In 2011, when Krish Subramanian decided to quit his technology specialist job with Cognizant to launch his own venture, he persuaded two friends, Rajaraman Santhanam and T Thiyagarajan, to take the plunge as well. Their common mentor at Chennai-based product company Zoho, KP Saravanan, spent long hours persuading the duo to reconsider their decision — only to chuck his job and join as the fourth co-founder. The idea that so excited these four may sound rather simple — a service that helps companies manage their online subscription billings — but ChargeBee has already proved itself a winner. The Chennai-based start-up now has over 500 customers, processes over $2 million worth of their customers’ transactions every month and has even managed to raise $1.17 million in funding. With the world moving to a subscription-based economy and more consumers transacting online, the party has just started for ChargeBee.
In April 2011, Subramanian had just got his passport stamped for a project with Cognizant in the US. After a decade in software services, working with companies such as TCS and Cognizant, this was business as usual for the then 31-year-old. But he was restless — ever since he had helped build an online auction portal at his first job at Matexnext, Subramanian wanted to do something on his own. A weekend before the scheduled trip, Subramanian attended TiE Chennai’s Unconference, an event where entrepreneurs get together to share and discuss ideas. There, he spoke of an idea he had in mind — developing a billing system that manages invoices and collects payments from customers for companies offering a service or product on a subscription basis. “Everybody has a business, be it software or e-commerce. You need a billing system to collect repeat payments and manage invoices and multiple payment gateways. I wanted to build a service that companies could plug-and-play instead of trying to develop unique billing systems on their own,” says the CEO and co-founder of ChargeBee. The response at the conference was positive, with most of the entrepreneurs Subramanian spoke with telling him their start-up would use such a product.
That was all that Subramanian needed to take the leap. The next Monday, he went to work and filed his resignation. Rajaraman, Thiyagarajan and Saravanan followed shortly after. Now, while Subramanian leads the marketing initiative, Rajaraman heads product management, Saravanan is the CTO and Thiyagarajan handles the integration of the systems at ChargeBee.
When they started, it was clear to the gang that they had an idea that would have no difficulty finding takers; now all they had to do was execute and build a product that solves a major pain point for start-ups. Luckily, Saravanan, Rajaraman and Thiyagarjan had more than a decade of experience each building products at Zoho.
With an initial investment of ₹25 lakh sourced from their personal savings, the four roped in a designer and started building the product at Subramanian’s apartment. Simultaneously, they joined a number of online forums to understand what the existing gaps in billing systems were and what start-ups most needed. By May 2012, they had a product in the alpha stage and by October that year, ChargeBee had its first customer — Flavrbox, an online food delivery company.
Making it work
So, how does it work? If you are a customer looking to sign up for a subscription, ChargeBee’s billing system collects all your credit card and shipping address details. It then generates automatic invoices, sends out updates to customers and undertakes customer communication as well. The system stores customers’ credit card details and billing address, which helps clients charge them on a recurring basis depending on the plan their customers have chosen. Customers have the option of choosing the payment gateway they are comfortable with. ChargeBee has tied up with more than 30 payment gateways around the world and charges its clients under three plans, based on the volume of transactions. (see: Serving it up) It also shares analytical insights with its clients, based on the data mined from the billing information.
Serving it up
ChargeBee's subscription plans are purely volume-driven
There are other companies, mostly in the US, that offer similar services as ChargeBee. Zuora, for instance, is the largest player in the subscription billing space, with clients such as Dell, IBM, Box and HP Cloud Services, but it focuses on larger enterprise players. “Our sweet spot is companies with around $10 million revenue,” says Subramanian. In that space, the company is firmly pitted against players such as Recurly and Chargify. But ChargeBee is not too worried about competition. “It is not a winner-takes-all market because no single company can dominate all the verticals,” says Subramanian. ChargeBee helps customers come up with pricing plans, run promotion and track offline payments, besides giving crucial information on growth in revenue, user base and plans.
