“There Still Seems to Be a Lot to Do”: Investors Talk Valuation and the Future of the PF Market

Disruption of existing markets, solid business fundamentals, and significant growth potential – these are among the factors inherent to the PF model that are turning investors’ heads.

As PaymentFacilitator has reported, interest in payment facilitation among the venture capital community is high. Investors recognize the potential inherent in this emerging space, where vertically oriented companies are leveraging payments to drive growth.

A panel of investors at this fall’s PF WORLD 2018 discussed what has attracted them to this intersection between software and payments and what they think payment facilitators – or SaaS companies thinking about integrating payments – should know.

Moderator Todd Ablowitz, CEO and founder of Infinicept, asked the panelists what they are looking for in an investment and how companies that are combining software with payments are delivering.

Vlad Besprozvany, vice president at Insight Venture Partners, said that his firm sees the potential for returns in markets that are “nascent” when it comes to incorporating electronic payments, where PFs are finally moving them away from checks and cash with a simplified and truly integrated payments experience.

According to Arjun Mehta, vice president at Bregal Sagemount, companies that are already leading their specific verticals with software solutions and therefore approach their customers from a position as a “trusted vendor” have a unique advantage.

“I think from that position, you actually have a great vantage point to sell payments,” Mehta said. “I think it’s much more than just a price-based sale, I think it’s much more about the platform and what you bring to the table.”

He went on to talk about how the vertical focus helps companies succeed.

“I just think you have a natural structural edge when you’re vertical focused,” he said. “You can underwrite better. For example, if you know your customer inside out, you know that to an outsider, this might seem like a company that’s had some struggles – but it’s going through the J curve. You would be able to differentiate that, versus someone who’s not vertical focused.”

The panelists also talked about how SaaS companies should think about the relationship between payments and their valuations.

Zach Sadek, partner at Parthenon Capital Partners, emphasized the need for solid business decisions behind adding payments to a product or service mix. He said that the decision to integrate payments should increase a software company’s total addressable market and profitability.

“Those are the reasons why going into payments makes sense,” he said. “It’s not because it’s magic; it’s not because the valuations change. It’s because it makes it a better business from a fundamentals standpoint.”

“The advice I always have for people, and it sounds trite, is, ‘good business decisions lead to good valuation decisions, and vice versa,’” Sadek said.

Moderator Todd Ablowitz also asked the panelists how far they felt the industry is into the movement where software and payments are joining together. All agreed that, while much has already happened, the trend is still in early stages.

“In general, it just feels like there’s still so much innovation,” Besprozvany said. “We’re seeing so many companies come out with really creative ways of solving these problems and every time you kind of think back and think of some of the pains still associated with the payments side of how to do business, there still seems to be a lot to do.”

Watch for additional insights from around the payment facilitator ecosystem as we continue to share video from PF WORLD 2018 in future weeks.