The future of SME financial management: Why we invested in Monite

signals is excited to participate in Monite’s € 1.1M pre-seed round, together with Tomahawk.VC, InVentures, Runa Capital and renowned business angels including former Deutsche Bank board member Ralph Müller. Founders Ivan Maryasin and Andrey Korchak and their team are building the all-in-one financial management platform for small and medium-sized enterprises (SMEs). The idea for Monite was born out of the feedback from thousands of German small business owners and tax advisors that Ivan received while working as Head of Growth at Penta. When he met Andrey Korchak, who led the mobile tech team at Tochka Bank, the biggest SME neobank in Central Eastern Europe, both quickly aligned their knowhow to build Europe’s leading financial platform for SMEs ranging from 5 to 100 employees. In this post, we share why we decided to invest as well as an overview of our SME FinTech market research.

SME FinTech is on the rise

With a market volume of more than € 52B in Germany alone (2019), the FinTech market continues to mature and is one of the key drivers of current business transformation. The first wave of FinTech startups largely focused on the unbundling of retail banking. Today, FinTech unicorns such as N26, Revolut or Robinhood play integral roles in the financial lives of millions of customers. By providing a more convenient, flexible, cheaper and secure user experience compared to traditional retail banks, B2C FinTech companies quickly gained their customers’ trust. Besides established B2C FinTech verticals such as neobanks, robo advisors or mobile trading, new segments of consumer FinTech are constantly emerging. Examples include the boom in female-focused FinTech startups like Alice, Financery or Jefa, and the rise of sustainability FinTech such as Tomorrow or Doconomy.

Convinced of the promises of lower customer churn, higher budgets, and scalable SaaS revenues, VCs soon shifted their attention towards FinTechs for business customers. In 2020, total investments in B2B FinTech startups surpassed those of their B2C counterparts. Fueled by the commoditization of underlying infrastructure such as open banking APIs and regulatory initiatives like PSD2, new sub-categories of B2B FinTechs quickly evolved. A16z’s Angela Strange even claims that the accessibility of tech infrastructure means that in the near future, “Every company will be a FinTech company.”

For a long time, small- and medium-sized companies (SMEs) in particular have been underserved by digital solutions to manage their financials. This noticeably changed within the last few years, when a rising number of FinTechs shifted their attention towards longtail SME customers.

Today, SME-focused FinTechs unbundle traditional business banking and cover a wide range of financial services:

• Neobanks such as Penta, Kontist or Qonto offer lean, flexible digital-first bank accounts for SMEs and freelancers.
• Expense management suites like Pleo, Circula or Spendesk provide corporate cards to track and manage employee spend across departments.
• Accounting & invoicing tools, e.g. Lexoffice or Sevdesk provide simplified access to reports, bookings, and tax preparation. Tools such as Candis or Debitoor simplify the creation, processing, and matching of invoices or overdues.
• Cash management & financing tech takes various angles. Lending platforms such as Lendico or Auxmoney and working capital solutions like Billie or Myos provide flexible and cost-efficient liquidity. Digital debt collection tools such as Pair Finance allow SMEs to collect outstanding bills faster.
• Payment processing providers such as Adyen, Stripe or Mollie enable SMEs to offer online payment methods and collect payments.

Strong drivers for future growth

At signals, we observe strong macro drivers that speak in favor of the future growth of SME FinTech:

• Huge market potential: There are more than 25M SMEs in the EU, with 3.5M SMEs and €2.3 trillion revenue (2018) in Germany alone.
• Large growth potential: While on average only 25% of SMEs worldwide have adopted FinTech solutions, top-of-the list China shows an adoption rate of 61%.
• High openness towards FinTech services: 70% of SME adopters are willing to share their financial data with bank-external services if they would save costs. By contrast, this rate lies much lower in the consumer space with only 46% ready to adopt these services.
• High willingness to pay: The main drivers for SME FinTech adoption are functionality, availability, and ease-of-use. License or service fees are not main factors for SMEs. Our own analysis estimates that SME spend for admin software is around € 1.6B in Germany alone.

