20VC Scaling to a $1.3Bn Valuation While in Stealth, The Power of Different Network Effects Within Payment Platforms & How To Leverage Your Board and Investor Base for the Most Value with Matan Bar, Founder & CEO @ Melio



In this episode of "20 VC," host Harry Stebbings interviews Matan Bar, co-founder and CEO of Melio, a company revolutionizing B2B payments by simplifying transactions for small businesses. Matan shares his journey from leading PayPal's consumer payments to discovering the untapped potential in digitizing the $18 trillion of paper checks exchanged in B2B transactions in the U.S. He emphasizes the importance of network effects, ubiquity, and choice in payment systems, and reveals Melio's growth strategy prioritizing expansion over immediate revenue. Matan also highlights the company's commitment to diversity with a nearly equal gender ratio and discusses the challenges of scaling a team from 30 to 200 in a year. The conversation touches upon the value of a supportive board in providing external perspectives and the delicate balance between taking advice and trusting one's instincts. Matan envisions a future where Melio leads the inevitable shift to digital B2B payments.

Summary Notes

Introduction to Melio and Matan Bar

  • Harry Stebbings introduces Matan Bar, co-founder and CEO of Melio, a fast-growing unicorn company.
  • Matan Bar has a history of leadership roles at PayPal and eBay.
  • Acknowledgments to those who helped schedule the interview.

"I'm thrilled to welcome Matan Barr, co-founder and CEO at Melio, the company that provides the simple way to pay vendors and contractors."

The quote introduces Matan Bar as an important guest, highlighting his role as the CEO of a successful payment solutions company, Melio.

Melio's Founding Moment

  • Matan Bar shares the story of how he came up with the idea for Melio.
  • His experience in consumer payments at PayPal and the digitization shift he observed.
  • The realization that B2B payments were still reliant on paper checks, sparking the idea for Melio.

"I was shocked to discover that the digitization that I've experienced between consumers hasn't happened yet in terms of how a business pays another business, or how B2B payments are being done."

Matan Bar explains his surprise at the lack of digital solutions in B2B payments, contrasting with the advancements in consumer payments he witnessed at PayPal.

Choosing Co-Founders

  • Matan Bar discusses the process of selecting co-founders for Melio.
  • The importance of shared values and getting along well was emphasized.
  • The decision to work together was made before settling on a specific business concept, focusing on fintech.

"We definitely decided to work together based on shared values."

The quote reflects the importance Matan Bar places on shared values and compatibility when choosing co-founders for a successful business partnership.

Key Factors in Financial Transactions

  • Ubiquity and choice are highlighted as crucial elements in any payment system.
  • Ubiquity ensures widespread use, while choice gives consumers and businesses payment flexibility.
  • The success of payment networks is often tied to their ubiquity.

"Any successful payment system is one that can be used by as many people as possible, anywhere, anytime."

Matan Bar explains that for a payment system to be successful, it must be universally accessible and convenient for users.

Balancing Volume and Revenue

  • Matan Bar and the Melio team continually reassess the balance between focusing on volume and revenue.
  • Growth is prioritized for a young company like Melio due to its strategic importance.
  • The network effect is critical for the success of payment platforms.

"The strategy to become a very successful business is to think growth first."

Matan Bar emphasizes the strategic decision to prioritize growth over immediate revenue to ensure long-term success through network effects in the payment industry.

Importance of Network Expansion and Growth

  • Network effects are critical for the growth phase of payment systems like milio.
  • Expanding the network and leveraging network effects take precedence over finding new revenue sources.
  • A clear set of revenue opportunities exist across payment systems, but growth is unique to milio.

"Usually within payment systems, when both sides are within the network, the value increases for each of these sides. And so I think enabling or focusing on growth, expanding the network, leveraging or doubling down on the network effect efforts are just, I would say, more important at a phase like ours compared to finding another revenue source."

This quote emphasizes the importance of network effects in payment systems and prioritizes growth and network expansion over diversifying revenue streams at milio's current stage.

Different Network Effects in Payment Systems

  • Payment systems like PayPal, Zelle, and Venmo rely on acceptance-driven network effects.
  • B2B payments require an open network approach, as forcing a closed network is not feasible.
  • Milio leverages cash flow to encourage suppliers to join the network without making it mandatory.

"With PayPal or Zelle or Venmo, usually the network effect is driven by acceptance... with b, two b payments and with Milio, it was interesting because we could not force a closed network... But cash flow is the main driver for network effect."

The quote explains the difference between consumer payment apps, which have closed networks, and B2B payments, where an open network is necessary. Milio uses cash flow incentives to drive its network effect.

Customer Transition and Trust Building

  • Customers initially test milio with a few payments to build trust.
  • Once trust is established, customers significantly increase their transaction volume through milio.
  • Trust-building is a critical phase before customers fully adopt milio for their payment needs.

"So we definitely see customers test us with a few payments... And then when trust is formed we see a significant increase in terms of the wallet share that goes through the Milio product."

