Rainforest, a startup that builds payment processing into other software platforms, has raised $20 million in Series A funding, less than a year after announcing the closing of its seed funding round.
While successive rounds of funding were more common in 2021, they are less common in this new environment. Rainforest's traction likely helped it attract new investor Matrix Partners, as well as returning investors including Accel, Infinity Ventures, BoxGroup, The Fintech Fund, Tech Square Ventures and Ardent Venture Partners. In total, the company has raised $31.75 million.
Rainforest says it has seen a 17-fold increase in payment volume in the past six months alone and has signed “dozens” of platforms across a range of industries. The two-year-old, Atlanta-based company also claims its valuation has “more than doubled,” but declined to provide specific figures.
CEO and founder Joshua Silver describes Rainforest as a payments-as-a-service provider that helps software companies “build and optimize” embedded financial services. While this mission isn't unique to the company, Silver argues that the startup is doing so in a way that helps its customers increase revenue while being built for the specific needs of SaaS companies.
Rainforest is an alternative to Stripe that allows software providers to facilitate payments from end customers to business clients. For example, a software platform for residential roofing contractors could enable payments from homeowners to roofers. Rainforest claims to be different from competitors that already do this (FIS, Fiserv, Stripe, etc.) because it offers a white-glove service specifically designed for SaaS companies.
“Too many payments products are like fast food: they fill you up but don't nourish you and they slow you down. The same is true with SaaS,” Silver told TechCrunch. “Software companies can increase revenue per customer by 2-5x by adding fintech, and make more money from embedded finance than from their core products, but only if driven in the right way.”
Silver previously founded healthcare SaaS company Patientco, which he sold to Waystar, which went public earlier this month. Before founding Rainforest, he said he consulted with more than 50 software platforms on payment strategies and found dissatisfaction with existing built-in payment providers. So he set out to build a better one.
The competitors he found were typically large modern processors and PayFac providers, all of which had a DIY service model and were not built directly for software platforms, but rather were designed with merchants in mind.
“No modern processor is built specifically as a software platform. Most of them are built directly for merchants, and we've had to retrofit our platform to handle basic payment processing and reporting for software companies,” Silver told TechCrunch during Rainforest's last funding round.
As a result, Rainforest is gaining volume as software platforms transition away from older processors such as Fiserv and FIS, he said. In the process, the company is competing with companies such as Stripe to incorporate financial services and payments.
“We're purpose-built as a software platform, whereas large, modern processors like Stripe were originally built for direct merchant processing. They've retrofitted their platform to support built-in payments, but mid-market software companies are not Stripe's primary target,” Silver told TechCrunch. “We hear from software companies every week who aren't getting the support they need from Stripe. If you look at Stripe's recent annual letter and product announcements, you'll see that everything is enterprise-focused, so it's not surprising.”
Rainforest's revenue model, like that of cloud services, is entirely consumption-based, taking a small percentage of each transaction processed. Silver believes that Rainforest's white-glove service and transparent pricing have helped it win over customers.
“We have a simple and transparent pricing model, we have nothing to hide, and we're open about it on our site,” he said. “We take care of all the services that software companies typically don't have the greatest expertise in, like risk management in the payments space, merchant onboarding, compliance, and we manage all the risk for our partners.”
One of the company's biggest recent acquisitions is Keap, a CRM and marketing automation platform that has 200,000 users and processes billions of dollars in payments.
“The Keep deal was crucial because it shows we can back large incumbents and beat larger competitors,” Silver said.
Over time, Rainforest has expanded into more verticals, such as field and professional services, and deepened penetration into existing verticals such as healthcare, retail, and nonprofits.
On the product development side, the company has added support for Apple Pay, 3DS and Plaid, which Silver believes will help the platform increase payment adoption and further reduce fraud.
“We are one of the few payments providers that leverage instant bank verification to accelerate merchant onboarding,” he said.
It's a big market: Financial services embedded within e-commerce and other software platforms are expected to account for $2.6 trillion of total U.S. financial transactions in 2021 and exceed $7 trillion by 2026.
“The market we're in right now is huge and far from being penetrated. In the US alone there are thousands of mid-market vertical SaaS platforms,” Silver said. “UBS estimates total US small business merchant processing volume at $2.2 trillion, and as SMEs move away from traditional processors, an increasing percentage of that volume is being processed through SaaS platforms.”
Going forward, Rainforest plans to use the new funding to “strengthen its products and support.”
Currently, we have approximately 24 employees.
Matt Brown, a partner at Matrix Partners, believes “trillions of dollars” of payment volume are shifting from “legacy solutions to modern software platforms with embedded financial services.”
“I've spent the last decade founding and investing in companies that incorporate this software and financial services model, and I've seen dozens of approaches to payments, but nothing compares to Rainforest,” he said. “They've built a core technology, not just wrapped other technologies. They're experts not just in payments, but in SaaS, platform growth, risk, and the many other areas needed to make this successful.”
Another company in this space that recently raised funding is Forward, which allows SaaS companies to rent their services as a service and charge their own fees. The company's software resides within the customer's software, lowering costs for the customer. And Gynger gives vendors who sell technology a way to offer built-in financing through its accounts receivable platform that offers flexible payment terms. The company recently announced $20 million in funding.
Want more fintech news delivered to your email? Sign up for TechCrunch Fintech here.
Want to share a tip? Email me at maryann@techcrunch.com or message me on Signal at 408.204.3036. You can also message the entire TechCrunch staff at tips@techcrunch.com. If you'd like to communicate more securely, click here to contact us, which includes links to SecureDrop (instructions here) and other encrypted messaging apps.