenue offering.

So Campbell, California-based Crowdz runs the market like Pipe does, but says the startup is more than just connecting small businesses and investors. It also integrates with small businesses’ accounting, payment processing and banking systems, allowing small businesses to “get pay early at competitive rates.” By providing invoicing and recurring revenue financing, Crowdz says he wants to help small businesses have more opportunities to succeed by opening up access to capital.

“We serve small businesses by being able to buy bonds, invoices and SaaS contracts through the marketplace,” said Johnston, the company’s CEO. Now our most important thing is to sign these channel agreements, which we will expand very quickly.”

The company’s strategy is currently focused on white label offerings, which generate about 80% of sales, Johnston told TechCrunch.

“We’re not trying to reach SMEs directly, we’re actually going through businesses and financial institutions,” Johnston said.

But perhaps the most unique thing about what Crowdz does is that it has been built on Ethereum since 2017.

Johnston explains: start-ups are They have filed 10 patents so far, and Johnston and Lee say data science is at the heart of everything they do.

For example, Crowdz developed a “proprietary” risk score for startups that provides banks, financial institutions and DeFi lenders “to help fill the small business finance gap, while providing attractive risk-adjusted, diversified returns”. I did.

“The way banks and other financial institutions assess a company’s risk right now is by looking at its financial statements, cash flow, balance, cash flow statement, and profit and loss. They can use nine months of historical data to predict future behavior,” Lee told TechCrunch. “These microtransactions, called invoices, allow us to consolidate that data and predict the financial position of a company in near real time.”

The company’s latest funding is part of an ongoing $200 million investment in Citi. He entered the field of social impact technology and was led by the Spread Product Investment Technology (SPRINT) team, the strategic investment arm of the bank’s Global Spread Products division. Crowdz recently partnered with Meta to power the social media giant’s SME finance program.

Katya Chupryna, Head of SPRINT, told TechCrunch via email that her team Initially, I started looking for companies focused on the SaaS accounts receivable space.

She added that the thesis was that the uniformity and reliability of corporate SaaS fees would make such cash flows an attractive target for asset-backed financing and ultimately securitization (basically creating a new asset class).

“We quickly discovered that most incumbents focused solely on financing SaaS receivables lack reliable data and market traction to sufficiently validate their business models,” said Chupryna. “However, Crowdz had an established receivables marketplace product and a stress-tested risk assessment methodology. These two key factors gave us confidence in our ability to scale into iterative revenue finance.”

She said Citi saw an opportunity to build “increasing” relationships between startups and companies in the existing portfolio of financial institutions.

Chupryna believes that Crowdz products are multifaceted, flexible and adaptable to a wide range of business areas.

“When analyzing potential investment opportunities, we rely on companies that can effectively expand and diversify their strategic commercialization initiatives together with them by addressing multiple challenges and creating opportunities for multiple Citi businesses,” she said. “In other words, SPRINT is looking for long-term partners who can commercialize a variety of businesses.”

Co-founder Lee said he grew up in “a pretty rough part of LA” and has “always been seen as underdog.” He enlisted in the US Army and is a combat veteran. His experience made him disabled.

He told TechCrunch: “I know how hard it was as a small business owner because my father ran the laundry himself. I continue to live the story of this underdog, and the fact that our company is really focused on small businesses is very persuasive and inspiring to me.”

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