Parisian open source startup Lago wants to take on Stripe — and has its eyes on the US
Paris-based fintech Lago has raised a $15m Series A, bringing the company’s total funding raised to $22m.
The Y Combinator (YC) alum, which provides an open source billing system for businesses, has a remarkably US-heavy cap table for a French startup.
For example, New York-based VC FirstMark led the latest round, which also included participation from a range of US investors such as SignalFire, Script, Addition and YC. High-profile advocates of the open source community also invested, including Meghan Gill from MongoDB and Clément Delangue, the CEO of open source platform Hugging Face.
Founded by two of French unicorn Qonto’s earliest employees, Anh-Tho Chuong and Raffi Sarkissian, Lago intends to resolve a hurdle that many businesses face: how to manage complex billing processes.
Businesses tend to monetise products and services through different billing strategies, ranging from monthly subscriptions to commissions taken on specific transactions through upfront payment, metering or pay-as-you-go — and often, a mix of different approaches.
Lago offers open source infrastructure that it says lets customers build a flexible billing system tailored to their specific business model, helping them improve the efficiency of their monetisation strategy.
It’s a service that some companies, notably payments giant Stripe, already provide. But Lago thinks current offers aren’t adapted to the complexity of many companies’ models.
“Stripe was mostly made for B2C and pure subscription models,” says Chuong. “We are looking to solve this problem for hybrid pricing models.”
Building complex billing systems
Chuong joined Qonto as VP growth in 2016, when the company was just starting off.
“We only had monthly subscription plans back then, and it seemed logical to offer annual plans with a small discount,” she says. “That iteration took more than eight weeks of technical work.”
“I saw that billing was still an unresolved problem for many companies and that engineers hated working on it.”
This is the problem she sought to solve with Lago, which launched in 2021. The startup provides an open source infrastructure for billing, which means that users can access the source code behind the platform for free. In other words, Lago offers software “bricks” that developers can use to create their own custom-made billing system.
This is particularly relevant for companies that have complex monetisation strategies and need a personalised system. For example, a telecoms operator billing a customer may need to account for both their monthly internet and phone subscriptions, calls and texts they made outside of their plan, or specific extra options clients have selected.
Lago currently works with close to 100 customers in various sectors, including AI startups Mistral and Together, and fintechs Swan and Juni.
The choice of open source
Chuong says that the choice of open source was necessary to provide the flexibility that is needed by many companies. It also means that customers can see the source code behind their billing system; an attractive proposition for businesses given the criticality of the service.
This is what differentiates Lago from competitors like Stripe, whose billing platform is closed source. Developers cannot access the code behind the software, meaning that there are limits to the use cases that can be built on top of it, according to Chuong.
Stripe’s billing platform is also only compatible with its payment system. “Some users don’t want to stay in the Stripe ecosystem,” says Chuong. “We allow our users to connect [their billing architecture] to any payment processing platform.”
An open source platform, however, means that Lago’s core product is free. Its revenue comes from premium services it offers to customers, such as support and maintenance of the systems built by users, as well as business-specific functionalities and integrations.
“We are often challenged on the question of whether people will pay,” says Chuong. “But billing is so mission-critical that most users want to have the most premium offer — they want our immediate support if there is an issue, they want the latest premium features.”
“We are currently selling our product at the same price as other existing ones. People don’t choose us because they perceive us to be for free.”
What’s next for Lago?
Chuong says that the latest injection of cash will enable Lago to double down on R&D, and expand the services offered by the platform.
“We are working on data functionalities,” she says. “One of the reasons we find billing interesting is that we are creating lots of data: we can record usage data, how much people pay for different products, how often they pay, and so on.”
In future, Lago could produce forecasts and analytics based on that data, she suggests.
The company’s product and tech team, which is 12 people strong, will double in the next year.
While Lago’s entire team is based in Paris, 30% of its customers are in the US. Chuong also plans to continue expanding the company’s footprint across the Atlantic, with the opening of an office in New York in the coming months.
Taken from the article written by Daphné Leprince-Ringuet and published on 14 March 2024.
For more content from Faraday Partners, follow us on LinkedIn.