Karbon Pay is raising at a $6.2 million valuation cap with no discount. The first $385k worth of money invested will be at $1/share and a $5 million valuation, providing incentive for early entry into a position. This valuation is low, increasing the chance of returns for investors. As a result, Karbon Pay’s price score is above average.

The market for cloud-based payroll services is growing rapidly — and will likely only continue to grow as more and more companies turn towards the cloud in the midst of a global pandemic. In a PricewaterhouseCoopers survey, 75% of finance leaders indicated they intended to switch to a more agile business environment, which the cloud can enable. In the same PWC survey, 83% of CFOs indicated their plans to scale back capital expenses. This again points towards the cheaper, more streamlined cloud services industry growing rapidly in coming years. This is where Karbon Pay has the ability to grab market share — by specializing in cloud payroll services. 

There is much competition in the professional services and payroll services industry. Companies like ADP, Oracle, APS Payroll, OnPay, and Square all have name recognition and trust with their existing clients. The one leg up that Karbon Pay has on these companies, however, is it’s previously mentioned adoption of the cloud specific payroll market. With companies (especially smaller ones) looking to cut costs in any area possible, the ease of cloud payroll services may be attractive for some. However, if this does turn out to be a strong  attractant, there’s nothing preventing Karbon Pay’s competition from pivoting their own payroll services to the cloud as well. 

Balancing the growth of the cloud-based professional services market against the stiff, established competition that Karbon Pay will face, the company’s market score is below average.

Karbon Pay was founded by Brad Price, who previously founded Fingo HR. Fingo HR is a company that streamlined the entire HR process, including the payroll process. Price grew the revenue of Fingo HR to $600,000 annually. His experience in HR and payroll services (and running a business along these lines) make him an apt leader of Karbon Pay.  

Price is joined by CFO Rob Kleifgen, who brings nearly two decades of experience in commercial lending, private equity, and investment banking. Rounding out the team is Senior Software Developer Darius Franken, who brings 15 years of developer experience to the Karbon Pay team.

Karbon Pay’s team brings a decent amount of industry experience and technical expertise to the startup. Thus, the company’s team score is middle of the road.

The largest differentiating factor that Karbon Pay has going for it is that it is a company that specializes in payroll. This allows the company to perfect its craft, and hopefully find other businesses that see this as being a specialty company. There is competition from larger, more recognizable companies, however. Oracle is one example, but Karbon Pay’s pricing model is well below that of the computer software giant. However, while the focus on payroll services distinguishes Karbon Pay from more established competitors, it’s not a highly defensible difference. Other companies could easily pivot to create specialized payroll software that would directly compete with Karbon Pay. As a result, the company’s differentiators score is its lowest across all five metrics.

As a new company, Karbon Pay has extremely little financial information to base an informed decision off of (it only launched its beta in September 2020). According to the company, it has active negotiations with potential customers that would net Karbon Pay anywhere from $50-75 million annual recurring revenue. However, there is no way to know how accurate those estimates are or how likely they are to successfully occur. Thus, the performance score for Karbon Pay is below average.

As a company that specializes in one specific aspect of business management, Karbon Pay will need early partnerships to establish itself as a cheaper, faster alternative to the payroll process. If these new partnerships never come to fruition, then Karbon Pay will struggle to gain any slice of market share in an industry where name brand companies (like Oracle) are already delving into the space. 

There also is risk associated with Karbon Pay given its infancy. There is no financial data (aside from the fact that the business has just over $12,000 in cash) available. With monthly expenses of $13,500 and only $12k in cash, there isn’t much room to run before Karbon Pay must become profitable to stay afloat.

Karbon Pay already has preliminary clients that it has had early success with — a self-reported 0% error rate is definitely something the company has going for them. There are also more negotiations ongoing to bring on more companies as clients. Founder and CEO Brad Price has experience working in HR and payroll services, giving Karbon Pay a leader that has industry experience and expertise — vitally important in any startup.

Karbon Pay operates within a growing, niche market. The global cloud-based payroll services industry has blossomed (alongside the cloud industry as a whole) in the midst of the COVID-19 pandemic, and Karbon Pay has positioned itself with lower prices than other businesses in the industry. The company’s expertise in payroll services may make it an attractive business to work with for any multinational company looking to cut costs and maintain efficient international payroll.

However, the company is extremely new and has very little concrete evidence to base an informed investment decision off of. The problem that it solves is a major need. Up to 33% of employees make payroll errors at some point in a calendar year. However, with more recognizable companies vying for market share in the space, companies may opt to partner with a more trusted business. And with average monthly expenses that are greater than the total cash on hand that Karbon Pay has, the clock is ticking for the revenue to start coming in. Therefore, Karbon Pay has been given a Neutral Deal rating from the KingsCrowd investment team.

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to [email protected]. 

Analysis written by Ethan Thomas.