Apart from these long-term factors, SMEs are particularly affected by the economic drawbacks of Covid-19. Their need for flexible and innovative financing solutions to extend their runway continues to grow. Moreover, the recent customer growth in the SME neobank segment exemplifies this upward trend. As the 2019 comparison by Fintechnews Switzerland shows (see below), the leading players managed to acquire tens of thousands of SME customers within only one year:

The SME owner’s burden in a fragmented market

As the options for FinTech applications for SMEs have drastically increased, we now observe fierce competition within single verticals of the SME financial process chain. Especially for those most crucial and tedious tasks ―accounting, invoicing and expense management― a myriad of startups as well as established players are fighting for the SME audience’s favor.

While crafting our investment thesis for Monite, however, we realized that the end-to-end management of SME financials still remains unsolved. In particular, managers of smaller businesses with less than 100 employees are themselves confronted with a fragmented tool landscape. The management of several isolated applications for narrow processes is highly inefficient and time-consuming. The lack of harmonization and automation between financial processes requires a lot of manual work. Further, different FinTech solutions for different tasks vary in breadth and depth of data integrations. The pain for SMEs is especially high for holistic financial processes that require a complete overview of the company’s financials, such as the preparation of tax returns. Currently, financial data is scattered between many different tools. Financial documents need to be uploaded manually at every process step, in- and outgoing payments need to be matched to the right sub-accounts, and invoices synchronized to the right expense category. And this all needs to be double-checked!

Workarounds and manual processes translate into substantial amounts of time lost that could otherwise be spent on the SME’s core business. The average micro business in the UK spents 15h per week only on back office tasks. In Germany, we found that around 2% of yearly revenue is spent only on administrative tasks, while accounting and invoicing represent together around 50% of the typical SME admin tasks.

Not surprisingly, small business owners are not at all happy with the status quo. The inconvenience from managing multiple fragmented tools leads to a high demand for a single point-of-truth for their financial administration. Monite’s user research supports this: more than 75% would prefer a unified platform to cover their existing processes.

Apart from the lack of a holistic offer to combine different financial admin tasks under one roof, many of the available tools for SMEs have an old-school, cumbersome frontend with the look and feel of a large-scale enterprise ERP system. This is contrasted by a new generation of microbusiness owners that have become accustomed to the user-friendly, seamless product designs of B2C FinTech apps.

Building a holistic solution to manage SME finances under one roof

When Ivan & Andrey pitched us their vision for Monite, we were immediately impressed by their strong commitment to provide small business owners with a solution that is 10x better than the status quo. The implementation of open banking allows SMEs to connect all corporate bank accounts in one place without opening a new account. By using a state-of-the-art tech stack, Monite automates core financial tasks, including uploading invoices and mapping transactions to correct accounts. The crucial, yet extremely time-consuming preparation of tax returns happens in no time, since SMEs need only to export data from one single application.

Automation and a seamless UX is at the center of Monite’s product design. Since its laser focus is on the needs of small businesses and freelancers, the app embraces simplicity and ease-of-use. Monite empowers SME owners to oversee end-to-end financial management, instead of dealing with complex enterprise features that only overload the user. With a modular service approach, Monite’s SME customers can also customize the feature set based on their individual needs, thus avoiding licensing fees for software they do not use.

Monite’s one-stop-shop for financial management also has vast potential for a further extension of its platform beyond FinTech. The SME back office does not stop at finance-related tasks, but also includes HR, communication, transportation and more. Eventual implementation of additional admin tools will enable Monite to provide even bigger time and money savings for its business customers.

In the end, it was Monite’s unified, automated, and easy-to-use platform approach with its clear and direct value for SMEs that convinced us to partner with Ivan, Andrey and the rest of the team at this very early stage. he digitalization of SMEs has only just begun and Monite’s end-to-end platform helps small business owners take a major step forward on their journey.

About signals Pre-Seed

signals is your trusted business partner, mentor, and investor in one. We support founders with more than money.

The signals Pre-Seed Program invests in B2B software-based solutions for small and medium-sized businesses as well as in category-defining solutions for enterprises in the DACH region. We invest up to €250k to provide early-stage founders with an adequate runway. In addition to this, we provide founders with individualized mentoring and office space where and when needed so they can concentrate on what matters most — working on their product and gaining customers.

signals Pre-Seed is a joint investment program of signals and signals Venture Capital. signals Venture Capital deploys a €100 million venture capital fund, focusing on Seed and Series A stage startups with software-centric B2B business models across all enterprise segments. The portfolio companies benefit not only from classic venture capital support, but also from the extensive signals ecosystem, comprising renowned German and European partners, industry experts, and diverse distribution channels.