Lystable takes $10M top-up to tackle freelancer payments

Lystable, a startup that makes a workflow management platform aimed at businesses needing to manage lots of freelancers, has topped up its Series A again — this time with an additional $10 million, which founder and CEO Peter Johnston says will be used to fund a change of business model with a payments focus.

The Techstars London-incubated startup and 2015 Disrupt London battlefield finalist first closed a Series A last June, taking in $11 million at the time, led by Peter Thiel’s Valar Ventures and Goldcrest Capital. Spring Partners also participated, and Max Levchin joined the round soon after.

The latest expansion round — which Lystable says brings its total Series A to $21 million, and total raised to date to $25 million — is again led by Thiel’s Valar Ventures. Existing investors Levchin’s SciFi VC (formerly HVF Investments), Kindred Capital and Goldcrest Capital also participated, along with new investors Glynn Capital and Wilmont Ventures.

So what’s with all Lystable’s funding top-ups? In essence this is down to the startup trying to figure out its market fit, and find out what else it needs to build to get there.

Johnston says the team raised much of the earlier Series A off the back of “a couple of big enterprise deals” (Google is a customer, for example) — and while these big checks evidently excited investors, they also turned out to be “misleading” — given the core conviction driving Lystable is that work will be increasingly unchained from big centralized functions. So trying to sell an enterprise solution wasn’t where the startup felt it needed to be, certainly not at this stage of its development.

“I know the freelancer economy on the corporate side is still pretty new, and still being defined, but after we did those projects we realized we needed to become a team product,” Johnston tells TechCrunch. “We still maintain those enterprise clients but we didn’t set out with a mission to help big corporations centrally control freelancers. That’s not what the future of work is about. It’s about freedom, and it’s about not having boundaries, and not being held back by crappy HR process and un-smooth onboarding. Anyone should be able to work with whoever they need to get the task done the best way it could be done.”

So, while ultimately Lystable is banking on the rise of the gig economy generally fueling demand for its freelance management platform — and even, Johnston reckons, with potential to expand into sectors such as banking and healthcare down the line, when the market need for overhauled freelancer management software becomes more widely established — the platform still needs to mesh with the needs of the current users, in the media and tech space; aka sectors that are more free and open to early adopting new workflow tools.

Hence Lystable quickly making its platform free, and now preparing to switch to a business model that’s centered on building a payments solution for companies to more easily remit freelancers. This payments piece will be a premium add-on to what Lystable now calls its “freelancer collaboration app” — with the plan being to launch a beta at the end of the year. And given payments is now its monetization focus, it’s clear why Levchin’s interest is piqued. The PayPal co-founder is also now joining Lystable’s board.

As they went about rethinking the market fit last year, Johnston says the team explored various different business models, including launching a marketplace (privately), and getting “a bunch of freelancers hired by Airbnb and Farfetch.” But ultimately, he says, they decided to steer clear of a recruitment and/or marketplace approach — given how many existing players are already at work in that space.

Instead, the business model pivot hinges on identifying an ongoing pain-point that was holding back the smooth running of the freelancer collaboration app — which he says was otherwise effectively plugging into all sorts of business functions and tools, and had been seeing usage “growing significantly.” So the missing premium piece they’re now seeking to bolt on is integrating the process for paying freelancers.

“In the app you manage profiles, you assign work and you track [and can generate] invoices, and you integrate with tons of tools at each level. And then what happened was it was being sent off to payroll and the finance departments in these companies,” he explains. “Because, on the team side of our product, the finance was still being taken care of traditionally, through the finance department, the freelancer experience just broke down. They would never know the status of their invoice, they would never get paid on time, it just felt like — on both sides — there was an admin problem.”

The pain of this problem is not just for the freelancers waiting for and wondering where their money is, argues Johnston, asserting there also are compliance and administration hassles for employers trying to centralize payment of (a growing number of) dispersed freelancers via a single finance department.

“Does The Economist [another Lystable customer] really want to be paying 1,500 freelancers a month in the same department that they’re paying their full-time staff? Absolutely not,” he argues. “It’s a compliance nightmare, there’s so many different… ways you need to do it to be compliant with the IRS. International transfers become another headache. You literally can’t do a direct bank transfer from an American bank into some countries.”

“Max [Levchin] had gotten more excited about the freelancer economy, and particularly the ability for us to leverage the fact that we build this freelancer workflow tool — and the position that that could put us in for potentially solving payments admin and compliance admin for both the client and the freelancers,” he adds.

Lystable launched an early version of the payments product at the end of last year — to test the idea with a few customers. But now, fueled with additional funding, it’s preparing to cement the switch. As of next month Johnston says the workflow management platform will be freely available to anyone to sign up (currently, while free, it’s gated with an invite requirement) — with the “hope” after that being a public beta of the payments product launching in December, and a full launch pegged for Q1 2018.

The question remains how large a market Lystable is going to find for this premium payments add-on. Johnston concedes that for companies managing just a small number of freelancers it will be competing with the relatively low hassle of remitting via the likes of PayPal or Stripe. And then for larger entities — say those handling 1,000 freelancer invoices per month — it will be facing the inertia of traditional business processes and the established grip of centralized finance departments.

“It’s definitely difficult,” he says. “The early adopters of our payments product are the people that just see the admin nightmare. In the same way when we first brought this new collaboration app to teams that were working with lots of freelancers, we needed the ones that experienced the pain to such an extent that they were willing to say ‘ok, let’s talk about revising our workflow and investing this new workflow through the Lystable app’. And it’s that same thing.”

“I think the biggest challenge here is you can’t just go and say ‘hey let’s come and do this now.’ We have to integrate,” he adds. “We need to have that backwards compatibility with the existing payments and payments systems. And a lot of reasons for the funding is to build much more of a robust payment experience product team around that. Because even if we’re responsible for the autogeneration of lots of forms and handling of admin around payments, we will still need to speak to the more dominant, full-time, employer payroll system.”

Lystable has some 2,200 customers of its freemium product at this point. On the hiring front, the now San Francisco-headquartered startup is planning to ramp up from its total headcount of 42 staff currently to “probably” 75 by the end of the year — including, says Johnston, plans to add additional senior execs in the next month or so. Doubtless the hoped-for two or three “heavyweights” will come with plenty of payment experience to help Lystable navigate its next set of integration challenges.