Why Centana Invested in Plooto
Software is eating the world, but cash remains king.
While software continues to help solve complex business problems by automating tasks and delivering business insights – no resource is more valuable to a business, especially a small to medium-sized business (SMB), than cash.
Despite progress made by financial institutions to provide Uber-like experiences for consumers, SMBs are largely overlooked by traditional financial services firms. Some of this is due to the numerous complications of servicing SMBs, and frankly, they are less profitable for traditional financial institutions. SMBs are not niche; there are 32.5 million in the United States which comprise 99.9% of all businesses1 and 1.2 million in Canada2 alone. Goldman Sachs Research estimated that the roughly 6 million U.S. SMBs with annual revenue of less than $1 million up to $100 million process over $7.2 trillion of annual payments volume each year, and Centana estimates the 1.2 million Canadian SMBs drive roughly CAD$715 billion.
Knowing how that market is underserved inspired Centana’s ongoing ‘SMB Fintech’ investment theme. Over 50% of the U.S. SMBs go out of business within the first five years, and nearly 33% within the first two years1. One key conclusion from our thematic work is that effectively managing cash flow is one of the most significant challenges they face.
It’s called working capital, but is it actually working?
SMBs struggle to manage cash flow for various reasons, including timing differences and uncertainty around money going out of (Accounts Payable, AP) and coming into (Accounts Receivable, AR) a business. A typical North American SMB has 50-200+ bills to pay each month, amassing a monthly payables balance of $25K-$500K+ with comparable accounts receivable balances. A SMB which fails to manage its AP and AR effectively and efficiently may find itself incurring material expenses or, worse, find itself out of business. Simple things like payroll and paying vendors on time or early can save or earn a business money, and utilizing different payment options can allow businesses to reduce its payment costs or leverage available credit.
Time is money.
Based on proprietary research and numerous sources3 , Centana estimates 30-40% of B2B transactions in both the U.S. and Canada are still made through cash and checks despite more advanced methods being available. This means that the AP processes are often highly manual — downloading and printing invoices, reviewing each check, attaching it to supporting invoices. The manual nature of this not only results in additional cost and time for a SMB but also creates the risk of human error, for example, making duplicative payments to vendors. After a business has processed outbound and inbound payments, it needs to record all transactions in its accounting software to balance its debits and credits, which takes time.
There must be a better way!
There are numerous AP/AR software automation companies in the U.S., like fintech darling, Bill.com, or up-and-comers like Melio and Tipalti, but in Canada AP/AR solutions are still primarily performed by the Big 5 Canadian banks, which have an estimated market share greater than 80%4 .
With decades of experience investing in payments and our thematic work in ‘SMB Fintech,’ Centana Growth Partners identified this gap and seized the opportunity to invest in Plooto. Plooto’s combined AP and AR solution provides its SMB customers with a unified experience and critical visibility into working capital to manage cash flow efficiently. Customers rave about the simplicity and intuitiveness of the product design, automation features like recurring payments, the ability to mass import suppliers and the accounting system two-way sync. Customers also appreciate the competitive pricing and transparency around foreign exchange rates. With Plooto, customers can spend more time on higher-priority business items and reduce operating expenses and payment error/fraud rates. Additionally, by providing SMBs with varying payment options, including credit card, ACH or check, Plooto’s customers can also manage and minimize payment expenses.
Looking forward: underexplored distribution opportunities and product extensions.
Plooto’s customer base comprises about 9,000 Canadian and U.S. SMBs, with many having fewer than 50 full-time employees (FTE). So far, Plooto has built its customer base through direct and community marketing and increased visibility at accounting conferences. Through our diligence, we learned that most SMBs of this scale use outsourced bookkeepers/accountants, which opens up a powerful sales channel opportunity for Plooto. Centana plans to leverage its global network of relationships with financial institutions and fintechs to support Plooto in expanding its channel-based sales capabilities to grab even more attention and market share. Looking forward, Plooto anticipates adding features and functions to the product which enhance customers’ ability to manage cash, such as predictive analytics and cash flow forecasting, to name a few.
We are thrilled to be working with co-founders Hamed Abbasi (CEO) and Serguei Kloubkov (CTO) to accelerate the advancement of entrepreneurs via ‘Plooto: Mission Control for Cashflow’.
1 SBA – 2021
2 Innovation, Science and Economic Development Canada – 2021
3 MoneyTransfers.com, Business Insider
4 Wealth Awesome via Banking Canada