Linear #029: The Story Of Check, Embedded FinTech, Going From Idea To $1M in ARR
One vSaaS breakdown. One biz story. One 'how to'. In your inbox once a week.
One Biz Story:
Check: Embedded Payroll
"Sell picks and shovels while others mine for gold." Have you heard the age old adage? The story of Check, a fascinating software company, doing just that 🧵
Meet Check. Check offers an embedded software solution that enables vertical software companies like ServiceTitan to offer tailor-made payroll products to their customers. It's one of the most ambitious and consequential fintech startups of the next decade. Here's why:
2/ Payroll is massive. In 2020, nearly $9 trillion in wages were paid out in the US. Payroll providers occupy a position of extraordinary influence thanks to their control over this volume. But payroll is also extremely hard, fragmented, and unloved by customers.
3/ Check was founded in 2019 by Andrew Brown, Eric Stromberg, and Vivek Patel, who previously worked together at Oyster, a "Netflix for books" startup that was acquired by Google. The group saw an intriguing opportunity to build a "Stripe for payroll".
4/ Check's API handles tax calculations, payments, and filings across more than 6,000 jurisdictions. It also provides pre-built components that allow partners to add commonly used functionality easily. Check's customers can tailor the front-end / UI to their user base.
5/ Check's approach creates a win/win/win situation for everyone involved. Platforms like Service titan can strengthen their offering and increase retention and revenue. SMBs can access a payroll platform tailored to their needs. Check can monetize through subscription fees.
6/ Check has already secured large clients like ServiceTitan, Eddy, and Procare, and has raised $44 million from investors like Bedrock Capital, Stripe, and Thrive Capital. Yes, you read that right, one of the pioneers of embedded tech, Stripe, is an investor.
7/ Check faces risks, such as competing with incumbents who have high switching costs and customer inertia, or dealing with regulatory changes and compliance issues. Other challenges include educating vertical SaaS providers and the classic build versus buy debate.
8/ But it also has huge potential upside, especially if worker reclassification shifts more contractors to W-2s. It's API-first approach to embed tooling into existing software providers is an awesome angle that we haven't really yet seen in payroll.
9/ Check is not just a plumbing company, but an urban planner. It is reshaping the infrastructure of payroll and opening up new possibilities for vertical SaaS businesses and their customers.
I'm excited to see what Check accomplishes and if their Picks and Shovels strategy rockets them into unicorn status. What are your thoughts? How big can Check get?
One Vertical SaaS Breakdown:
Embedded Fintech is Propelling Software Into A ‘Vertical’ Era
Embedded FinTech Is Propelling Software Into the ‘Vertical Era’.
Just look at Toast's (vertical SaaS for Restaurants) revenue breakdown...
For the last two decades, VC's have thought vertical markets were too small to invest in. It makes sense. Some really rough math will tell you the same thing:
There are roughly 1 million restaurants in the US. At $10 / restaurant a month. We’re only looking at a $120M market size. Too small for venture.
Restaurants are a big vertical too. So if you looked at other ones, laundromats, auto shops, etc. this number would be even smaller. For the longest time, software companies have been built horizontally. They are designed to service many industries.
They’ve been created that way out of necessity. To attract VC’s the market sizes have to be really really big. You have to create a billion dollar company after all…
But the thing that sucks about horizontal software is it requires SOOOOO much customization, integrations, blah, blah, blah. It’s like getting a birthday present, spending two weeks putting it together, and then finding out you did it wrong.
Most industries lack IT and don’t have the time or ability to integrate/customize software. As a result, SO MANY big industries have forgotten about it. They're still leveraging pen/paper, or piecing together horizontal solutions, PAINFULLY.
BUT embedded FINTECH has changed the game for vertical SaaS companies. Toast is a great example of that. Toast achieved venture scale by driving massive restaurant adoption through VERY cheap, easy-to-use SaaS products.
Then built a $B business layering on-top embedded financial products like point of sale. That $120M market quickly becomes tens of billions bigger when their customers customers became their customers.
Check out this tweet from Rex. Their fintech product growth is CRAZY:
Embedded FinTech is SO exciting for SO many industries and customers. Every industry will begin to have it’s own purpose-built software. Toast has PROVEN vertical software is a venture-scale opportunity.
As a result, the experience will be SOOO much better for the end users. It’s an exciting time to found, operate, work at, or invest in vSaaS!
Join the party.
The era of vertical software is imminent.
One ‘How To’:
Going From Idea To $1M in ARR