This quote describes the customer onboarding process where trust is built through initial test payments, leading to a larger share of their transactions being processed through milio.

Competition and Market Positioning

  • Milio focuses on a segment that is underserved by existing accounts payable automation solutions.
  • The target market includes small businesses that do not have internal finance professionals.
  • Milio's simplicity and focus on cash flow resonate with small business owners who find other tools overwhelming.

"We basically said there are so many small businesses in the US... These businesses, they see the big fancy accounts payable automation solutions as overwhelming to use... What these businesses care about is cash flow, not automation."

The quote highlights milio's strategic focus on small businesses that prioritize cash flow management over complex automation features offered by competitors.

Ancillary Products and Timing

  • Offering credit is a natural extension for a payment system.
  • Milio is considering partnerships to offer credit services, as it aligns with their focus on being a leading B2B payments platform.
  • The complexity of credit underwriting and maintaining a balance sheet makes partnerships more appealing than in-house development.

"It is, I would say, a very integral part to a high engagement payment system... So this is probably a partnership rather than a build decision, but definitely something that we're aiming on building and have concrete plans on."

The quote indicates milio's interest in adding credit services through partnerships, acknowledging the importance of credit in payment systems while maintaining focus on their core product.

Fundraising Strategy and Stealth Mode

  • Milio's fundraising strategy was based on setting goals and understanding resource needs.
  • The company grew faster than expected, leading to revised goals and the realization of additional funding requirements.
  • Milio stayed in stealth mode until it was necessary to raise more funds for expanding the team and operations.

"I think we grew a lot faster than we've expected over the last year... we suddenly realized that we need a lot more funds in order to hire the team that we want."

This quote reflects on milio's unexpected growth, which prompted a reassessment of goals and the decision to raise funds to support the expansion.

Fundraising and Growth

  • Matan Bar discusses the decision to raise funds aggressively due to the company's rapid growth and hiring needs.
  • The company raised funds during their Round C in August and then again to support further expansion.
  • Growth from 30 to 200 employees in one year was facilitated by the additional fundraising.
  • Matan emphasizes that without the fundraising, taking such risks would have been daunting.

"And so that was a trigger for us to say, okay, we need to be, or we can be more aggressive, and now is the right time to raise the funds. And that's why we did it." "We grew from 30 people in January 2020 to 200 this January."

The quotes explain the rationale behind the fundraising efforts and the significant growth in employee numbers that resulted from the financial support.

Maintaining Company Culture

  • Matan Bar highlights the challenge of maintaining company culture amid rapid expansion.
  • He compares shaping a company's culture to influencing the personality of a young child versus an elderly person.
  • The initial employees set the foundation for the company's culture, which becomes harder to change as the company grows.

"The culture of this team, of this company, will be dictated by your personalities." "It's like taking a baby versus elderly men."

Matan uses the analogy of influencing personalities at different life stages to illustrate the importance of establishing a strong culture early in a company's life.

Leadership and Self-Doubt

  • Matan Bar credits a strong leadership team for helping manage self-doubt as a leader.
  • He emphasizes the importance of teamwork and having a reliable leadership team for decision-making.
  • Open, honest, and direct conversations within an inclusive culture are key to addressing doubts.

"Luckily, I have a great leadership team, so I trust our leaders with many of their decisions and consult with them on an ongoing basis." "We do have a naturally inclusive culture."

The quotes underscore the significance of a supportive leadership team and an inclusive culture in navigating the uncertainties of leadership.

Delegation and Organizational Structure

  • Matan Bar discusses the transition from direct reporting to a culture of delegation as the company scaled.
  • The company's organizational structure is reviewed monthly to ensure alignment with goals.
  • Decisions on organizational changes are made based on company needs rather than following a prescribed best practice.

"We always based on need and not based on recipe." "We have an HR review to see, evaluate specific performance topics."

These quotes explain the company's approach to organizational structure, emphasizing adaptability and alignment with company objectives.

Board of Directors' Role

  • Matan Bar talks about the diverse perspectives of board members and their role in providing external focus areas.
  • The board's input prompted the company to address diversity early on, leading to a balanced gender ratio and leadership team.
  • The board provides valuable advice on where to focus efforts and how to improve the company.

"We have a few incredible investors that are very different from one another." "It's the board that gives you this external perspective."

Matan highlights the benefits of having a diverse and opinionated board that offers external insights and advice.

Selective Advice Ingestion

  • Matan Bar discusses the selective process of ingesting advice from the board.
  • The founding team's expertise in product, user experience, and design leads to less feedback in these areas from the board.
  • Feedback on areas like scaling the team and hiring decisions is considered invaluable due to the board's experience.

"There are certain areas where our investors just have seen a lot, they've seen a lot of mistakes." "Which leaders to hire or which type of CFO should I hire? This is not something that I had experience with."

