Since being chosen as “Globes” third most promising Israeli startup in 2020, invoice payment platform Melio has continued to grow swiftly. Back in 2020, Melio had raised $144 million and today this figure has risen above $500 million.
Two years ago Melio had 150 employees and today the company has 600 employees, and its valuation has jumped from $700 million at the end of 2020 to $4 billion, when completing its most recent financing round in the summer of 2021. The volume of payments handled by Melio has grown over the past two years from tens of millions of dollars per month to $2.5 billion per month today.
Despite this impressive growth, Melio belongs to the list of Israeli unicorns that is laying off staff. In August the company fired 60 employees, 10% of its workforce. Most of those laid off were in the US and involved in sales to small businesses. Interviewed by “Globes” ahead of the Most Promising Startups of 2022 event, Melio CEO Matan Bar talked about the layoffs.
“Our product has improved in the last two years, and onboarding to the system has also become simpler, so we can bring in new customers with less human contact,” says Bar. “As a result, we reduced direct recruitment of customers, and this meant laying off dozens of people. But since then we have surpassed the number of employees we had before the layoffs, and we continue to hire in other areas of engineering and product. So the layoffs were not due to a need to cut costs.”
Although not due to cost cutting, Bar concedes that the layoffs were related to market conditions, which require more efficiency from startups, and not just growth at any price. “To say it’s not related to the market would be unrealistic,” Bar admits. “If the market had continued to behave as it did in 2021, we might have gone back on the decision about layoffs, but I believe we would have reached it anyway.”
Another Israeli unicorn, Tipalti, which was founded in 2010, helps organizations with hundreds of employees to pay suppliers. Melio, which was founded in 2018, serves this function for businesses with individual employees, such as law firms. Melio does more than transfer money. It synchronizes payments in the business’s systems and makes it possible to postpone and spread payments, with suppliers receiving money on time.
Other players in Melio’s market include Bill.com, a publicly-traded company with annual revenue of more than $600 million in 2022 and a market cap of $12 billion. Bar declines to disclose Melio’s revenue. When Bar, CTO Ilan Attias and Ziv Paz, who has since left the company, founded Melio, they tried to attack the vulnerabilities of their rival. “At Bill.com the emphasis is on creating automation that saves time in transferring payments,” explains Bar. “The main value that Melio provides is assistance to businesses in protecting cash flow.”
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The layoffs were implemented one month after Melio signed an agreement with US bank Capital One. This is Melio’s third partnership after agreements with Intuit, which develops accounting systems, and with a system for planning resources in the construction industry. However, the agreement with Capital One is the most significant of all because the bank has installed Melio’s solution on its website and gives its customers the option of paying suppliers from there.
“This has been a major milestone, and the launch has been successful,” says Bar. “We already transfer hundreds of millions of dollars there. Capital One owns the Spark card, which is one of the two leading business cards in the US, along with American Express. As part of the collaboration, customers with a Spark card pay only 30% of the amount to the supplier on the first day, and the rest can be postponed.”
Does the agreement with Capital One have anything to do with layoffs, and will Melio focus on assimilating its capabilities with partners and less on developing the channel in which it is the leader?
Bar does not confirm this. What is certain is that even when working with partners, Melio is trying to attack a weakness of Bill.com, which is less able to integrate itself into the websites of others.
“We are not putting less focus on the direct channel and continue to invest money in this channel, but we are also putting a development focus on building a platform that will work with partners,” says Bar. “By working with partners, we have a lower cost to bring in a client, but the revenue from it is also lower. We also do not own the customer, while in the direct channel, the customer is ours and it is easier for us to sell them new products in the future.”
Small businesses in the US
Melio belongs to a large group of successful Israeli startups that target small businesses in the US. This group includes insurtech company Next Insurance, credit-company Fundbox and Honeybook, which develops software for business and financial management.
Bar says, “What makes me optimistic about the recession is the decentralization of the types of businesses we work with. If I were only working with businesses in the field of gaming or online commerce, I would speak differently, because they are more affected by the recession. To a certain extent, inflation has actually increased the volume of payments through us, and created more challenges in terms of cash flow for small businesses.”
Bar also refers to the question of whether the fall in Bill.com’s share price affects Melio’s valuation, which was estimated at $4 billion last year: “I have not spoken to investors and we are not discussing raising another round of financing at the moment because the market is not good and the timing is not good. Investors are confused and it is difficult for them to estimate valuations. In any case, I think it doesn’t matter whether Melio’s value will be lower now, because in the future it will be worth much more.”
According to Bar, entrepreneurs were not wrong to try and maximize the value of startups during the peak period last year. “In the end, raising money at a high value makes it less possible to dilute the employees, entrepreneurs and investors. What’s important is that next time you come to raise, you’ll be able to show that you have built what is needed to justify the value. It is important to understand that the aim is to create profit for the business and achieve an efficient business. For us, the next milestone will be to reach profitability.”
Published by Globes, Israel business news – en.globes.co.il – on December 12, 2022.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.
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