It’s a tale as old as tech start-ups – a software developer creates a new app and is convinced it will take the world by storm. The only problem? No idea how to monetise the brilliant creation.
Xconomy (Banking Technology‘s sister publication) reports that a US fintech start-up based in Bloomington, Indiana, called Cheddar aims to solve that problem by changing the way developers and others in the software business think about where their revenue comes from and how to collect it.
Cheddar co-founder Mike Trotzke says that despite major computing advances over the past decade, many online billing platforms are innovation-free digital iterations of old paper systems. Trotzke says Cheddar offers an API-driven streamlined model that allows developers to define the usage they want to track, and then takes it a step further.
“We manage pricing and the billing cycle so developers don’t have to be involved in business decisions,” Trotzke says. “We manage all the customer communications as well as revenue collection. We can cut the time it takes to implement a billing system by 90% while also optimising revenue.”
Trotzke is one of the founders of SproutBox, which he describes as an early venture studio that would give chosen start-ups the team, tools, and resources to turn their ideas into revenue-generating products. Cheddar was originally created in 2009 (it was called Cheddar Getter back then) to help SproutBox’s portfolio companies become profitable faster.
The goal with SproutBox was to take no more than three months to turn a start-up idea into reality, but Trotzke and his partners kept hitting a snag in this breakneck pace when it came time to implement billing. Cheddar was created to manage payments for SproutBox companies, complete with a dashboard full of data visualisations to help developers see where the money comes from.
“Cheddar was our secret sauce in building Software-as-a-Service (SaaS) companies,” Trotzke says. “We decided to spin it out as its own company earlier this year, and I came on as CEO about six months ago.” (SproutBox, he says, is no longer accepting new start-ups and is currently in “harvest mode”.)
According to Trotzke, a usage-based model makes more sense than simple subscriptions for many software startups. Card vault provider Spreedly estimates that about 15% of automated transactions fail, he adds, resulting in approximately $30 billion per year in lost sales.
“Hundreds of thousands of dollars are spent each year building the same billing systems, but they’re not great systems,” he explains. “If the automated process fails, it leads to manual processing or, worse, lost revenue. Our goal is to take on all the monetisation problems companies are trying to tackle.”
Cheddar has seven employees and has so far raised $1.25 million in a seed round led by Chicago-based M25 Group, with participation from Little Engine Ventures, Connetic Ventures, Harbor Street Ventures, SixThirty, Cultivation Capital, and Elevate Ventures. As part of the financing, Victor Gutwein from M25 and Mikel Berger from Little Engine Ventures have joined Cheddar’s board. Trotzke says the company intends to raise a “much larger Series A round in 12 to 15 months”.
Cheddar’s future plans also include getting the word out about its software. The company is starting its outreach in the US Midwest, where Trotzke believes the company’s approach to billing will have an easier time gaining traction. He considers Cheddar to be part of the cloud billing sector, a market with many players that he estimates to be worth roughly $10 billion.
“We’re on a mission to help companies focus on monetisation earlier, and that idea tends to resonate well with companies in the Midwest,” he says.