Sequoia-backed B2B BNPL startup Two raises €18m Series A

Norwegian B2B buy now pay later (BNPL) startup Two today announces a €18m Series A led by US-based VC Shine Capital and company builder Antler, with participation from the likes of US heavyweight VC Sequoia Capital, Day One Ventures and LocalGlobe, among others.

Having already launched in the UK and the Nordics, the capital will help the company expand into new markets across Europe and elsewhere.

What Two does

Two, formerly Tillit (“trust” in Norwegian), is often lumped together with other B2B buy-now, pay-later companies such as Billie, Mondu, Treyd, Hokodo and Playter.

Designed as a short-term financing tool to help businesses manage their cash flow, B2B BNPL is essentially fintech’s answer to the age-old concept of invoice financing, which is still how most B2B payments are made. Of the $120 million B2B commerce market, only 6% is e-commerce. But things are slowly changing.

Two offers a ready-made payment solution for companies – both sellers and buyers – with the option to spread the costs over 14 days to 12 months across all of a company’s main B2B sales channels.

According to the startup, it has 243% quarterly growth in the Nordics and the UK, and takes 58% of B2B payments through the online channels of its close to 200 active merchants. Two charge the merchants a transaction fee which, according to the company, is “typically lower than what it costs to process a card from a business customer” – which is usually between 1.5-3.5% per transaction.

To provide quick access to capital for merchants, Two scores and underwrites transactions — basically rating them for risk — in less than a second with an approval rate of more than 90%, according to the company. The high approval rate is achieved by using multiple credit guarantees to assess the same order, of which Two’s own credit engine is one of them. The largest payment it has processed – at €450k – was end-to-end and completed at checkout in less than 45 seconds.

Risky business

This type of payment solution, where the payment provider takes care of the credit and fraud guarantee and pays merchants in advance, shifts the risk from the merchant to the payment provider – in this case To. And with an economic downturn, the risk increases, especially if loans default.

To manage some of this risk, Two has partnered with Allianz and Santander for its larger deals between multinationals, as well as other third-party companies.

“We’re working really hard to get the best partners to take on and handle as much of that risk as possible for us. But then we’re also working really hard to build out the best possible teams and decision engines internally to help and complement these third-party options, says Andreas Mjelde, Two’s CEO and co-founder.

But according to Mjelde, although the recent economic downturn increases the risk of handling payments, the “new” economic climate is not only the new normal, but the way it should be.

“I’m not that old, but I would say this is normal,” he says. The interest rates should be at “a couple of % […] it should be possible for a business to go bankrupt – that’s part of the concept of being in business. It basically just means that solutions like ours become more valuable and more important to use, says Mjelde. “We don’t think about it (the risk) any differently now compared to a year, two or three years ago.”

The investors

To currently has a team of 67 people, and attracted top-tier investors for its unannounced €10 million seed round last year, which was led by Sequoia. Mjelde says they picked them with location in mind.

“We started with three major investors, which were Sequoia, which has an incredibly strong presence in the US; LocalGlobe, with strong networks in the UK, which was to become one of our main markets; and Visionaries Club, which is a seed-stage fund (fully focused on B2B) from Germany, he says.

The latest round of €18 million was led by US early-stage VC fund Shine Capital and accelerator and VC Antler, which happens to have Norwegian founders. Best known as a company builder around the world, Antler typically focuses on very early-stage deals, and leading a Series A funding round is perhaps a sign that it is becoming more open to multi-stage investments.

“Antler has been an investor with us from the beginning, but with the original model where they make smaller investments. This is a more extensive investment, says Mjelde.

Other investors in the round include:

• Alumni Ventures
• LocalGlobe
• The visionary club
• Alliance VC

Sifted’s take

Two is currently only active in the UK and the Nordics, but is looking to the US as well as worldwide with its new investors. As previously mentioned, Two is not the only company trying to find a solution to B2B invoicing and there is a lot of competition.

As with Klarna when it started in the BNPL B2C space, it is hardly alone. But perhaps it is not so much about being the only player, but the one that offers the cheapest and best customer experience.

If Two can do that and at the same time manage the risk of missed payments, perhaps the Nordic region could be home to another BNPL fintech success.

Mimi Billing is a senior reporter at Sifted. She covers the Nordics and health technology, and can be found on Twitter and LinkedIn