Crains New York - April 1, 2013 - (Page 20)

SMALL BUSINESS Zipmark takes on banking giants BY ELAINE POFELDT J eff Ng keeps a close eye on cash flow at his digitalproducts studio, Eastmedia. With checks from clients sometimes taking more than 45 days to arrive and clear, he recently tried Zipmark, a service that speeds up access to the funds. “The money comes to me literally in one day,” he said. Zipmark, launched by former Citigroup executive Jay Bhattacharya in March 2010, lets businesses get this next-day access to funds from checks deposited in their business bank accounts in exchange for a 1% fee on the transaction, up to a $5 maximum. “It helps me run my business a lot more efficiently,” said Mr. Ng, whose Flatiron district firm em- PERCENTAGE ploys 10 people. of U.S. small business owners Now, when he who don’t accept sends an invoice credit cards by email using Source: Intuit FreshBooks, he can give clients the option to send money by electronic check from their bank accounts to his. Zipmark may make sense for businesses that need to access cash right away and for which checks are a common payment method.Taking credit cards is the alternative, but card processing fees are high, averaging about 2.9% plus 10 cents per online sale, said Mr. Bhattacharya. Matt Harris, managing director 55% of the New York office of Bain Capital Ventures, said he invested in Zipmark at his previous firm, Village Ventures in Williamstown, Mass., because it seemed like a good alternative for merchants, rather than accepting credit cards.“A model built on checks could penetrate as a lower-cost model,” he said. The fees merchants pay for accepting credit cards depend on their industry and the type of credit card a customer uses. For example, American Express charges computer programming businesses 2.89% to 3.2%, plus 15 cents per transaction in its traditional merchant account. Using Square, a service that turns a mobile phone into a card reader and offers next-day deposits, merchants pay a flat fee of 2.75% per transaction. Waiting on checks Mr. Bhattacharya, who helped launch Citi’s internal venture-capital arm,started his nine-person business with serial entrepreneur Jake Howerton, who has built billing systems. They noticed that banks were sitting on checks deposited in business bank accounts. The Federal Reserve’s Regulation CC, which tells banks how long they may hold checks, gives them broad latitude. For “nonlocal checks,” written from banks outside the same checkprocessing region, they can wait five days, for instance. And for new bank accounts, they can wait up to nine days in certain cases. While many business owners grouse about the system, banks “are not incentivized to change it,” Mr. Bhattacharya said. “They’re making money on the float.” According to Nat Wasserstein, who often advises local companies with cash-flow problems at his crisismanagement firm, Lindenwood As- CITIGROUP VETERAN Jay Bhattacharya has tapped his banking experience at Zipmark. buck ennis Venture capitalists bet on a new startup that helps small firms manage cash flow sociates, Zipmark could help many businesses that now depend on factoring, a financing option that is typically more expensive. “It’s like having a factor without having to pay a factor,” he said. Zipmark offers volume pricing for businesses that do a large number of transactions. The Yext best thing in search Continued from Page 3 And though its partnerships with publishers and search engines do not include Google—increasingly the 800-pound gorilla of local search—Yext plans to grow its footprint through social media. It’s betting that people will increasingly find where to eat, shop or play through sites like Facebook. In the meantime,Yext is on a tear, having more than tripled its business in 2012. “We solve a huge problem for businesses,” said co-founder and Chief Executive Howard Lerman.“And it’s a huge market. Every business on the planet needs our software.” The company will finish 2013 with around 300 employees, up from 175 right now, Mr. Lerman added. And its customer list is growing even faster. Yext finished 2012 servicing 100,000 businesses, up from 30,000 the prior year, and expects its subscriber rolls to top 1 million by the end of 2015. It also now includes a handful of Fortune 500 companies and more than a dozen top retailers among its customers, 60% are large companies. The rest are small and medium-size businesses. Mr. Lerman declined to discuss the company’s finances other than to say revenue was in the eight figures. Yext charges businesses a fee of $499 a year, but some customers subscribe through resellers and pay less. Forget Felix Yext’s plans for world domination arebacked by a war chestthat includes $27 million from a Series E funding round last June and a reported $30 million from the August sale of Felix, a performance-based advertising operation.Felix was its core business before Yext spun it off last April to reinvent itself around its Power Listings, which it launched in 2011. It kept its “next