Scale invested in BILL in 2013 just as the company was crossing $10M of ARR. A decade later, BILL is a leading public company and as of the end of fiscal year 2023 transacted payment volume of approximately 1% of the US GDP. We were early believers in CEO and founder René Lacerte and have always admired his practical approach to making his customers’ lives better. We sat down with him to get to the heart of what it takes to be successful in fintech, what matters when unlocking GTM in vertical software, and what it’s like on the other side of the boardroom.
How does a fintech startup develop confidence with product-market-fit given the convergence of both software and payments? What tips and tricks have worked for you?
Different skill sets and experiences are required to be successful in both software and payments. Your founding or early team needs both. Today, BILL manages about 1% of US GDP in payments flows. You don’t get to that point without having compliance as a priority from day one. Payments folks will know how to set up a company to make compliance a priority, and software folks will know how to build the software. Though payments and software will both always be important for fintech companies, the exact emphasis on payments vs. software is likely to change over time. When BILL started it was 80% a software company and 20% a payments company. Today, those percentages have flipped, which reinforces the need to have both DNAs in the business.
What was your first MVP and how did you leverage those skill sets for that?
With the first version of BILL, we actually printed manual checks and stuffed those into envelopes during lunch at the office. There was no digital payments option yet. Eventually we built out self-serve functionality, and eventually the network. But crucially, the first MVP did not try to achieve Product/Market Fit with the network.
Speaking of the dynamics between being a software and a payments company, software is the glue that keeps the customers returning, whereas payments is the last mile delivery that is easier to sell with the right software. Having talent in both areas allows you to extract such insights. If you decide credit is an early part of your product, for example, you need to “found” or hire with that expertise. And you always need to evolve. Today BILL has ambition to expand into credit, so therefore we’ve started by adding this layer of talent. It starts with people.
You developed a multi-pronged approach to GTM. Explain how and why and what works and what doesn’t?
BILL has three motions: direct, partnerships through accountants, and partnerships through banks. Our partnerships approach has evolved a lot as a GTM focus and priority. The first motion was direct, then accountants, and banks were the next piece. Timeline is really important here, as not all three worked, or could work, on day one. But, I always wanted to build a multi-decade company, so we invested in all three from the beginning as an intentional strategy. That focus means that today we can extend our ecosystem and support software providers as an emerging piece of the strategy.
Direct was the quickest to market, and therefore allowed us to gather the first customer feedback. But it also has the most linear leverage on scaling over time.
Accountants were an obvious early channel and are all about consistent execution over time. They are thoughtful and take time to adopt. That said, once you build up the channel it becomes reinforcing and self-delivering.
Banks are much tougher as a distribution channel. It’s likely your cash runway is not long enough to rely on this as your first or sole distribution early on, but you can build it as a long term strategy. And going back to people, what’s your inside edge to these banks? They are tough to penetrate and it takes a long time to build the relationships.
To illustrate the journey at BILL, we started with the focus on landing bank partnerships in 2009 and spent four plus years to land the first partnership in 2013. The commitment to the strategy despite the challenges was the opportunity to learn that from this distribution, banks would help build trust in the direct motion. Banks could also reach a lot of SMBs that BILL couldn’t yet, and ultimately, if we tied up banks, competitors wouldn’t be able to pursue that path.
While the early bank deals did have their challenges, one slightly unique thing we did was demand commitment from the banks. We knew more relaxed terms would make it easier for them to sign, but we didn’t just need them to sign, we wanted to ensure that they would partner with us.
Given the importance of payments, did BILL start with a money-transfer-license (MTL) and how was that decision made?
A fairly early investor (maybe Series C) required the company to get a MTL, and so we reluctantly went down that path—and today we are very thankful we did. This is an example of how an outside party demanding maturation can lead to fruitful results.
MTLs were key to unlocking relationships with banks. Without MTLs, our conversations would have been dead on arrival. Further, because we have MTLs, we can get partnerships with other software businesses today. Basically, getting MTLs early enabled us to demonstrate credibility in both the fintech and software worlds, unlocking GTM.
Your success has attracted competition, plus there are large incumbency vendors in tangential markets. How did that influence thinking on strategy, from large to small?
We strongly believe that we’re innovating, while others are following. So we constantly invest in our innovation, not in matching our competitors’ product set. Part of what set BILL apart early was the development of the network. This goes back to the origin story of the name. The word ‘bill’ can refer to both the money you owe, or the money you’re getting. Those are the two nodes of the network. The great thing about networks is that in the long run they deliver a better customer experience. So, by focusing on our own product, we were able to innovate and build defensibility inherent in our network. That would never have happened if we had focused on the competition.
Between two companies you’ve done close to 20 financings of fintech businesses. What have you learned about balancing capital opportunities and needs and the market?
You should always be fundraising and talking to potential capital partners. The earliest rounds at BILL were a bit incestuous in that I went to the investors from my previous company. The Scale round was the first round where the lead investor wasn’t one that I had previously worked with. And while I got multiple bids, I ultimately did not negotiate the pricing on the Scale term sheet. My perspective is that life is long. It was more important to pick the right partner and start a good relationship with them.
This approach was reinforced during the IPO where the pricing range marketed by the bankers became one of the most highly oversubscribed deals they had ever seen. Bankers led a discussion with the board pricing committee around increasing the price above the range we had set. I felt it was really important to not start the public market relationship that way. I had looked investors in the eye saying I would accept the price we had stated. Increasing the price seemed to be counter to building long term relationships with them.
You have always run a very structured and regimented board distinct from many early stage founders. On our side, BILL felt like a public board long before it actually was. Any thoughts on running a great board? How has being public changed the board element?
I believe in delivering no surprises at the board meeting. Bad news does and will travel faster than good news, so it’s my responsibility to get that out. That means calling all the board members before a board meeting to prepare them, preview the board meeting, and check in.
Be clear about how you pick your board members and about the values you think are important on a board. Treat it like hiring—don’t go with name or brand recognition, as that tends to under-deliver in a startup culture. I see investors as particularly strong in bringing in pattern recognition, so picking an investor like Scale with relevant pattern recognition should be a crucial criteria in choosing your board.
As you go public, the governance requirements become much more real; board meetings shift from a few hours while private to a full day of committee meetings followed by a full day of board meetings. Thinking back to the MTL discussion, embrace governance. There is business value that can be extracted out of a public board and all of the committees that are required.
