Lean boxer punching bag

The vast majority of consumer payments are processed digitally, but this is hardly the case in the enterprise. The B2B (business-to-business) market still relies on all manner of paper solutions, including checks, invoices, and receipts, all of which drive inefficiency. That’s why Chrome River CEO Alan Rich believes “there’s much more room and need for financial innovation in the enterprise than there is, for example, around mobile wallets.”

Across the enterprise, SaaS software is replacing traditional on-premise software solutions while also rendering analog processes utterly obsolete. But the area of expense management and automated invoice processing has been remarkably disruption-free during the recent cloud software revolution – or at least so it’s appeared. While flying under the radar in Silicon Valley, Los Angeles-based Chrome River has has grown into a force to be reckoned with in the category, ranking No. 81 on the Deloitte’s Technology Fast 500 and No. 1,429 on the Inc 5000. It did so by focusing at the outset on the legal and professional services markets, a category its founders know inside and out, rather than selling chiefly to fellow technology companies.

Today, Chrome River announced a $17 million Series C round led by Bain Capital Ventures. It marks the company’s second outside financing round, following a $3 million, self-described Series B round raised in May 2012 from First Analysis and Argentum, who also participated in this latest round. The company was previously founder-funded from its inception, representing its “Series A,” and will provide limited secondary liquidity to founders and employees as part of this latest financing.

Chrome River was founded in 2007 by Rich and Dave Terry (COO), who brought with them valuable experience gained while building their previous company, legal accounts and billing platform Elite (acquired by Thomson Reuters). The pair realized that law firms and nearly every other business struggles to manage expenses and pay supplier invoices efficiently. They formed Chrome River to build a SaaS platform that helps companies control costs, manage compliance, and drive efficiency through smarter expense managemnet. The platform doesn’t replace a company’s existing accounts payable software, but rather integrates with these systems and adds a front-end module (a browser-based dashboard) that non-finance employees can use to input expense and invoice information.

Not surprisingly, Chrome River relied on its founders’ existing relationships and market knowledge early to dominate the legal industry, outgunning legacy competitor and industry 800-pound gorilla Concur handily in what was effectively their home turf. It has now signed over half of the Global Top 100 law firms, and nearly half of the US Top-200 law firms. With that beachhead won, Chrome River has expanded rapidly into other professional services categories in the last year, adding several top accounting and consulting organizations, as well as universities, hospitals, and nonprofits. More than 30 percent of the company’s business is now outside the legal industry, a figure that it expects to see cross 50 percent by end of this year.

All told, Chrome River has grown at compound rate of a 50 percent per annum over the last four years, and 45 percent over the last two years. Fifteen percent of its revenue now comes from international clients, but the latest funding round should help drive greater geographic diversification.

“We want to maintain our growth rate, and this round will allow us to do that,” Terry says. “I like to say, you need to bulk up the whole company proportionately, across all units – sales, service, support, implementation, engineering. If you don’t it will sink you.” Apparently it wasn’t hard to find the cash, according to Rich, who adds, “You make the Inc 5000 the VCs start calling you constantly. It’s like an investor lead-gen service.”

“It’s rare to find a company who has grown this large and this efficiently without the benefit of lots of capital, but that’s our ideal scenario,” Bain partner Matt Harris says. “Capital efficiency is still a good thing, even though we don’t talk about it much. It demonstrates good habits at a management level – lots of things have to work. Could they have grown faster with access to more equity? Perhaps. But they would have likely picked up a number of bad habits along the way.”

Chrome River may be the shiniest new tool in the expense management tool box, and it’s surely more agile and modern than its that 20-year-old rival. But Concur is still a behemoth with a $5.9 billion market cap and $546 million worth of revenue over the last year. Companies like this don’t go away quietly, meaning Chrome River better gear up for a fight.

Chrome River’s value proposition relative to Concur are the product’s visual appeal and ease of use, according to its founders. “We had the benefit of designing the product recently, with modern technologies,” Rich says, implying but not saying outright Concur is outdated. “We built our platform on top of sophisticated business rules engine that allows us to offer automation and help businesses drive efficiency and improve workflows.”

“The biggest misconception about our business is that people think that the value comes from labor-savings and being more efficient in the AP department,” Terry says. “We think the bigger part of our value is improving business workflow and maintaining flexibility in changing business environments. We help companies drive fast, efficient communicate, watch their budget, capture information for deeper analysis, and gather signals to improve things early.”

Harris says that Bain’s general targets for SaaS companies are to maintain or exceed 40 percent annual revenue growth, retain 97 to 98 percent of customers year-over-year, and maintain gross margins north of 85 percent – all metrics against which Chrome River is delivering, he notes. Add in continued product, industry, and geographic diversification, he adds, and it becomes evident why this was an extremely attractive investment opportunity.

“If we had found them at a time when they had only proven themselves in the legal category and we had to make a bet that they could expand elsewhere, that would have been a much harder sell,” he says. “But today, over 30 percent of business their is outside this core vertical. We think they’ve already proven that they can do more.”

[Image via WallCG]