It’s a huge market, one that’s remarkably underserved excepting older players like MoneyGram and Western Union. It’s also a lot of work to build, making it a fairly long-term bet, one into which investors like True Ventures, August Capital, and Khosla Ventures have already sunk $71 million, including a $14 million inside round earlier this year.
How does it work? Say a person needs to pay their rent or buy a bus ticket. PayNearMe has relationships with both brick-and-mortar stores –including, crucially, 7 Eleven, Ace Cash Express and Family Dollar — as well as businesses like property management software companies. Together, the companies make it possible for anyone to walk into one of more than 17,000 locations with cash, and walk out with a receipt for payment.
This week, we talked with PayNearMe founder and CEO Danny Shader – previously a CEO of Good Technology, an EIR at both Kleiner Perkins and Benchmark, and cofounder of Accept.com, an online consumer-to-consumer payments service that sold to Amazon for $175 million in stock in 1999 – to learn more about the gritty, complex business he’s been building.
PayNearMe doesn’t give out a lot of numbers, but you say that overall payment volume has more than tripled from this time last year.
Our business is growing five to 10 percent a month, which keeps compounding, so it’s getting to be a pretty sizable business. It’s extremely hard to build up an entirely new payment network, but we’ve done it, it’s working, it’s growing, and it’s incredibly defensive. But it’s not for the faint of heart.
You could boil the ocean, trying to go after everyone who’s unbanked. What’s your process like?
We pursue things vertical by vertical. So the biggest vertical is lending, then rent and municipal government payments, and now healthcare is driving a lot of new people into the insured ranks and they need to pay their premiums. Within a vertical, there’s a handful of software companies that are systems of record, whether it be for property management companies or government agencies, and we integrate into those software systems. For rents, for example, we integrate with AppFolio and ManageAmerica, a property management system for manufactured housing, meaning mobile homes.
We try to go after very large accounts directly or go downstream.
Going downstream [to smaller players] sounds like a lot of work. How do you do it? How many employees do you have altogether?
We have more than 50, roughly half of whom are in Sunnyvale, with the rest scattered [around the U.S.]. And it does take time to get going on a new vertical. Say we want to do something in health, in medical records. We’ll go to a trade show and call on [some of the vendors] , and they’ll typically say, “Go away, my customers aren’t asking for you.” So we’ll go to end customers and invest heavily in getting them to work with us, and they do, and they talk about it, and a year later, the software providers say, “We want to integrate with you.”
Processing rent payments is one of your biggest businesses, but we understand that Family Dollar will no longer be accepting rent payments, that it grew worried about safety issues around people walking in with large sums of cash. We’ve asked the company about it but they haven’t responded.
I can’t speak for Family Dollar, but rent is a big vertical and we’re processing rent at a ton of other locations. Other folks will be joining our network, too.
PayNearMe shares its economics with stores like Family Dollar and 7 Eleven. Do you discuss that split? Is it 50/50?
I can’t comment on [the percentage of transaction fees we pay out], but it’s [a good deal for them]. Imagine: Hey, our sales force will sign up big entities like municipalities that will include your logo [so people know where to pay their bills], and we’ll pay you a commission, and by the way, we’re sending you valuable foot traffic.
PayNearMe has a lot of stuff coming. Can you give readers a curtain raiser?
I can say that we now have a complete set of money transmitting licenses in the U.S. and Puerto Rico that we spent the last three years and millions of dollars [to obtain]. The licenses allow us to act as an agent of a consumer, taking their money and delivering it to some other location. It lets us enter adjacent markets. [But that’s all I can say.]
Do you anticipate these adjacent businesses will be larger than what you’ve already built?
I think we could build a big public company doing what we’re doing. It’s a massive market hidden in plain sight. Most people in the Valley are asking if cash is going away. Actually, the cash market is increasing, and the bifurcation between the 1 percent and everyone else is contributing to that.
Abie Katz, 24, is halfway through his second week as an associate at the tony Sand Hill Road firm August Capital. Why is that notable? Well, for one thing, the 20-year-old venture firm doesn’t really hire associates. Also, despite his age, this isn’t Katz’s big break into the venture world. He has already spent more than two years at the associate level, having joined the seed-stage firm CrunchFund in 2012.
Katz has also managed to attract profiles in Wired, which likened him to Mark Zuckerberg in 2008 just two months after he’d cofounded a company, and TheNextWeb, which later reported on his decision to leave college to become a venture intern. (That’s a feat. No offense to interns, but who write about interns?)
What is it about Katz? We talked with him last week to find out. Our chat has been edited for length.
How does a 17-year-old student with a fledgling company get compared to Mark Zuckerberg in Wired?
That was the greatest fluke of my life. The business that [reporter Brian Chen] wrote about never ended up launching. We just hit it off and he decided to interview me and gave [the story] an inflammatory headline that was very positive — though undeserved. I thought the press might be helpful. It was so many years ago now, it’s more of an artifact.
Nothing relating to you is an artifact yet. But what is it about you that so enchants reporters? Why did TheNextWeb care that you were leaving college? Why am I interviewing you right now?
[Polite laughter.] I met [TheNextWeb] reporter at [TechCrunch] Disrupt. I asked for directions and we ended up getting dinner in a group and she thought that I had an interesting story.
For the most part, I like to be more behind the scenes in venture capital. I’m still new to my career and realize I have a lot to learn. I also think entrepreneurs should really be the center point for mass media. But I’m glad that things like StrictlyVC are out there because I think it’s a really interesting industry.
How did you break into VC as a college drop-out?
I went to college for a one-and-a-half years at Claremont McKenna College, then took some time off to intern at a [San Diego startup]. I’d find small business initiatives that weren’t in anyone’s purview and [try making something happen]. I [later] reached out [Merus Capital cofounder] Sean Dempsey, a Claremont alum, and offered to do free diligence work up in San Francisco. He had me look at three companies, I worked as hard as I could and tapped into whatever network I had at the time, and Merus decided to bring me on as an intern.
Did you think about finishing up your degree?
After about six months, Merus encouraged me to go back to school but the next semester, I heard that CrunchFund was looking to hire an intern. I’d met [CrunchFund cofounder] Pat Gallagher while at Merus; he and [partner] Mike Arrington are also Claremont alums, so I came back to San Francisco for the summer to work for them. I thought I’d be with the firm through the end of 2012 as an intern . . . Thankfully, they thought it was a good idea to bring me on full-time.
How does one start drumming up deal flow from scratch?
It really helped [to have] the network and reputation of CrunchFund. I was able to tap into the partners’ networks and, over time, build my own. I also relied on a combination of AngelList and working with accelerators and going to demo days. The rest was a hodgepodge of more thesis-driven research, where I’d do a deep dive into an industry to learn about specific white spaces and just read a lot.
You say you sourced 21 investments for CrunchFund over two-plus years, including the startup Kinnek. Now you’ve been recruited into August, a very different firm.
Yes, and I’m taking in as much information as possible and trying to get familiarized it. There are definitely differences between the firms in terms of the style of investments they make and their size. CrunchFund has a model similar to SV Angel: a small team making about 40 investments a year through checks that are typically between $100,000 and $250,000 and occasionally as much as $1 million. August is more traditional, with a long history of leading rounds and being very hands on. It’s a different style.
It’s a very different career arc.
In the venture business, especially coming from a nontraditional background, you need to find that unorthodox foot in the door. From there, things can kind of snowball.
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