Kontempo, a startup offering buy now, pay later (BNPL) and interest-free installment plans to business-to-business (B2B) customers, today announced that it raised a $30 million seed round in a mix of equity ($6.5 million) and debt ($25 million). CEO and co-founder Matthew Meehan tells TechCrunch that the new cash will be used to hire staff, grow Kontempo's merchant network and further develop the technology underlying its platform.
While BNPL has gotten a lot of play in the consumer market, with giants like Klarna, Afterpay and Affirm doing their best to corner it, alternative, installment-based payment plans have been slower to penetrate the traditionally conservative enterprise. While most B2B purchases and procurements are spread out over time (e.g, net 30-day terms), the deals aren't structured in the way consumer-style BNPL plans typically are. High processing fees are frequently involved, with 35% of businesses in an Ardent Partners survey reporting that it costs $8 to process a single supplier payment. And delays are frequent. A separate report found that it takes an average of 30 days to complete a payment and that 47% of suppliers are paid late for their products or services.
Meehan says he and Kontempo's other co-founders, Antonia Marino and Kwesi Steele, saw an opportunity to address these challenges in a single platform.
"Three important insights garnered from our prior work formed the basis of the rationale for starting Kontempo," Meehan told TechCrunch in an email interview. "Most companies selling to small- and medium-sized businesses need to offer point of sale financing, or 'net terms,' to be competitive. Moreover, there are currently no viable options to outsource this function. Lastly, fast and flexible payment terms at the point of sale lead to higher average order values and higher overall sales -- much like with BNPL in the consumer segment."
Meehan was previously an analyst at Morgan Stanley and an associate at Lehman Brothers before becoming the VP of Latin America trading at Merrill Lynch. Marino was a senior regional operations manager at Uber in Mexico City, while Steele was a senior sales manager at Google.
Kontempo allows sales teams to approve credit for offline or online purchases with net terms of 30, 60, or 90 days. Alternatively or in addition, enterprises can use Kontempo's API to deploy a BNPL option at checkout that doesn't require a credit card or bank account information.
Meehan says that, to mitigate risk, Kontempo captures data from merchant partners to feed an algorithm that determines creditworthiness. The algorithm -- which takes into account a range of factors that Meehan declined to reveal -- allows Kontempo to reach a broader segment of small- and medium-sized enterprises (SMEs) that are typically rejected for credit.
"Kontempo sees an opportunity with its BNPL product to increase the use of digital payments in the B2B space, boost sales for both online and offline distributors and suppliers to SMEs, and be an early mover in building critical payments infrastructure for the still small but fast growing B2B ecommerce market," Meehan said. "Kontempo is a pioneer in this space where suppliers themselves are the primary providers of point-of-sale finance to SMEs. We have created the technology that allows for suppliers to outsource this function."
The question is whether there's a strong appetite in B2B for the products that Kontempo's selling. To some extent, invoice factoring platforms solve the problem Kontempo purports to solve -- guaranteeing payments -- by providing a substantial cash advance to suppliers. With invoice factoring, a supplier sells its unpaid invoices to a factoring company (for a fee) and receives an advance in return (usually around 90%), while the remaining value is paid by the factoring company to the supplier once the buyer pays the invoice (plus a fee) to the factoring company.
But Meehan makes the case that factoring doesn't provide the "instant, point-of-sale financing" that BNPL can. "They are a post-transaction liquidity solution," he said, referring to factoring platforms. "As for credit cards, they can solve for similar pain points, but they're typically not used by SMEs to fund inventory purchases because credit limits are low and interest rates are so high."
Expansion by Kontempo's competitors would suggest that this is true. Funding Circle, a fintech lender to SMEs, began offering a BNPL program called FlexiPay to business customers after a successful pilot. Berlin-based Billie, another B2B BNPL vendor, is valued at over half a billion dollars and recently secured funding from Klarna and Chinese tech giant Tencent. Smaller entrants in the sector with sizable funding rounds under their belts include Playter, Hokodo, Mondu and Tranch.
In fact, while consumer-focused BNPL startups have seen their valuations slashed and stock prices plummet in recent months, investors are largely bullish on B2B BNPL as a product category -- risk of payer insolvencies aside. As a recent CNBC piece notes, BNPL services are proving especially popular with SMEs, which are feeling the pinch from rising inflation.
As for the prevalence of paper checks in B2B, Meehan admits it's a tough problem to overcome -- along with rising interest rates, which make the terms of certain payment plans less attractive. But on the first point, Meehan notes that the pandemic spurred a migration to e-commerce models for many B2B industries.
"Kontempo has signed contracts with 26 merchant partners in Mexico. These 26 merchant partners represent access to over 100,000 SME 'buyers,' or end-users, of our product," Meehan said when asked about Kontempo's early market traction and near-term growth prospects. "The company is on track to process approximately $1 million in payment volume every month by year-end 2022 ... We have runway for well over three years."
Kontempo plans to "at least" double its 11-person workforce by the end of the year, Meehan says. To date, the company has raised $32.5 million in venture capital. Portage led the seed round with participation from Scor P&C Ventures, Upper90 (who also provided the credit facility), Ignia, Tectonic Ventures and Asymmetric Capital Partners.