After publishing our thesis on payment orchestration in TechCrunch last year, we’ve come full circle: I couldn’t be more proud to announce our latest seed investment in Toku. Cristina reached out after reading our thesis, and after the first meeting we immediately fell in love with the team and the business.
Why payment orchestration?
Fragmentation: The payment landscape in LatAm is highly fragmented. 38 different countries use their own payment infrastructure and more than 39 currencies. Each country has its own card network, gateways, processors, cash, and voucher system. But we believe this fragmentation is a “blessing in disguise,” and offers a huge opportunity for payments orchestration startups.
Low Approval Rate: The payment rejection rate in LatAm is four times higher than in the US due to chargebacks, lack of funds, and ineffective fraud algorithms. Acceptance rate is as low as 30 percent in some countries.
High Fraud Rate: Stripe has reported that LatAm fraud rates are 97 percent higher than in North America, and payment acceptance rates are therefore anywhere from 30 percent in Brazil to 70 percent in Mexico.
High payment processing fees: Traditional LatAm companies do not have the 80 percent gross margins that US software companies enjoy — in fact, it’s closer to 15 percent. This means that a three percent processing fee can equal 20 percent of company margins every month. As account-to-account transfers make headway across LatAm (see Pix in Brazil, SPEI in Mexico, Transfiya in Colombia, and so on), the recurring billing value proposition will be even more attractive, faster, and cheaper, and provide a better experience.
Manual collection process: Fewer than 10 percent of active Latin American subscriptions have an automatic payment process, adding a lot of administrative burden on companies to collect payments manually every month which is prone to human errors. A lack of self-service options and cultural norms also adds to the low penetration of automatic payment processes. Subscription and recurring billing in the US are a major tailwind (we were investors in Recurly), and we believe that LatAm poses an even a bigger opportunity for a broad approach by being vertically integrated — orchestrating payments with recurring billing functionality and CRM back-office support, and so on.
A Carefree Way to Collect Recurring Revenue
Toku has become the one-stop shop for companies collecting recurring revenue in LatAm. It offers subscription management software, payment orchestration, account-to-account payments, and CRM back-office support.
The entire team is a force of nature, with best-in-class execution velocity and customer instinct. Their team culture is unparalleled, and I will never forget the night captured in the photo above when we had carne asada and sang along to guitar melodies in Toku’s home base of Santiago de Chile.
Partnering with Toku to Accelerate the Digital Transformation in LatAm
I feel incredibly fortunate to be joining the journey, particularly in the middle of Women’s History Month, of this woman-led startup in a continent where only 23 percent of funding goes to mixed-gender founding teams. Our entire team at F-Prime Capital is thrilled to partner with Toku (YC S21) to revolutionize how 50,000 businesses collect recurring revenue in LatAm. We led this seed round together with Wollef and Honey Island Capital, with other participants including existing investors FundersClub and Clocktower Technology Ventures, and individual investors such as Matias Muchnick (NotCo), Sebastian Kreis (Xepelin), Santiago Lira (Buk) and Daniel Guajardo Kushner (HealthAtom – Dentalink – Medilink). We are impressed with how the team has accomplished so much with so little. Their elegant product solution along with deep customer understanding, top-quartile SaaS metrics and exceptional execution skills — just like the bird in their new logo, the sky’s the limit for Toku.
The entire team is a force of nature, with best-in-class execution velocity and customer instinct.