A startup based in Paris, originally focused on marketing tools, has recently raised $22 million following a successful shift into the world of billing. This pivot was inspired by the realization that the billing space was severely broken for potential customers. Lago, the developer of an open-source billing platform, has secured funding across two rounds as it celebrates its official launch.
The company has been in business in closed beta for some time, during which it has gained notable startups such as Mistral.ai, Together.ai, and Juni as early customers. According to CEO Anh-Tho Chuong, Lago’s focus on open source is intentional. It aims to target developers in need of tailor-made billing solutions for their cutting-edge and creative services. The company recognizes a gap in the market that is not sufficiently addressed by incumbents and is betting on an open-source approach to solve it.
“We’re a partner to developers,” said Chuong in an interview. “We honor their abstraction and use data to meter usage, making it easy for companies to handle subscriptions and other pricing plans.”
Lago has garnered the attention of a strong list of investors. Its latest Series A funding, totaling $15 million, was led by FirstMark. Prior to that, a seed funding of $7 million was led by SignalFire, according to Chuong. Other notable backers include Y Combinator, New Wave, Addition (Lee Fixel’s fund), Script, and several individuals whose involvement highlights Lago’s target market. These individuals include Meghan Gill, head of monetization at MongoDB; Romain Huet, developer relations at OpenAI (previously with Stripe); and Clément Delangue, CEO of Hugging Face.
The Lago that exists today as a billing platform actually started out in a more traditional startup manner. Originally, the founders, Anh-Tho Chuong and Raffi Sarkissian, were both working at business banking startup Qonto when they decided to branch out on their own and build a new startup. The idea for Lago was conceived after their acceptance into the Summer 2021 cohort of Y Combinator, based on their backgrounds. Surprisingly, they went into YC without a product in mind.
While in YC, they settled on the idea of marketing, specifically the concept of a “Zapier for marketing teams.”
“We honestly thought this was going to be a big one,” Chuong recalled. “But it was just okay.”
However, “okay” was not enough. The marketing tech market is highly competitive, and Lago was struggling to gain any traction with its product. In a moment of trying to growth hack their way to an audience, Sarkissian wrote a post for Hacker News lamenting the problems that developers face with billing.
That post, titled “Billing Systems Are a Nightmare for Engineers,” struck a chord with many in the community and garnered a lot of engagement. This was surprising to the founders, as the post was originally intended as a way to pivot attention to their original idea of a “Zapier for marketing teams.”
“But the post caught fire, and a lot of people started speaking up about their own billing issues,” Chuong said. It was then that Lago had its “a-ha” moment. If they wanted to solve problems for developers, they could do so by offering an open-source solution for billing. And just like that, Lago pivoted to its current focus.
The open-source ethos has resonated with many of Lago’s users. This includes Timothée Lacroix, co-founder and CTO of Mistral.ai, who said in a statement, “We chose Lago as our billing provider because we believe in the open-source ecosystem. They have been able to follow the pace of our releases and have allowed us to focus on what we do best.”
While some may argue that open source is being stretched as a concept and may be the opposite of what some “open-source companies” are building, Lago’s focus is on providing extensible and tailor-made solutions for startups looking to push the boundaries in their respective industries. In Chuong’s opinion, the AI sector is a prime example of this.
“Companies building AI-based products are still trying to figure out viable business models,” Chuong said. “In the meantime, we’re seeing a lot of examples of companies using hybrid approaches, combining flat-rate subscriptions with consumption-based pricing. Managing this all can be tricky and relies on tools that can integrate with whatever developers are building, using their usage data.”
“There are many solutions available for simple pricing and billing,” Chuong added. “But when it comes to complex billing, there’s no solution. This leads to many companies, like Qonto, building their own solutions. But engineers hate it, and it’s expensive to hire engineers for billing solutions. It’s still an unsolved problem. In Lago’s view, offering open source tools is the best solution to meet a variety of needs and ideas.”
Looking ahead, Lago plans to continue expanding its current business and also explore what other services it can offer. One area of interest is exploring the original idea of marketing and providing data analytics to customers regarding their consumption and payment patterns. They also plan to delve into the other side of billing, payments. However, Chuong stated that Lago is unlikely to develop a payments stack. Instead, the focus will likely be on payments orchestration, giving users control over their payment methods while also ensuring seamless integration with their billing platform, which will likely be provided by Lago.
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