Recurly, the payments platform for over 2,000 subscription businesses like CBS, Showtime, and Twitch, just received a majority equity investment from tech-focused private-equity firm Accel-KKR.
The deal highlights investors ongoing interest in companies that can help customers — whether they’re people or businesses — better manage how they pay their bills.
The investment also points to another burgeoning trend: subscription-based business models.
“Being in business for 10 years, we’ve seen the broad development of the market,” Dan Burkhart, CEO of Recurly, told Business Insider. “Accel-KKR is definitely an astute investment firm that has also recognized the same broad trend of businesses moving quickly to adopt the subscription model.”
The subscription business model isn’t new, but in recent years, more businesses have come around to the recurring-payment structure.
“In the last five to six years specifically, there has undoubtedly been a secular trend here that is a broad market adoption of the pay-as-you-go subscription model,” Burkhart said.
And during the coronavirus pandemic, businesses have become more cost-sensitive, looking to limit the amount of time and resources needed to manage their subscriptions, Burkhart said.
Recurly, which helps companies manage the payments side of having a subscription, saw sales increase 210% year-over-year in June, he added.
Financial details of the transaction were not provided.
The company was founded in 2009, and raised $39 million from investors including Fidelity, Greycroft, and Silicon Valley Bank.
“Companies are now really starting to appreciate the additional costs of personal interactions and the friction of the purchase decisions. So they’re trying to make it as easy as possible to offer their services,” Burkhard said.
Fighting churn in the subscription economy
Recurly specializes in subscription businesses that largely rely on credit cards and have complex payment plans, like free trials and add-ons. And while one-time payments are relatively simple for merchants to process, recurring subscriptions are more prone to error, Burkhart said.
Banks and card networks all have different fraud-monitoring processes that look at a laundry list of factors when assessing whether to approve a transaction. And false negatives, when cards are declined by mistake, is a burden for subscription businesses.
“That side of the equation is where subscription businesses encounter challenges, which is when good cards will often be declined for a variety of reasons. It can be time of day. It can be at the transaction amount,” Burkhart said.
“It’s a complex system and that complexity results in credit cards being declined for false reasons,” Burkhart said. “That results in what we refer to as involuntary churn for subscribers.”
Be it a fraud monitoring block or even an expired card on-file, subscription businesses lose customers when they can’t process these payments. Recurly aims to eliminate those false positives and increase the likelihood of payment acceptance for subscription businesses.
“Most companies will elect to outsource or hand-off this responsibility to Recurly rather than trying to build it on their own, because they ended up having to hire and build infrastructure that ends up being far more complex than they anticipate,” Burkhart said.
Recurly is eyeing growth internationally with Accel-KKR
With this deal, Recurly is eyeing growth both in new markets and through new forms of payment. About 17% of Recurly’s businesses are outside of the US, and Burkhart expects to continue expanding through 2021.
“When [Accel-KKR] expressed interest in investing and partnering with Recurly, we were of course amenable and very excited about the idea of bringing their expertise to bear in a way that will allow Recurly to supercharge our growth,” Burkhart said.
Recurly currently accepts 140 currencies, and has added payments in more prominent in international markets, like direct bank debit and the EU’s money transfer standard Single Euro Payments Area (SEPA).
And as is often the case with private-equity firms, Recurly could grow through partnerships with Accel-KKR’s other portfolio companies.
“They’re a growth-equity firm, but of course they’re also acquiring companies that allow us to now have the ability to grow and expand by way of both organic and inorganic activity,” Burkhart said.
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