Payroll Tech Attracts VCs' Interest in Financial Health Investment

Restaurants are burdened by a basic payroll issue that might be easily solved by technology, and investors are taking notice.

"A lot of people who work at restaurants or in other service industries are living paycheck to paycheck, they're taking a lot of payday loans and running up credit card bills," said Janet Bannister, a general partner at Real Ventures, which says it's found a solution in new technology that allows workers to "unlock" unpaid wages. For Real, Instant Financial is less of a one-off opportunity but part of a recent trend of the firm placing more emphasis on financial services technology.

Real Ventures, a venture capital company with offices in Montreal and Toronto, is backing Instant Financial, a Vancouver-based salary payments company that launched its mobile app earlier this year. Instant enables employees to access payments on a daily basis, instead of getting paid every two weeks. It's unusual in a couple of ways—most payroll startups target freelancers, and most mobile payment apps power "push" transactions, where the payor is driving the action.

Real sees Bannister as a financial health play—staff can access their money at the same time as they incur expenses, more closely managing their budgets and relying less on expensive payday loans. "And the digital technology costs less for restaurants, which can also increase loyalty," Bannister said, adding the company would use the investment to broaden its reach beyond restaurants.

Real is Canada's largest seed venture fund, typically investing about $150 million in 20 companies each year. It also dedicates about 60% of its funds for followup investments. Real Ventures specializes in startups that use the internet to disrupt or change legacy business models. Financial services and payment companies make up about half of the firm's investments, a trend that's very recent.  

"People see banks differently than in the past, when they would go to a branch to do four or five different things," Bannister said. "That's given way to specialized apps and companies to do individual things, such as pay employees."

That trend has accelerated over the past two years as non-financial digital commerce has added to the sea change in how people access financial services.

"People used to have much more of a mistrust or apprehension about using the Internet to do financial transactions," she said. "But now you can use a mobile app to pay someone for a ride in their own car or a room in their own home. People have loosened up their attitudes about digital commerce, and that's made it easier for fintech startups to gain traction."

That has led Real Ventures to make investments in Plooto, a startup with offices in Toronto and Brooklyn that uses the cloud to deliver accounts payable and cross-border payment services to small and medium sized businesses. Bannister is also on Plooto's board.  

Bannister's portfolio includes payment companies such as Dream Payments, a  Toronto-based mobile point of sale technology company, and FundThrough, a Toronto-based invoice funding platform for small businesses.

Real Venture's Toronto offices are located in the MaRS district, a compound that houses startups, developers, and investors. The VC firm does not have formal tie to MaRS, but the proximity is helpful in spotting new ideas, Bannister said.

"The tech ecosystem is like a snowball; a product that produces great talent helps the next wave of companies grow," she said. "We're starting to see that in Toronto."

PayPal is also relocating its Toronto offices to the MaRS district, in part to commiserate with other financial technology professionals on a regular basis. The payments industry is flourishing in Canada with $38.5 million in deals since 2015, according to Salim Teja, executive vice president of ventures at MaRS.  

"[Our] strategy ensures that our high-impact startups are working under the same roof as investors and researchers as well as leading technology companies and corporate partners including Facebook, Airbnb, Etsy, CIBC and PayPal, so they have an opportunity to cross paths on a daily basis," Teja said.

Some recent financial technology collaborations within the MaRS network include Tacit Innovations working with Moneris on the Maegan app, which offers restaurants a completely integrated point of sale solution. There are also cross-sector collaborations, such as the health ventures Carrot Insights’ recent partnership announcement with Sun Life Financial.

Being a participant in the ecosystem can help put a company in front of the technology curve, said Rick Oglesby, president of AZ Payments Group. "So it's not really about the technology, it's about the people and companies and building the lasting relationships so that when something takes off, you're involved," he said.