Payhawk — Changing the way businesses manage payments and expenses

At Earlybird Digital East, we are delighted to announce our participation in the $20m Series A round of Payhawk, an all-in-one platform for company payments and expense management.

We led Payhawk’s seed round in early 2020. At the time, the company was still in the early stages of its product-market fit exploration — but there were a few reasons that stood out to us as investors, more specifically, a tremendous market opportunity attacked by a world-class team:

• A still-archaic financial software stack with poor UX
• Many SMEs lag behind in software adoption
• That is now changing due to a demographic shift
• The market is open to disruption by product-driven companies
• Payhawk team’s know-how and ability to iterate the right product features fast

We were excited by Payhawk’s product-first approach and perspective on the evolving SME market. A year later, they’re delivering on their vision and have raised their $20m Series A round led by QED Investors, an experienced fintech investor, with participation from us.

The SME market is primed for innovation

The European SME market is always worth keeping a close eye on. It’s huge: there are about 25 million SMEs across the EU, responsible for over half of GDP and the majority of new jobs. But so far, it’s a market that’s been under-penetrated by SaaS innovators. Typically, SaaS providers target enterprise clients because good unit economics are hard to achieve with SMEs: smaller deal sizes with higher churn have been outweighed by the cost of acquisition, onboarding, integration, and support. Many SMEs still have to rely on cumbersome legacy tech or spreadsheets for core operations.

But recently, we’ve seen the needle start to shift. There’s a growing awareness among SMEs that they need to dedicate resources to digital transformation in order to stay competitive. That makes them easier to reach and easier to sell to. Advanced automation and integration functionalities allow SaaS providers to add and prove more value, and charge more for it accordingly. With players like Personio gathering strong momentum, it’s clear that SaaS penetration in the European SME market is starting to pick up speed.

This trend is expected to materialize in finance departments, which have historically lagged behind others in adopting innovation. The SME finance environment is complex, with multiple software dependencies and disconnected stakeholders across the company. Strict reporting timelines and high-accuracy requirements have led finance teams to opt for traditional (hence, safe) solutions. Paired with skepticism about new products, they’ve adopted a ‘don’t touch anything that works’ attitude and resisted adding new layers of solutions to their stack.

This is also, in part, due to the lack of decent product offerings so far: SME finance has not been prioritized by automation players, and well-functioning finance integrations (e.g. with banks) have become available only recently. Though there are now some players in the space, they’ve achieved relatively little penetration, and most only cover very limited parts of the market.

“We expect that automation will be key in winning this market, as will seamless integrations into existing systems, and intuitive UX. Hence, product-first companies will win — and Payhawk is one.”

Software adoption among finance teams is bound to increase

We expect to see the adoption of SaaS finance solutions accelerate rapidly among SMEs in the next few years, and there are a number of reasons for that.

Broadening digital transformation across other parts of the businesses and API-first solutions are enabling easier and better integrations into other stakeholders in the tech stack of finance teams. This removes the need to work across five or six disjointed systems (e.g. ERPs/accounting software, banks, papers/receipts, cards, cash balance, etc.) and facilitates the automation of certain processes.

Today, a more tech-savvy generation is rising up through the ranks. As they do, they’re starting to exert more influence on purchasing decisions, and look for modern digital transformation solutions with smooth user experiences. As buyers in finance teams become more informed about what they’re looking for and actively begin to research solutions in the market, they will create organic demand, resulting in better unit economics and more scalability for the SaaS providers targeting them.

SMEs have always had remote teams (e.g. field sales teams) and now distributed teams are growing in popularity as well. That means collaborative tools and workflows are becoming a necessity. Finance teams might once have got away with ad-hoc card lending and manual reconciliation, but with the need for visibility and control becoming even more pressing, they’re now turning to digital-first solutions which will help them automate processes and scale.

Regulatory tailwinds are another important factor: Open Banking has enabled smooth integrations with banks, which SaaS providers can utilize to offer richer banking and payments experiences. Likewise, the paperless trend means businesses are more incentivized to use digital solutions for their expense management needs.

We believe that with these strong favorable trends in the market, there’s now a huge opportunity for best-in-class products that can meet the complex needs of finance teams.

We expect that automation will be key in winning this market, as will seamless integrations into existing systems, and intuitive UX. Hence, product-first companies will win — and Payhawk is one.

Payhawk’s product-first approach provides a superior software experience

Payhawk team’s strong product focus and ability to iterate fast allows them to lead the market. The company has an extensive technical team led by Hristo and Boyko, who boast deep expertise and experience across enterprise-grade software (they helped build Telerik/Progress Software, the custom app development platform), and offers one of the best products in the market.

We think the future of spend management will be the software, not just virtual and physical card issuance. While cards are a useful entry point for Payhawk, they’re really only one piece of the puzzle.

With a focus on integrations (e.g. accounting software, local standards like DATEV, travel companies, etc.), Payhawk offers a comprehensive platform for all finance operations.

Payhawk brings all cards, payments, invoices, and expense management under the same roof with a seamless UX, and closes the gap between banks and ERP systems.

Payhawk’s advanced capabilities in extracting data from invoices with OCR and automating reconciliation processes enable customers to make meaningful cuts to labor costs while freeing finance departments from the mundane work of manual data entry, reconciliation, and receipt collection. Spend rules and approval workflows reduce the burden on management, and one-click fast payments bring a modern experience into finance management workflows.

As early backers of Payhawk, it’s been a privilege watching their plans materialize gradually and the SME market maturing enough to transform. Today, we’re thrilled to support them on this next stage of their journey, now together with a world-class fintech investor, QED. It’s exciting to partner with another stellar team from the region emerging to become the market leader in a global software vertical.

Learn more on Payhawk or follow them on Twitter

Written by Mehmet Atici and Oguzhan Ozer