The rising prices for gas continue to be a headache and stress for a lot of people around the world, but it underscores something more besides the cost of living becoming increasingly untenable: Cars are a central part of modern life. So for the entrepreneurially minded, gas stations thus represent a huge opportunity: the engagement around buying fuel is some of the most recurring and predictable activity people will have in their consumer lives.
Today, a startup that has built a business out of capitalizing on that idea is announcing a round of funding to continue its growth. P97, a Houston startup that partners with fuel brands, gas station retailers, electric car charging companies, mobile wallet providers and connected car OS makers to make it easier to select and pay for your gas (or electric charge) either through an app or connected car, has picked up $40 million in equity funding.
Portage, a firm known for making fintech investments, is leading the round, with other investors undisclosed. P97 has been around for 12 years and had only raised about $40 million in equity in that time, with other backers including Accenture’s venture arm, strategic backer FleetCor and industrial specialist investor Emerald.
It’s not disclosing specific valuation, but Donald Frieden, the CEO and founder, said that this Series C more than doubles the valuation from its Series B. That $20 million Series B was in 2019, and PitchBook notes that P97 had a post-money valuation at that point of $95 million, which (if correct) makes the company now valued at more than $200 million.
P97 may not be a household name for most. Part of that is because, as Frieden admits, it grew very slowly in its earlier days.
But it’s also because a lot of the work it does is behind the scenes. It has integrations in place with several of the major gasoline brands, including Chevron, Exxon Mobile and Shell, covering some 53% of the market and 60,000 gas stations in North America, as well as Amazon (“Alexa, buy gas” in a car equipped with its automotive interface), PayPal, Walmart and others to streamline the buying of gas through those various brands’ apps.
The technology covers not just payments, but an integration into the full stack underpinning the operation of the fuel or electricity pumps: after you pre-pay on your app, P97’s tech corresponds with the station’s system to unlock the pump to procure the fuel, and then it tallies up your total and charges your chosen payment method.
Although it sounds like it would make the most sense as a seamless and convenient experience for consumers, there are no plans for P97 to build its own-brand “super app” that could be used at any place powered by P97: that would compete too directly with its customers, Frieden said.
P97’s use case relies on a couple of factors. One is that people are growing more and more accustomed to paying for things with their phones, and not using physical cards or cash at all, with mobile payments typically processing more quickly. The approvals for payments on apps are less than six seconds, Frieden notes, “one quarter of the time at the pump.” Paying when authorizing your card on the pump-based machine on average takes 23 seconds. (And going to see the attendant takes even longer.)
It’s not just that the physical card systems are time-consuming; they have long been the subject of a lot of fraudulent activity in the form of card skimming, which in 2022 was still growing strong, despite stronger security measures put in place. Between that and people more risk-averse about infections post-COVID, and you can see why mobile app-based payments at gas stations might appeal.
The startup’s product expansion into marketing and selling a wider range of products and services, meanwhile, speaks to a big pain point in the world of fuel retail: Despite those high prices per-gallon, gas stations are often making small margins because competition is tight.
“Gas is a commoditized product,” Portage partner Dan Ballen explained. “Your direct competitor is usually just across the street.”
In other words, anything that can lead to generating more revenues per customer will be interesting to those stations, and so that is where selling and paying for a wider range of products and other offers comes into play, Frieden said.
Payments today accounts for 80% of P97’s revenue, but “looking out two or three years from now, that becomes more like 60% of our business,” Frieden estimated.
It seems to me that gas stations are not the only ones in a race to the bottom: Digital payments has also proven to be a pretty thin-margin business.
That is one reason why you see companies like Stripe and PayPal building out full stacks of related services that it sells to its payments customers. I asked Frieden if any of these companies had approached P97, which is complementary and different from them in that it’s identified a very specific vertical and built out payments and commerce technology that speaks to what they do and need.
“We’ve been approached,” Frieden replied slowly and a little cagily. It’s unclear if “approach” in his mind meant more partnerships or acquisitions or investments. He’s not your typical founder, with a deep Texas drawl and decades of experience — yet not in Silicon Valley or other classically tech corridors, but the oil and gas industry and building technology for them. But he is learning the lingo fast and interested in taking this to the next level as any founder would be.
With 58% growth last year, and a lot plans in play, Frieden is in no rush to sell, he said. “We’re just starting to scale up our two-sided network effects.”
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