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Wall Street Journal

FinTech Company Raises $300 Million to Help Businesses Stop Using Checks

AvidXchange valued at $1.4 billion after latest funding round including Mastercard, Temasek, Peter Thiel Fund

In 2016, just over half of so-called business-to-business payments in the U.S. were made by check.

June 8, 2017 – by Peter Rudegeair

A little-known software company that helps businesses pay their bills electronically has quietly amassed more investor funding than all but a handful of U.S. financial-technology companies.

AvidXchange Inc., a firm that automates bill-payment processes for businesses, said Thursday that it raised $300 million in equity from a group of new investors to bring its service to new industries, potentially acquire smaller competitors and to expand internationally.

Investors in the funding round include Mastercard Inc., Singaporean state investment firm Temasek Holdings Pte Ltd., Canadian pension fund Caisse de dépôt et placement du Québec and and Peter Thiel, the investor and co-founder of payments company PayPal Holdings Inc.

Since its founding, Charlotte, N.C.,-based AvidXchange has raised over $500 million, more than amounts raised by Stripe Inc., Credit Karma Inc. and other well-known FinTech players.

The latest investment, one of the largest for a FinTech company since lender Social Finance Inc. announced a $500-million fundraising in February, values AvidXchange at around $1.4 billion, according to people familiar with the matter.

Other digital-payments services including Apple Inc.’s Apple Pay and PayPal’s Venmo have attracted mass followings among consumers. But the act of businesses paying their suppliers and vendors remains relatively old-fashioned with a heavy reliance on checks.

In 2016, just over half of so-called business-to-business payments in the U.S. were made by check, according to data from the Association for Financial Professionals, a trade group. That is down from 67% in 2010 but up a bit from 50% in 2013. For consumers, the percentage of bills paid by check fell to 17% in 2016 from 23% in 2013 and 37% in 2010, according to consulting firm Aite Group.

Notably, in the field of person-to-person payments, banks have banded together to develop their own alternative to Venmo called Zelle that uses a bank-owned entity to transfer funds.

In business-to-business payments, some banks, including KeyCorp and Fifth Third Bancorp, are opting to distribute AvidXchange’s products rather than develop their own. Both banks earlier took a minority stake in AvidXchange in addition to signing commercial agreements.

Mastercard will also promote AvidXchange to banks that issue credit cards that run on its network. By making the process more digital and giving customers and banks more access to data, Mastercard hopes firms will opt to use their commercial credit cards over checks when paying other businesses, said Colleen Taylor, Mastercard’s executive vice president for new-payments business.

AvidXchange CEO Michael Praeger said business-to-business payments have been so slow to move to more modern methods because the transfer of money has typically occurred at the end of a regimented process that includes multiple steps of coding invoices and getting them approved by various managers. “You don’t generate hundreds of CFOs changing a back-office product overnight,” Mr. Praeger said in an interview.

Recently, venture-capital firms and other tech investors have spent big sums to acquire stakes in other firms focused on business-to-business payments. Last month, FleetCor Technologies Inc. said it agreed to pay around $675 million to acquire Cambridge Global Payments. Billtrust, a software company focused on automating the accounts-receivable process, said last month that it raised $50 million from Riverwood Capital Management and other investors.

Founded in 2000, AvidXchange spent most of its first decade focused on making software to manage the sending and receiving of business invoices for small- and medium-size firms.

After it migrated much of that process from paper to a computer-readable format, it offered software that allowed clients to pay their bills electronically through integrations with over 130 different accounting systems. More recently, AvidXchange entered the business of lending clients money against invoices that may not be paid for 30 days or so.

The company has expanded to around 850 employees, including the recent addition of former senior executives from eBay Inc and Capital One Financial Corp to top roles. In its recent financing, AvidXchange was advised by investment bank Financial Technology Partners LP.

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