Count business-to-business firm Tipalti among the payments companies hoping the market souring brings down sky-high startup valuations.

Tipalti, a global automated payables platform based in San Mateo, California, wanted to pursue more acquisitions last year after acquiring procurement provider Approve.com in April 2021, but “we weren’t able to stomach the valuations for acquisitions,” said Tipalti CEO Chen Amit in an interview last week.

This year, macro-economic headwinds such as rising inflation have stressed legacy payments companies and younger fintechs alike, forcing PayPal, Klarna and Bolt to restructure or cut employees. 

Given the conditions, Amit expects “a shakeout” in the tech startup world. Lots of money has been invested in fledgling companies the last couple of years, and he believes those caught in the early stages of building a company “will either get sold, or have a hard time surviving.”

Tipalti, which Amit cofounded with venture capitalist Oren Zeev in 2010, aims to automate financial operations for mid-market businesses with 50 to 1,000 employees. The business facilitates cross-border companies’ payments to their suppliers and partners around the globe. Last year, the company notched $36 billion in payments volume.

Amit said he expects to see more attractive acquisition opportunities as funding slowdowns hit more startups and investment firms, with a resetting in valuations coming toward the end of this year. 

As Tipalti has been on the hunt, it’s been approached by companies interested in being acquired, but the prices being asked were too high, Amit said.

When Tipalti considered acquiring card-issuing companies last year, their price tags were “three and four and five times what we were willing to pay,” he said. Tipalti opted to build the card product itself instead, and plans to launch that later this year. 

As for future acquisitions, Tipalti is mainly looking for firms that would bring product and technology enhancements. The company handles procurement, invoice capture, bill matching, payments, supply chain finance and reconciliation, among other tasks, for its customers, Amit said.

Given the funding uncertainty that’s set in for fintech firms, Tipalti’s $270 million funding round in December 2021 turned out to be advantageous. At that time, Tipalti was valued at $8.3 billion. “We may have marked the end of the upward trend,” Amit said. 

The company, which has about 1,000 employees, has banked that money and won’t need to secure more equity in the next couple of years, he said.

Tipalti feels “zero” pressure from investors to go public, and top investors are “happy to hold on as long as the growth” is there, Amit said. Since April 2021, the company’s customer count has increased about 43% and its payments volume has grown about 80%. Tipalti may pursue an initial public offering in 2024, he said.

There are about 700,000 companies in the middle-market category, and Tipalti counts about 2,000 of them as customers currently, Amit said. Growing beyond the U.S. and Canada, the company entered the European market in September 2021. Tipalti, which makes money through software subscription fees and payment processing fees, wouldn’t share its annual revenue.

When it comes to tools that serve those mid-market companies’ financial needs, “the crux is breadth, depth and simplicity,” Amit said. The share of middle-market businesses estimated to have digitized payments is about 5% this year, up from about 4% last year, he said.

“We’re making inroads, but it’s still the very early stages of this industry,” Amit said. The COVID-19 pandemic helped a lot with that trend. Digitization of the office of the (chief financial officer) just accelerated.”

Amit said Tipalti will be investing in its product and technology “as much as we can” in the next 18 months to bolster its place in the B2B market. The company has tripled its investment in engineering in Approve since acquiring it, but Amit wouldn’t provide a dollar figure.

In B2B, the focus is “automate, automate, automate,” and that’s what Tipalti and competitors like AvidXchange and Bill.com are banking on, said Cliff Gray, senior associate with The Strawhecker Group.

The small and medium-sized business market tends to offer higher margins for payments companies handling non-card transactions because those businesses pay per transaction fees. That’s “at the core of the revenue strategy” for companies targeting SMBs, Gray noted. 

“There’s a huge market still left out there, for these guys and whoever else wants to do it,” Gray said.

By Caitlin Mullen on June 16, 2022
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