HoneyBook expands its financial services to a growing SMB economy

After a tumultuous period caused by the pandemic, the small and medium sized business space is growing again. And today’s entrepreneurs are going all digital, not just with their operational management tools, but with their finances, as well. 

With so many options in a fragmented market, companies like HoneyBook are looking to position themselves as the one stop shop for any independent worker or SMB by helping them with both their client and cash flow. 

“From a lead to receiving a proposal and signing an agreement, receiving an invoice and paying you: that is what HoneyBook does for the independent businesses,” CEO Oz Alon said. 

While the client flow management focuses on business communication and retention, HoneyBook’s cash flow services deal with the money. And in this area, HoneyBook is partnering with banks and fintechs to develop more financial services for its members.

From payments to lending 

Payments are core to HoneyBook, as online transactions have become the standard of doing business. Members can get their money instantly from clients -- they don't need to wait a few days to see the money in the bank. The company partners with Stripe to facilitate its payment operations, a “great” collaboration so far that will continue in the future, according to Alon.

But HoneyBook also wants to help members manage the volatility of their income and expenses, offering a key capability: lending. 

The company recently launched HoneyBook Capital to give its customers an easier way to get credit than going the traditional route. 

“Our members have the option to withdraw some capital and pay it back over time through payments. Capital is another way for us to help our members reinvest in their business,” Alon told Tearsheet. 

The process is pretty straightforward. HoneyBook charges a single fixed fee for the loan, with no periodic interest charges, no monthly bills, no late fees and no prepayment penalties. Funds are deposited the next business day after the agreement, and a percentage of client payments are automatically put towards the loan repayment until it’s complete. 

This new capability required partnerships. All loans through HoneyBook Capital are issued by Blue Ridge Bank and serviced by jaris Funding LLC.

Alon sees a lot of opportunities in offering banking services to its members, whether it’s helping them become more financially versed or automating taxes. An area of focus is also expense management, where HoneyBook wants to incorporate BNPL options to help SMBs break out a larger expense and pay it in installments. 

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And there’s more to come:

“There's one product I'm very excited about, that will come out in the following year, which is banking services, but I think the ability to issue cards to our members, and to allow them to spend or get money faster is the most interesting,” Alon said.

The platform wants to build new partnerships in the banking space to continue developing financial products. 

“We don't need to become a bank with a license. We prefer to partner. There are areas where it's not our expertise -- there are better platforms out there. And we're going to build these great partnerships,” Alon said.

Win-win situation

As a platform, HoneyBook’s revenue comes from subscription and transaction fees, so its success relies on its members making money.

This model comes with its risks. When freelancers and SMBs suffered during the pandemic, HoneyBook took a hit as well. 

But with improving economic conditions and workers shifting from traditional jobs to become independent workers, the company witnessed growing activity on its platform with subscriptions up 120% over the past year. 

This wave brought $1.8 billion in total bookings on the platform in 2021, after hitting $1 billion in each of the previous two years. HoneyBook members’ total bookings have now surpassed $5 billion. 

The company capitalized on its momentum and raised $250 million in a Series E funding round led by Tiger Global Management with participation from Durable Capital Partners LP, Norwest Venture Partners, Citi Ventures and OurCrowd.

But growth also comes with new challenges. HoneyBook works with a diverse pool of clients, and it’s not easy to be a one stop solution for a wide range of small businesses and entrepreneurs. Alon noted the difficulty in finding the common denominator between all the verticals in his business.

“How do you create value for the business coach, the interior designer and the photographer? It's such a long tail of businesses out there and we're discovering new ones every day. That is one of the biggest challenges when you serve that category,” Alon said. 

Nevertheless, there are more external partners coming in to create value for HoneyBook’s members, even coaching them to help them become better businesses.

“We are seeing a lot of opportunity to engage with the ecosystem around us to create more value that is diversified to different businesses,” Alon noted.