Yellow pages” name despite the fact that the company has moved beyond listings, a spokeswoman said. “The business is growing faster 20 | Crain’s New York Business | April 1, 2013 send clients an email asking if they’d like to pay electronically through a checking account. Customers have the option to use an iPhone app from Zipmark to scan bills and QR codes and make secure electronic check payments from their bank accounts to registered merchants for free. Zipmark can then use its internal risk-management algorithms, which tap into public information such as credit histories and privately negotiated data to instantly assess the likelihood that a customer’s check will clear. “Our goal is to get the businesses paid as fast as possible,” Mr. Bhattacharya said. If a check were returned and a customer failed to deposit the funds to cover it, Zipmark would send it to a specialized check-collection agency, he said. than almost anything we’ve ever seen in the software space,” said Jules Maltz, a general partner at Institutional Venture Partners. The Silicon Valley firm, whose portfolio includes Dropbox and Twitter, has taken part in three funding rounds, including last June’s, which valued ‘Our bet is, we don’t know who is going to win in local’ the reinvented Yext at $270 million, according to Business Insider. The firm has raised $66 million overall since its 2006 founding. Yext hardly has the listings market all to itself. New York-based Businesses can use Zipmark if they prepare invoices using software such as WorkingPoint, Apptivo, Toast Invoice, FreshBooks and Harvest, or a variety of real estate and utility payments software programs, said Mr. Bhattacharya. Participating merchants can SinglePlatform, part of Constant Contact, offers a similar service and has 20,000 businesses signed up. Giant data vendors and listings providers like Infogroup and Neustar Localeze also connect businesses with publishers, though analysts say that the big selling point for Yext is that it gets all of its information directly from businesses and enables updates to be made instantly on its partner sites. Yext also pays its partner sites and can ensure that a business’s listings are carried across all of them—something that data vendors don’t do. Yext’s biggest challenge may be the absence of a relationship with Google, just when the behemoth is beefing up listings on Google+ Local with content from recent acquisitions Zagat and Frommer’s travel guides. The search giant has also been riling Yext partners like Yelp,which has accused Google of giving preference to its own listings in search results. Yext wants no part of that fight. Mr. Lerman said he’s optimistic about eventually working directly with Google. For now, he insists Yext captures a healthy enough Utility customers Launched in the Partnership Fund for New York City’s FinTech Innovation Lab, Zipmark has raised just under $3 million in seed funding from investors such as Village Ventures, New York City firms Contour Venture Partners and High Peaks Venture Partners, and NYC Seed, the city’s seed fund for startups. About six months ago, Zipmark made a deal with Supply Hog, an online building supply store, that lets contractors pay by check. “Now we do about 80% of their dollar volume,” said Mr. Bhattacharya. Besides small businesses, Zipmark has also gone after bigger firms that do recurring billing, from utilities to property management firms that collect rent checks. In 2012, Mr. Bhattacharya said, it processed “millions of dollars on a monthly basis”—with volume growing more than 100% a month today. However, it hasn’t yet turned a profit, he said. Ⅲ To sign up for Crain’s SMALL BUSINESS newsletter, go to www.crainsnewyork.com/smallbiz. chunk of the market through its current partners, which also include local search giant YP and MapQuest. Graphically social Moreover, he sees social media as the future of local search, whether through Foursquare (a Yext partner), Google+ Local or Facebook’s “social graph,” which will supply search results based on users’ “likes” once it’s rolled out. Though Mr. Lerman declined to provide specifics, he said Yext was “in discussion” with a number of companies. “Yext realizes a full online identity increasingly means social,” said Jed Williams, director of consulting at research firm BIA/Kelsey. “As Facebook gets more organized and serious around local and graph search, it makes a lot of sense for Yext to move there.” At the same time, Yext remains focused on carrying listings in as many places as possible. “Our bet is, we don’t know who is going to win in local [search],”Mr. Lerman said. “So we don’t have to bet on any publisher being the biggest.” Ⅲ http://www.crainsnewyork.com/smallbiz

Table of Contents for the Digital Edition of Crains New York - April 1, 2013

IN THE BOROUGHS
IN THE MARKETS
THE INSIDER
BUSINESS PEOPLE
OPINION
BOB PREVIDI
GREG DAVID
REAL ESTATE DEALS
HEALTH CARE REPORT
CLASSIFIEDS
SMALL BUSINESS
NEW YORK, NEW YORK
SOURCE LUNCH
OUT AND ABOUT
SNAPS

Crains New York - April 1, 2013