Thanks to advances in cloud computing and networking, and the flexibility of pay-as-you-use models that adapt to the evolving needs of a business, software as a service has become the default for how organizations adopt and use apps. A company called Paddle, which has built a large business out of providing the billing back end for those products, is announcing a large funding round of $200 million as it gears up for its own next stage of growth.
The Series D investment was led by KKR with participation from previous backers FTV Capital, 83North, Notion Capital, and Kindred Capital. The startup has raised $293 million.
In 200 markets, Paddle provides a platform for software customers to set up and sell their products in a B2B model. With so many consumer services also sold in the cloud, its ambitions include a significant expansion of that to areas like in-app payments.
We have been growing a lot in the last couple of years. Christian Owens, the CEO and co-founder, said that they thought it would tail off after the peak. The explosion of streamed media and other virtual consumer services include more videoconferencing use by everyday people. Everyone needed our B2B tools.
Payments have long been a complicated and fragmented business in the digital world, and each stage of taking and clearing payments typically involves a chain of providers. Paddle is a merchant of record that has built a set of services around the specific needs of businesses that sell software online, covering checkout, payment, subscription management, invoicing, international taxes and financial compliance processes.
The basic pricing is 5% + 50 cents per transaction, and it is sold as a software as a service.
There are hundreds of merchants of record in the market for payments services from PayPal to Amazon, and many more, so it's no surprise that it's complicated. There is a business to be made in bringing together the many complicated parts of providing a billing and payments service into a single product specifically tailored to software businesses, according to Paddle. Revenue growth has doubled over the last 18 months, but it does not reveal actual revenues or usage numbers.
The company name doesn't have a specific meaning.
Owens said that it was not a reference to anything but a name they liked. He and the company seem to have followed the impulse to make decisions on a hunch.
He came to the idea of Paddle with Harrison Rose, who is currently chief strategy officer and credited with building its sales ethos, after the two tried their hands at a previous software business they founded when they were just 18.
You make your first $1-2 million in revenue with a few employees, but eventually those businesses become $2-20 million in sales, and then $300 million, but the basic problems of running them don't go away.
Because of the different regulations and compliance requirements that scaling software companies face, billing and payments are a particularly difficult problem. Paddle works with a number of major payment companies to provide a seamless service for its customers, which are not payment companies themselves.
The name Paddle was in the news last autumn when it took its observations on the challenges of payments to a new frontier: apps, and specifically in-app payments.
Owens describes the observational logic that started Paddle. Apple has been locked in a dispute with a number of companies that sell apps through the app store, which have wanted to have more control over their billing, and to give Apple less of a cut of those proceeds. Owens said that Paddle was encouraged to build an alternative in the heat of the dispute because of the response from the market and governments.
Its approach is similar to Apple's.
There is one thing Apple has done right, which is to build a full set of tools around commerce for these businesses. It has been failing in not giving customers a choice of when to use it and how much to pay.
A Paddle spokesman later told me that they would charge 10% for transactions under $10 and 5% for transactions over $10, compared to Apple's 30%.
The product is built and ready to go, and there are already 2,000 developers signed up, representing $2 billion in app store volume, ready to try it out. Due to launch in December, Paddle has held off as Apple's case with Epic has dragged on.
He said that he found Paddle's name in an update to Apple's complaint.
That bold attitude may keep Paddle in Apple's bad books, but it has made it a hero to third-party developers.
Patrick Devine, a director at KKR, said in a statement that Paddle is solving a significant pain point for thousands of SaaS companies by reducing the costs associated with managing payments infrastructure and tax compliance. Paddle simplifies the payments stack to enable faster and more sustainable growth. We are excited to support Christian and the team as they embark on their next phase of growth.
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