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I’ve Secured Growth Capital – Now What?

Smart Strategies for Payments Companies to Maximize Investment

Securing outside investment is a major milestone for any merchant acquirer, but once the deal is done, a critical question quickly follows: 

“What’s the best way to put this money to work to optimize return, procure meaningful growth, and create long-term value?” 

Step One: Assess Before You Accelerate

To properly put capital to work, merchant acquirers must first undergo a process of self-examination and assessment. This should be done before capital is secured. Investors/lenders will want to know your plans before providing you with any capital, so you will need good answers as to how you are planning to use their money for growth. 

However, if it was not, then we look at the good, the bad, and the ugly – and using that assessment as a baseline, create a roadmap for growth over the next three years.

Step Two: Merchant acquirers must put forth a plan for the best “bang for their (new found) bucks”. This speaks to capital efficiency and involves creating a framework for the usage of funds.

Conceptually, there are two general pathways for investment capital allocation (usage of funds): internal and external.

  • External: capital allocation to acquisitions 

Remember, the goal is quality growth, not just revenue growth – which is the primary driver for making portfolio or residual acquisitions. As such, technology acquisitions, if integrated properly into an acquirer’s company, are extremely effective drivers of quality growth via the merchant account “stickiness” it creates. 

Additionally, acquisitions of agent/ISO portfolios should capture merchant bases of similar or better quality to your existing business. They should also ideally come with future production of new accounts so that you aren’t buying an attriting asset.

  • Internal: capital allocation to existing business

Here the best use of funds would be to double down on the facets of your business that are working well or shore up areas that are causing losses. If your W2 salesforce is at capacity, but is extremely efficient, use your new funds to hire additional reps. If your servicing department is overloaded and merchants are leaving due to poor support, adding staff here will decrease your attrition.

An area to avoid here would be large investments outside of your area of expertise that will not lead to positive returns in a timely manner. For example, developing a proprietary POS system would likely be a poor use of funds due to the time and costs associated with that project. Especially since there are so many quality options available via partnership that will yield similar financial results without any added cost.

Taking a holistic approach to your growth strategy without additional capital is likely best way to navigate the questions we are posing here. Asking yourself how you would grow if you didn’t have additional capital to spend is a great place to start. Once you land on a strategy that is intuitive to you, you can then augment that plan with added investment.