Why gCC led the $2.9M round into Franklin Payroll

The News

Franklin, the first tax compliant hybrid cash and crypto payroll company, announced today that it has raised $2.9 million in a seed funding round led by gumi Cryptos Capital and CMT Digital, alongside strategic investors including Arca, Sfermion, Portage Ventures and Synergis Capital.

Crypto Payroll

Franklin is an accounting system initially focused on enabling web3 companies, projects and DAOs to pay contractors and employees using cryptographic assets. This project is an outgrowth of the activities of Serotonin, a well-known web3 marketing agency to pay various contractors and vendors in native web3 currencies. The CFO at Serotonin, Megan Knab is moving out from Serotonin incubation to lead this exciting startup.

Payroll is Mission-critical and Existential

So why is gCC interested in crypto payroll? First and foremost crypto payroll enables web3 companies a mechanism through which they can limit their exposure to fiat banking. Obviously after the crash of Silicon Valley Bank, the idea of platforms that expose depositors to fractional reserve risk and the potential for spontaneous self-destruction seems to be an unreliable infrastructure for meeting mission-critical functions such as payroll. We aren’t asserting that crypto payroll is also immune to volatility, but it provides an alternative set of rails that operate independently of the banking system. Through the banking crisis, it become very obvious how mission-critical the payroll application is not just to crypto companies, but to all companies. So when we explore core enterprise applications, there are very few core applications that more humans depend on than payroll.

Payroll is Reliable but also Potentially Huge

Payroll is a bear-resistant product category. Franklin is already live and in production use in multiple organizations. Megan Knab, the CEO of Franklin has historically been a CFO and has herself run many payrolls, and so has a very nuanced understanding of customer requirements including the reliability of the service as well as regulatory and reporting requirements. So the ability to serve web3 native companies and projects including those in the gCC portfolio seems like a fairly clear early target vertical segment and one that can help Franklin generate initial revenue traction and extend their runway.

But in addition to being a reliable Enterprise Application, payroll has a potential breakout, which is the emergence of a government regulated fiat-pegged asset (so-called “stable” coins). While the US may lag in the formal regulation and recognition of such assets, many nations are taking action to ensure that stable coin assets have sufficient reserves and have sufficient stress-resistance as to receive licensure and official recognition. In the European Union, the Markets in Crypto-Assets Regulation (MiCA) document suggests that stable coin offerings require registration. Singapore has already stated that stablecoins meet regulatory standards if the Securities and Futures Act (SFA) is applied. Countries in which stablecoins are officially regulated enables them to be readily used as payment rails for traditional banking applications and by traditional employers.

Why Franklin Payroll?

Franklin Payroll has an excellent leadership team, led by Megan Knab who has been a successful CFO and so has a deep understanding of the customer requirements. She is a strong “gumicorn” founder with a deep passion for the domain and durable conviction for blockchain assets. She is intensely product-driven and a very honest and straightforward startup leader. We always aspire to work with the highest quality founders and we feel Megan Knab represents the best the industry has to offer. We feel that the incubation within Serotonin provides huge advantages including a “captive” set of initial bonded customers, strong validation of the initial use cases, a co-investor with deep knowledge and experience working with the team and an in-built marketing partner who can help Franklin achieve awareness and go-to-market milestones.

The Future

Payroll is the most central, most existential and most powerful Enterprise Application–and the stickiest. In addition, crypto payroll has substantial complexity including the connection to wallets and on-chain mechanisms that would prevent well-funded web2 application providers to add crypto payroll as a feature. We think that a successful crypto payroll provider can add powerful adjacencies in the Enterprise Applications suite such as B2B payments and Accounts Payable/Receivable which enables Franklin to expand their footprint on a per-account basis. In our Fund I, we saw many very successful companies who served the crypto-natives, such as OpenSea, 1inch Network and Hashflow, and we expect that serving crypto-native companies and projects will continue to be an exciting an fruitful way to achieve initial revenue traction–but in the long run we see opportunities for on-chain Enterprise payments to benefit from stablecoin regulation across multiple geographies that can enable huge Total Addressable Market (TAM) and create a new world leader in Enterprise Applications.

Information is provided for general educational purposes only. This presentation is not an offer to sell securities or a solicitation of offers to buy securities. Nothing contained herein constitutes investment or other advice nor is it to be relied on in making an investment decision. For more important information, please see disclaimer

Author: Miko Matsumura