PayPal and Amex just backed a startup streamlining how small businesses connect with banking and accounting tools like Quickbooks and Zettle

• Founded in 2017, UK-based Codat is expanding into the US for the first time.
• The startup also nabbed a strategic investment from PayPal and Amex.
• Codat provides the data pipes that link small businesses to various apps like accounting software and points-of-sale.
• Visit the Business section of Insider for more stories.

While the term fintech might elicit thoughts of well-known consumer brands like Robinhood or Coinbase, there’s no shortage of startups marketing themselves directly to businesses.

When Insider polled top fintech VCs about up-and-coming startups to watch in 2020, more than 63% of their nominations catered to businesses directly rather than consumers.

Codat was one of the fintechs named to the list, and the UK-based startup just added Amex Ventures and PayPal Ventures to its cap table in a strategic investment round announced Tuesday. This corporate VC round follows Codat’s latest $10 million Series A fundraise led by Index Ventures in July of last year. Codat did not disclose how much Amex Ventures and PayPal Ventures invested or its current valuation.

While most of the fintechs identified as up-and-comers offer digital alternatives to businesses’ manual processes, Codat serves as the data pipes that weave all those services together. Much in the same way Plaid serves as the connective tissue between consumer apps and users’ bank accounts, Codat links small businesses with the banks and fintechs they use, such as Quickbooks, Xero, and Zettle.

On the heels of the investment from PayPal and Amex, UK-based Codat is also making its push into the US market.

“For us, it was an opportunity to work with two companies that we’ve admired for a long time, sharing the same mission as Codat,” cofounder and CEO Peter Lord told Insider, in reference to the two new backers.

Codat already counts Zettle, PayPal’s point-of-sale payments system, as a client, as well as Experian and revenue-sharing startup Clearbanc, among others.

Codat has already hired a sales leader from Slack as it ramps up in the US, Lord said, adding that the funding will be used to build out teams in the US and expand its client base. Codat has doubled headcount and tripled revenue over the past 12 months, Lord said.

Embracing the cloud

As fintechs and banks have embraced the cloud, that’s led to a proliferation of new apps that small businesses can use for things like accounting, inventory management, and lines of credit. So many small businesses’ operations have become ‘unbundled,’ meaning they work with several providers to run their companies. 

“The rise of the cloud means that there’s a plethora of apps, but they’re often siloed,” Lord said.

What’s missing, Lord says, is the link between all those apps. With Codat connectivity, a business lender could have insight into a small business’ sales and cash flow data, enabling faster credit decisioning than a traditional manual loan application requires, for example.

“The challenge we were solving is that connectivity challenge, the integration program,” Lord said.

And Lord is expecting that demand for connectivity to continue rising this year. 

“I think that’s something that we’re really going to see a lot more of in 2021: A combination of SMBs, historically underserved, being in the spotlight and under pressure due to COVID, and then the acceleration of digitization combined with readiness in terms of adoption,” he said.

That readiness, meanwhile, must come both from small businesses and the fintechs and banks they work with.

Codat’s offering is based in the cloud. Previously, that served as an adoption hurdle due to older companies hesitancy to use cloud technology. But that’s changed as banks are increasingly embracing the cloud, a trend that’s only been accelerated during the pandemic. 

“Rewind to when Codat started four-and-a-half years ago, that was in some instances a challenge and a barrier. Now the situation has completely reversed and the banks want a solution that can be deployed in the cloud,” Lord said.

Source: Read Full Article