These quotes emphasize the importance of discerning which advice to take on board, especially in areas where the founders lack experience and the board has valuable insights.

Gender Diversity and Equality of Opportunity

  • Matan Bar emphasizes the importance of creating equality of opportunity rather than aspiring to a 50/50 gender ratio.
  • Matan Bar discusses the steps taken to make Melio an attractive workplace for female engineers, especially after maternity leave.
  • Melio introduced flexible programs for young mothers returning from maternity leave to ensure a balanced transition back to work.
  • Paternity leave programs were also implemented to support new fathers.
  • Active participation in conferences and events for women engineers helped promote Melio's culture and values.
  • The focus on equality of opportunity led to a more balanced gender outcome at Melio.

"So we just worked hard to create a real equality of opportunity." "For example, with engineering, women engineers can find Melio or be comfortable joining Melio, handling different concerns that might be relevant for female engineers that might not be relevant for male engineers." "We created programs to create a lot of flexibility for young mothers that came back after maternity leave so that they can actually have a very balanced graduation into back to work."

The quotes illustrate the conscious effort by Melio to foster an inclusive and supportive work environment, particularly for women in engineering and young mothers. They highlight the practical steps taken to address specific concerns and promote equality of opportunity in the workplace.

Importance of Financial Inclusion

  • Matan Bar was influenced by the book "The Unbanking of America" by Lisa Servon.
  • The book highlighted the critical role of financial inclusion and the democratization of financial services.
  • Matan Bar's work in fintech is motivated by the potential to change lives by making financial services faster, cheaper, more efficient, and more accessible.
  • He acknowledges the significant number of people without access to basic financial services and sees fintech as a solution.

"I guess one of the books that influenced me most is the unbanking of America by Lisa Servon." "It's just crazy how many people are not having access to very basic financial services. So fintech helps there."

The quotes reflect Matan Bar's commitment to financial inclusion and the impact that fintech can have in improving access to financial services for those currently underserved.

Challenges in Hiring Senior Leaders

  • Hiring any senior leader is challenging due to the importance of their values and leadership style.
  • The difficulty lies not in finding expertise and skills but in aligning with the company's culture and direction.
  • Great leaders are essential as they set the example for the team to follow.

"Any senior leader is always hard, regardless of the profession itself, whether it's marketing or product or sales." "And so hiring great leaders is just scary. And that's one of the biggest challenges for us and in any other startups, not because of the expertise and skills, but because of the values and the leadership style."

The quotes convey the significance of hiring senior leaders who not only possess the necessary skills but also embody the values and leadership style that resonate with the company's ethos.

Desired Traits for Children

  • Matan Bar values humility, honesty, and a learning mindset for his children.
  • He believes in the importance of being genuinely honest, which he views as a spectrum rather than a binary trait.
  • Encouraging a 'learn it all' rather than a 'know it all' attitude is crucial.

"I think being humble, I think it's something that is very important, being honest, like real honest." "Honest is not a yes or no. There's a spectrum for honesty." "So being really honest and just being a learner, like, learn it all, not a know it all."

The quotes emphasize the personal virtues Matan Bar considers essential for his children to adopt, reflecting his values and approach to personal development.

Admiration for Roger Federer

  • Matan Bar admires Roger Federer for his seemingly effortless style and perfect execution in tennis.
  • He draws a parallel between Federer's precision and skill in tennis to the desired execution style for product development at Melio.
  • The effortlessness observed in Federer's play is seen as a result of accuracy and skill, which Matan Bar respects.

"I just admire the guy and his style." "Effortless. When things look effortless, it means that you don't need to work hard, you just need to be very accurate."

The quotes reflect Matan Bar's admiration for Roger Federer's mastery and how it inspires his vision for product execution at Melio.

Choosing Investors Over Valuation

  • Matan Bar prioritizes the character of investors over higher valuations.
  • Melio has consistently chosen investors with whom they want to work most, even if it meant accepting lower valuations.
  • The difficulty in choosing the best board member is compared to selecting a favorite child, indicating the quality of all members.

"We turned down higher valuations than the ones we took from our current investors on every round." "We always received higher valuations, but we picked the investor that we want to work most with."

The quotes demonstrate Matan Bar's strategic approach to selecting investors based on their alignment with the company's values and the long-term working relationship rather than solely on financial terms.

Vision for the Future of Melio

  • Melio's mission is to keep small businesses running through simple B2B payments that maximize cash flow and minimize busy work.
  • The next five years are seen as a critical period for the transition from paper checks to digital B2B payments.
  • Matan Bar envisions Melio as a leader in driving this digitization and becoming the leading B2B payments platform in the U.S.

"Our mission is to keep small business in business, and we do that with simple B2B payments that maximize cash flow and minimize busy work." "Digitization will happen and Melio is there to work hard to accelerate that."

The quotes outline Melio's dedication to supporting small businesses and leading the shift towards digital B2B payments, highlighting the company's strategic goals for the upcoming years.

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