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Europe’s unexpected new fintech investor: Checkout.com

$5.5bn payments startup Checkout.com has followed Stripe in quietly launching its own venture division

By Isabel Woodford

Credit: Kieran Kesner for Endeavor.

Venture funds and big corporations have long had a monopoly on early-stage startup investing. But promising young companies are also beginning to play in the venture game.

Among them is London fintech unicorn Checkout.com, which quietly launched a venture division this year, its chief executive Guillaume Pousaz revealed to Sifted.

The $5.5bn company has made a name powering online commerce for Deliveroo and others, and is now looking to use its healthy profits and its $150m ‘Series B’ to put money into other fintechs.

This follows in the footsteps of Californian payments-giant Stripe, which has invested in over 15 startups since 2017.

Checkout.com made its first venture-style investment earlier this year, investing “double-digit millions” into Singaporean payments-network Thunes rather than buying it outright, Pousaz told Sifted in an interview.

The fintech is now “looking closely” at adding more portfolio companies, offering an alternative to simply acquiring smaller players.

“We’re profitable, we have a very strong balance sheet. If there’s a company we want to buy, but they won’t let us — you know, the founder still has eyes full of stars — then it’s better to try to invest in the company,” Pousaz told Sifted.

“Doing [M&A] opportunistically [like this] often yields the best results.”

Asked if fintechs were eager to have Checkout.com as an investor, Pousaz responded: “We get a lot of deal flow.” He also said there is now a dedicated team currently tracking around 30 potential fintech investment targets.

It’s a fitting break from tradition for Pousaz, who seems to have a penchant for carving his own path having raised Europe’s largest-ever Series A, sidelined European investors, and famously spread his week between London and Dubai, where his two young sons and wife live.

Still, venture aside, his company — which is over a decade old and has hinted at an IPO — also seems to have a clear convention acquisition strategy, having also made two acqui-hires this year in ProcessOut and PinPayments.

“We don’t buy revenue, we pay for the team…You’re not going to see us drop 200m-300m to buy something [we could build],” Pousaz stressed.

Overall, Checkout.com has spent $40m-$50m across the three deals in 2020, Pousaz confirmed.

A popular new stream?

Amid the pressure of Covid-19, many predicted a period of aggressive consolidation in fintech. This was fuelled by companies like Revolut and OakNorth declaring they were looking to put their dry powder to use.

But so far there have been few intra-fintech deals announced in Europe

Checkout.com is one of a small pool of extremely well-capitalised fintechs that could secure a high-profile purchase. Its newfound appetite for venture investments could therefore highlight a new trend whereby top players spend their unused capital to invest in startups instead of buying them.

Still, venture is a notoriously risky game, creating both big opportunity and big losses.

Indeed, Klarna’s chief executive told Sifted last week that its venture experiment had proven too challenging.

“Why does it make sense? We don’t have the support [system],” Klarna’s Sebastian Siemiatkowski said, noting that one venture was a particular flop.

To this point, Pousaz emphasised that Checkout.com would only invest in startups that “made sense” to shareholders and could be a “logical” complement to the core business.

The startup says it now makes “well above” $100m in revenue; leaving plenty of room to tap into the $1.9 trillion generated globally each year in the payments space.

On the straight and narrow

It’s testament to Checkout.com’s growing influence that it features prominently in the fintech gossip halls.

A particularly popular rumour is that Checkout.com processes payments for a large number of adult sites (in other words, pornography).

One European investor told Sifted that Checkout.com’s pitch deck shows it still generates sizeable revenue from adult sites.

Nonetheless, when asked directly about these allegations, Pousaz denied it.

“It’s not true…it’s quite annoying people say that.”

He clarified the one possible exception is that Checkout.com process subscriptions for Patreon, an Index-backed membership platform, which permits “nudes.”

Swiss-born Pousaz, 39, is reticent to discuss the issue further but offers to let me have a look at the books one day. It’s a bold proposition, assuming he follows through.

But a more philosophical question emerges — would it change the way we viewed the unicorn company if consensual “nudes” were a key part of their revenues? Does it matter? Should we think differently of the business if we did find adult entertainment rather than food orders feature heavily on their books?

Leaving X-rated content aside, Checkout.com has also diversified in terms of geography. 50% of its transactions now take place outside the EU and the UK, with the Middle East and Asia proving big money-makers, Pousaz said.

The next big focus is likely to be the US, where the startup has already opened small offices in Boston and San Francisco; taking on competitors like Stripe on their home turf.

Although it’s still early days in the states, Pousaz says there are plans to double down there in due course.

One potential route could be getting a comprehensive bank license in Utah, a path recently taken by fintech giant Square.

“We’ll do the US later. We’re looking to do full-stack there,” Pousaz commented.

“I’m in this for the long run. I’m a young kid.”

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