Currently, ChargeBee is carving a niche for itself in the retail subscriptions, digital media and software as a service (SAAS) spheres. But there is the opportunity to go after more verticals. Across the world, technology — especially software — companies are changing from one-time installation charges for lifetime use to the pay-as-you-go model for their products and services. Here, the payments can be monthly, quarterly, annually or even just every time you use the service. With companies moving from the capex model to opex model, SAAS is becoming a huge opportunity. Several start-ups are now building their solutions on this pay-as-you-go subscription model. This market is already estimated at around $16 billion and is only likely to grow as technology shifts to the cloud and SAAS becomes more mainstream. The global spending on SAAS is projected to reach $32.8 billion in 2016.
ChargeBee’s billing solution plays into this opportunity, since every start-up built on this subscription model needs a billing system that integrates into own system. “As far as technology goes, there is a clear shift in consumption and the shift is creating several market opportunities for firms such as ours,” says Saravanan, CTO and co-founder.
The pay-as-you-go model is not restricted to technology or software: any online business can run ChargeBee’s solutions. “The biggest opportunity for ChargeBee is that every product or service is now going pay-as-you-go. So, subscription billing is a huge market,” says Microsoft Ventures director Mukund Mohan, an advisor to the company. Certainly, ChargeBee’s client list bears that out. Take a look at some of its customers: online customer and sales support solution company Freshdesk; online food supplier Flavrbox; online pet food supplier SpottyBox; real-time marketing firm Triggered Messaging and medical advice portal HealthcareMagic. “Their competitive advantage is that the ChargeBee team understands the various verticals that work well with this billing,” Mohan adds.
Beyond the US
Though its 26-member team is based in Chennai (except for one vice-president in the US), ChargeBee’s 500 paying customers are spread across North America, Australia and Europe. While the company did look at India as its primary market when it started, Reserve Bank of India regulations do not allow the storage of credit card details, so its business model doesn’t work here. Instead, the founders incorporated the company in the US and operate a subsidiary as a service arm in India. ChargeBee currently processes transactions worth $2 million every month for its customers and is aiming to take that up to $20 million every month in customer transactions by the end of this year. Accordingly, revenue will grow to $1 million in the next twelve months.
In 2012, when ChargeBee was officially launched, its founders raised their first round of funding of $350,000 through friends and angel investors in the US. A year later, they raised $800,000 in a Series A round from Accel Partners to scale up operations and their marketing team. “We like to invest in firms that go after a global market and as the entire world moves to a subscription model, there is a definite need for a billing infrastructure that can work with payment gateways across the world,” says Sekhar Kirani, partner at Accel Partners, adding, “ChargeBee is definitely solving that problem.”
Kirani points out that Accel Partners already had a fair understanding of the payment solutions space, having invested in companies such as Braintree, which is why the venture capital firm was confident that ChargeBee’s solution would integrate well with the emerging payment gateways. “We like that the entire team at ChargeBee was focused on building a world-class product and their ability to find interesting niches that they can make their own,” he says. Case in point: ChargeBee is now going after companies that let out shared office spaces, where you need to collect rent on a monthly basis from different tenants or gyms, where you need to collect monthly, quarterly or annual fees. There are also looking at traditional plays, such as utility and telecom companies, as potential clients.
While one of the firm’s challenges is zeroing in on the vertical it goes after, the bigger challenge for ChargeBee is to ensure that it keeps pace with fast-changing technology even while maintaining highest standards of security and compliance. “We have to manage customers across various industries. So we have ensure we comply with all the regulations while ensuring there is no possibility of fraud,” confirms Saravanan.
As the world moves online and consumption and spending patterns move to pay-as-you-go, ChargeBee will see increased demand. Even if you have to break down the pay-as-you-go market to the space that firms such as ChargeBee operate in, it’s estimated to be around $1.5 billion, and that’s a lot of space to grow in the next few years. No wonder Krish Subramanian and his team are all smiles right now.