July 20, 2024
How African startups raised funding in 2023

A startup out of Paris that began life building marketing tools has raised $22 million after making a successful pivot into billing — a space it discovered was even more broken among potential customers. Lago, developer of an open source billing platform, has picked up the funding across two rounds of funding it’s revealing to coincide with its official launch.

It’s launching today, but it has been in business in closed beta for some time, during which it’s picked up a number of notable startups such as Mistral.ai, Together.ai and Juni as early customers. The company’s focus on open source is very intentional, said CEO Anh-Tho Chuong: It’s targeting developers who are looking for solutions to tailor their billing to fit whatever cutting-edge, creative new services they are cooking up, a gap in the market that Lago believes is not being addressed well enough by incumbents, and which Lago is betting might best be addressed through an open source approach.

“We’re a partner to developers,” she said in an interview. “We honor [their] abstraction, and we use data to meter usage, to help companies handle subscriptions [or other] pricing plans in an easy way.”

A strong list of investors have taken note: The latest Series A of $15 million was led by FirstMark; the previous seed of $7 million was led by SignalFire, Chuong said. Other backers include Y Combinator, New Wave, Addition (Lee Fixel’s fund) and Script, as well as a number of individuals whose participation underscores the segment of the market Lago is targeting. They include MongoDB monetization head Meghan Gill; Romain Huet (previously of Stripe, now in developer relations at OpenAI); and Hugging Face CEO Clément Delangue.

We understand from sources that its valuation is now around $100 million.

The Lago doing business today as a billing platform got its start in a very classical startup way: It had no idea that it would be a billing platform.

Chuong and her co-founder Raffi Sarkissian were both working at business banking startup Qonto when they decided to strike out on their own and build a new startup. They applied to Y Combinator and got into the Summer 2021 cohort on the strength of their backgrounds. “But we went to YC without a product,” she said.

They settled while there on marketing, specifically around the idea of building a “Zapier for marketing teams.”

“We honestly thought this was going to be a big one,” she recalled. “It was okay.” Okay was just not going to cut it though. Marketing tech is very crowded, the company was picking up almost no traction for its product.

In a moment of trying to growth hack their way into an audience, Sarkissian decided to write a post for Hacker News in which he lamented the problems with billing for developers.

It had a catchy title: “Billing systems are a nightmare for engineers,” and it was written with the kind of freedom you might only be able to capture as a creator when you are really writing from the heart. That was because it was something he and Chuong knew well, since their time at Qonto was spent building a product to address that very issue.

Chuong said this was really not the point. The impetus for posting on this was to pick something they knew well so that they could monitor engagement and possibly use that to pivot attention to Lago, the “Zapier for marketing teams.”

But the post struck a nerve, and to their surprise a lot of people began to speak up about their own billing issues. Lago had its “a-ha” moment: If what they really wanted to do was build something to solve a problem for developers, here was a problem they actually could solve, and they knew they could do it well. Cue the pivot to billing and the startup taking off.

Taking off not just with users, but also investors.

“We first spotted Lago via HackerNews in early 2023: They had so much traction, for a seemingly solved or trivial topic, that it seemed obvious people had been waiting for an open source solution like theirs. We then reached out to their stargazers on GitHub and the feedback was nothing but stellar,” said Oana Olteanu, a partner at SignalFire, in a statement.

If you think marketing is a competitive market, billing is more crowded than Billingsgate Fish Market on a Friday morning. Larger tech companies like Stripe, Adyen, Salesforce, Zoho, Paddle and many more offer billing solutions. There are even a number of providers already pursuing an open source approach, including FOSSBilling, ChargeBee, Kill Bill, AppDirect’s jBilling and the imaginatively named “Open Source Billing.” (Why beat around the bush?)

Chuong believes that there is still very much an opportunity, however, for a focus on extensibility and tailored solutions for startups trying to push the boundaries in their own competitive spaces.

The AI sector is a strong example of that, in her view. Companies building AI-based products are still working out what the viable business models will be, and in the meantime we are seeing a lot of examples of companies considering hybrid approaches, mixing elements of flat-rate subscriptions with consumption-based pricing. All of this is tricky to manage and relies on tools that can integrate with whatever developers are building, with the ability to discern and apply their usage data.

“If you have very simple pricing and billing, there are a lot of those solutions around for that, but for complex billing, there has been no solution,” she said. That leads to many companies (as Qonto did) building their own solutions. “But engineers hate it. And it’s very expensive to hire engineers for that, obviously. So it’s still an unsolved problem.” In Lago’s view, offering open source tools is that best solution to meet a variety of needs and ideas.

For some of those users, the open source ethos also lines up with what they are hoping to espouse themselves as businesses.

“We chose Lago as our billing provider because we believe in the open-source ecosystem,” Timothée Lacroix, co-founder and CTO at Mistral.ai, said in a statement. “They have been able to follow the pace of our releases and have allowed us to focus on what we do best.” Yes, some will argue that open source might be getting stretched a lot as a concept right now, and may well be exactly the opposite of what many so-called open source companies are building.

The company’s aim is to continue building out its existing business but also to start considering what more it might add next. One obvious area is to dip back into Lago’s original thoughts about marketing, and to provide more data analytics to customers about what people are consuming and paying for, and the patterns of their payments. Another is to explore the other side of the billing coin: payments.

Lago is unlikely to build a payments stack; however, she added: The focus is almost certainly going to be on payments orchestration, giving users control over what they use but make sure that it integrates well with their billing platform (one that is, ideally, going to be covered by Lago of course).

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