Payment processing company Swipely is announcing a $12 million series B today. That’s a nice chunk of change for any company, but it’s particularly nice for one based in the not-so-techy-hot-bed of Rhode Island. For investor Josh Kopelman, the underdog location is part of what made the deal attractive…at least to him.
The round was lead by Shasta Ventures, with participation from all of Swipely’s existing investors including Greylock’s Reid Hoffman, Index’s Danny Rimer, and First Round Capital’s Kopelman. (Note: Greylock and Josh Kopelman are both investors in PandoDaily.)
First Round not only invested more– which it doesn’t for most of its deals– but Kopelman stayed on the board. That’s rare for the firm. As Kopelman explained at our PandoMonthly, the first two years of a company is when it feels it can add the most value, and it typically rotates off the board by the next round of capital.
So what is so special about Swipely? Partially, Kopelman calls founder and CEO Angus Davis “one of the best operators in the portfolio,” and it’s one of First Round’s largest bets. It’s also because Swipely pivoted about a year in, so in some respects, it’s still early. And lastly, Kopelman admits, he’s just a sucker for the companies that are outside the Valley. “Speaking as a guy in the Philadelphia suburbs, there’s something really nice about his commitment and the results he’s seeing,” Kopelman says.
Not everyone felt that way. Davis notes that Swipely’s location was an issue for several investors he spoke with, and flying back and forth from Rhode Island to Menlo Park was distracting and time consuming. “It definitely hurt us raising outside of Silicon Valley,” he says. “But a lot of people get on a plane to go to Bentonville Arkansas. Last I checked no one likes to go to Bentonville Arkansas, but that’s where Walmart is.”
Fortunately for Swipely and Rhode Island’s startup community, Davis is a known quantity. He co-founded TellMe with Mike McCue back in the late 1990s and survived the bust to sell it to Microsoft for nearly $1 billion. If you can survive the biggest tech meltdown of our times, surely you can survive being based in Rhode Island.
Swipely allows small businesses to accept credit cards, with enhanced analytics and no new hardware or software purchases. The last time I spoke with Davis the company had processed some $250 million in sales volume on its platform — that’s up to $700 million now. Davis will use the cash to dramatically ramp up his in-house sales and marketing team. “With hundreds of customers now, we’re confident our product is resonating,” he says. “We just need to grow this business faster. We have about forty people today, and we’ll probably be close to 80 people by the end of the year and 125 by the end of next year.”
He hopes Swipely’s escalating revenues can help fuel the growth. “The best capital you can raise is revenue,” he says. Amen. Particularly for a company in the middle of nowhere.
Ok, so “middle of nowhere” isn’t quite fair. Rhode Island is a tiny, tiny state. That means it doesn’t get a lot of venture capital, but it also means it’s close to other major cities in other states. It’s between New York and Boston. In fact, it’s closer to the Boston by car than Mountain View is to San Francisco. “We’re not in the boondocks. It’s a 50-minute train ride with one stop and wifi on board,” Davis says. “When I used to commute in the Bay Area, I was on Caltrain for 72 minutes and it was shaking and would break down half the time.”
But what of Chris Dixon’s contention that the East Coast is fine for hiring the first 50 employees, but the hard part comes between 50 and 500 employees? Davis and Swipely are about to enter the challenging scaling up phase that’s felled many companies outside the Valley. Davis admits scaling up that many programmers will be a challenge, but Swipely will mostly be hiring mostly inside sales folks who are typical only a few years out of college. “Rhodes Island isn’t exactly the top of the list of high growth employment right now,” he says.
Since not all entrepreneurs are lucky enough to have a TellMe under their belts, Davis advises that fellow outsiders focus on customers and revenue way earlier than you would in the Valley. “Sometimes entrepreneurs outside the Bay Area try to focus hard on trying to break into it, but that means you take your eye off the ball of growing your business,” he says.