Exclusive: Israeli payments platform Melio has raised $150 million in a financing round led by strategic US investor Fiserv, “Globes” has learned. The financing round marks a recovery for Melio, which last raised money in 2021 at a company valuation of $4 billion, but has since seen efforts to be sold fail and a round of layoffs. Even though the company’s revenue has increased tenfold, the latest financing round has been completed at a valuation of $2 billion, half its value three years ago.
Fiserv, which has led the financing round in Melio, is a US fintech company, which is the biggest distributor of software to banks in the US and distributes Melio’s payments services to US banks.
Melio’s most recent financing round was in September 2021, at the peak of the tech bubble, when it raised $250 million co-led by General Catalyst, Thrive Capital and Corner Ventures, at a valuation of $4 billion. A fall in valuation is currently no rare event after privately-held tech companies saw their valuations plunge during the tech crisis in 2022 and 2023, with fintech companies hit hardest. Swedish payment processing company Klarna, for example, has seen its valuation cut from $46 billion to just $6.5 billion in 2022, while financial services company Stripe saw its valuation plunge from $95 billion in 2021 to $50 billion today.
The fall in valuations also hit publicly traded companies. PayPal’s market cap has fallen 70% since September 2021, while Melio’s rival Bill.com, which is traded on the New York Stock Exchange has lost 80% of its value. Due to declines in the industry, a 50% cut in valuation for a company like Melio is a good achievement.
Unicorns that have demonstrated growth and financial strength have still been forced to reduce their valuation in order to continue raising capital, but this comes at a price: in addition to damage to their reputation, the new investors – such as Thrive Capital, in the last financing round see a reduction in the value of their investment, and must hope that in the future the company will regain or even exceed its previous valuation. Early investors such as Bessemer and Alef that invested in 2019, are still seeing a large increase in value on their investment. After this financing round, Melio will have become one of the biggest unicorns in Israel in terms of capital raising, having raised $650 million since it was founded in 2018.
Melio has developed a payments platform that allows small businesses to pay suppliers. It is operating in a relatively crowded niche market of fintech companies providing payment platforms to their customers but unlike Israeli company Tipalti, which focuses on small enterprises, Melio provides a similar product to small businesses with few employees like accounting and law firms, stores and restaurants. In addition to transferring payments, Melio synchronizes the payments in the business’s systems and allows its owners to defer or spread payments, while the supplier receives the payment on the due date.
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The main player in Melio’s market is Bill.com, a lossmaking publicly traded company with annual revenue of $1.3 billion and a market cap of $6 billion. Melio, which is worth one third of Bill.com, has estimated annual revenue of $150 million, which is rapidly growing. According to a source familiar with Melio’s operations, it is enjoying high growth and swift adoption by banks due to the signing of partnerships with distributors like Fiserv. Melio has also signed agreements with Capital One, Shopify, Amazon, and Intuity to embed its payment systems in their systems.
In effect, the direction Melio has chosen – implementing its payment transfer interface within other systems and within other banks – so that users do not know that they are turning to an external service, because they are conducting the transfers and payments from within the system they are familiar with – has enabled the rapid adoption of its products. This is in contrast to Bill.com, which maintains an independent and separate brand.
One year ago, “Bloomberg” reported that Bill.com was conducting negotiations to acquire Melio for $1.95 billion but the deal did not take place. In 2022, at the start of the tech crisis Melio fired 60 employees, about 10% of its workforce at that time. The company that had switched to distribution through partnerships laid off marketing and sales staff and slimmed down its middle management ranks. Today, Melio has 620 employees, according to LinkedIn – a similar number to 2022.
No response to this article has been forthcoming from Melio.
Published by Globes, Israel business news – en.globes.co.il – on October 29, 2024.
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