Lystable, a startup that makes a workflow managementplatform aimed at businesses needing tomanagelots offreelancers, has topped up its Series A again this time with an additional $10 million, which founder and CEOPeter Johnstonsays will be used to fund a change of business model with a payments focus.
TheTechstars London-incubated startup and 2015Disrupt London battlefield finalistfirstclosed aSeries A last June, taking in $11 million at the time, led by Peter Thiels Valar Ventures and Goldcrest Capital. Spring Partners also participated, and Max Levchin joined the roundsoon after.
The latest expansionround which Lystablesays brings itstotal Series A to $21 million, and total raised to date to $25 million is again led by Thiels Valar Ventures. Existing investors Levchins SciFi VC (formerly HVF Investments), Kindred Capital and Goldcrest Capital also participated, along with new investors Glynn Capital and Wilmont Ventures.
So whats with all Lystablesfunding top-ups? In essence this is down to the startuptrying tofigure out its market fit, and find out what else itneeds to build to get there.
Johnston says the teamraised much of the earlier Series A off the back of a couple of big enterprise deals (Google is a customer, for example) and while thesebig checks evidently excited investors, they also turned out to be misleading given the core conviction driving Lystableis that work will be increasingly unchained from big centralized functions. So trying to sellanenterprise solution wasnt where the startupfelt it needed to be, certainly not at this stage of itsdevelopment.
I know the freelancer economy on the corporate side is still pretty new, and still being defined, but after we did those projects we realized we needed to become a team product, Johnston tells TechCrunch. We still maintain those enterprise clients but we didnt set out with a mission to help big corporations centrally control freelancers. Thats not what the future of work is about. Its about freedom, and its about not having boundaries, and not being held back by crappy HR process and un-smooth onboarding. Anyone should be able to work with whoever they need to get the task done the best way it could be done.
So, whileultimately Lystable isbanking on the rise of the gig economy generally fueling demand for its freelance management platform and even, Johnston reckons, with potential to expandintosectors such as banking and healthcare down the line, when the market need for overhauled freelancer management softwarebecomes more widely established the platformstillneeds to mesh with theneeds of thecurrent users, inthe media and tech space; aka sectorsthat are more free and open to early adopting new workflowtools.
Hence Lystable quickly making itsplatform free, and now preparingto switch to abusiness model thats centered on building apayments solution for companies to more easily remitfreelancers. This payments piece will be apremium add-on to what Lystablenow calls its freelancer collaboration app with the plan being to launch a beta at the end of the year. And givenpayments isnow itsmonetization focus, its clear whyLevchins interest ispiqued. The PayPal co-founder is also now joining Lystables board.
As they went about rethinking the market fit last year, Johnston says the team explored various different business models, including launching a marketplace (privately), and getting a bunch of freelancers hired by Airbnb and Farfetch. Butultimately, he says, they decided to steer clear of arecruitment and/or marketplace approach given how many existing players are already at work inthat space.
Instead, the business model pivot hinges on identifyingan ongoing pain-point that was holding back the smooth running of the freelancer collaboration app which he says wasotherwise effectively plugging into all sorts of business functions and tools, and had been seeing usage growingsignificantly. So themissing premium piece theyre now seeking to bolt on isintegrating the process for payingfreelancers.
In the app you manage profiles, you assign work and you track [and can generate] invoices, and you integrate with tons of tools at each level. And then what happened was it was being sent off to payroll and the finance departments in these companies, he explains. Because, on the team side of our product, the finance was still being taken care of traditionally, through the finance department, the freelancer experience just broke down. They would never know the status of their invoice, they would never get paid on time, it just felt like on both sides there was an admin problem.
The pain of this problem is not just for the freelancers waiting for and wondering wheretheir money is, arguesJohnston, assertingthere also are compliance and administration hassles for employers trying to centralize payment of (a growing number of)dispersed freelancers via a single finance department.
Does The Economist [another Lystable customer] really want to be paying 1,500 freelancers a month in the same department that theyre paying their full-time staff? Absolutely not, he argues. Its a compliance nightmare, theres so many different ways you need to do it to be compliant with the IRS. International transfers become another headache. You literally cant do a direct bank transfer from an American bank into some countries.
Max [Levchin] had gotten more excited about the freelancer economy, and particularly the ability for us to leverage the fact that we build this freelancer workflow tool and the position that that could put us in for potentially solving payments admin and compliance admin for both the client and the freelancers, he adds.
Lystable launched an early version of the payments product at the end of last year to test the idea with a few customers. But now, fueled with additional funding, its preparing to cement the switch. As of next month Johnston says the workflow management platform will be freely available to anyone to sign up (currently, whilefree, its gated with an invite requirement) with the hope after that being a public betaof the payments product launching in December, and a full launch pegged for Q1 2018.
The question remains how large a marketLystable isgoing to find for this premium payments add-on. Johnston concedes that for companiesmanaging just a small number of freelancers it will be competing with the relatively low hassle of remitting via the likes of PayPal or Stripe. Andthen for larger entities say those handling 1,000 freelancer invoices per month it will be facingthe inertia of traditional business processes andthe established grip of centralizedfinance departments.
Its definitely difficult, he says. The early adopters of our payments product are the people that just see the admin nightmare. In the same way when we first brought this new collaboration app to teams that were working with lots of freelancers, we needed the ones that experienced the pain to such an extent that they were willing to say ok, lets talk about revising our workflow and investing this new workflow through the Lystable app. And its that same thing.
I think the biggest challenge here is you cant just go and say hey lets come and dothis now. We have to integrate, he adds.We need to have that backwards compatibility with the existing payments and payments systems. And a lot of reasons for the funding is to build much more of a robust payment experience product team around that. Because even if were responsible for the autogeneration of lots of forms and handling ofadmin around payments, we will still need to speak to the more dominant, full-time, employer payroll system.
Lystable has some 2,200 customers of its freemium product at this point. On the hiring front, the now San Francisco-headquartered startup is planning to ramp up from its total headcount of 42 staff currentlyto probably 75 by the end of the year including, says Johnston, plans to add additionalsenior execs in the nextmonth or so. Doubtless the hoped-for two or three heavyweights will come withplenty of payment experience to help Lystable navigate its next set of integration challenges.