Pellinore — Embedded Payments Exercise
An 8-hour Venture Investment Exercise case study with a complete model answer
Modeled After
Greenoaks
The open exercise format Greenoaks is reported to set, applied to a payments business: long-term margin structure, what the company does to its industry, and a valuation from scratch — with the gross-versus-net revenue question deciding what the margin and the multiple even mean.
Structure and exercise format are modeled after Greenoaks — the take-home exercise format the firm is reported to use. The company, the payment volumes and every figure in this case are entirely our own.
The Situation
Pellinore Payments, Inc. sells scheduling, dispatch, estimating and invoicing software to independent home-services contractors — heating and air conditioning, plumbing, electrical.
Pellinore Payments, Inc.
- Sector
- Fintech / vertical software with embedded payments — subscription software for home-services contractors, plus card acceptance sold into the same base at a flat merchant rate
- Size
- Geography
- United States, across an installed base of independent contractor locations in the heating and air conditioning, plumbing and electrical trades
- Ownership
- Situation
The Prompt
You are a candidate for an investment role at a fund that holds positions for years rather than quarters. The exercise arrives by email on a Friday afternoon with a short note:
"Pellinore.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
Blank modeling template (template.xlsx)
The attach panel (given in the template)
Market and third-party data (given in the template)
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 480 minutes.
PART 1
Separate payment volume, gross revenue and net revenue before anything else
PART 2
Build the per-transaction bridge, and find both plugs
PART 3
Treat losses as a cost line with an owner and a timing, not a rounding item
PART 4
Model the attach rate as the growth engine, separately from the take rate
PART 5
Screen the comparable set on its recognition basis before you use it
PART 6
Form a view on an interchange cap, because that is the industry question
PART 7
Bridge today's margin to the steady-state one, and value it
PART 8
Sensitize on pairs that are actually two axes
PART 9
Decide what to do with the file you were given
Attempt It First
Blank modelling template
The answer model with every produced cell cleared — the shell you build your attempt in. Work it in Excel against the clock, then check yourself against the model answer below.
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished memo and Excel model are in the solution set below.
- 0:00 – 0:45
read everything, and decide about the panel early
- 0:45 – 2:15
the per-transaction bridge
- 2:15 – 3:30
the volume build
- 3:30 – 5:30
the discounted cash flow
- 5:30 – 6:45
sensitivities
- 6:45 – 8:00
write it
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Total payment volume
The gross value of card transactions processed through the platform. It is not revenue, it is the base the revenue is a rate on, and it is the only denominator in this business that does not move when the revenue recognition basis moves — which is why a margin structure is easier to argue about in basis points of volume than as a percentage of anything else.
Gross versus net revenue recognition
A payments platform may recognize the whole merchant discount rate as revenue and interchange as a cost, or recognize only what is left after interchange. The economics are identical and the reported revenue differs by a factor of two or more. Any multiple, growth rate or margin is meaningless until the basis is named, and a comparable set that mixes the two is not a comparable set.
Interchange and scheme fees
Interchange is paid to the bank that issued the card; scheme fees are paid to the network that carried the transaction. Both are largely pass-through, neither is disclosed separately by most platforms, and together they are the difference between the two revenue lines. Under a flat merchant rate, whoever stands between the merchant and the network is the first claimant on any reduction in either.
Attach rate
The share of a software platform's customers who have actually turned payments on. It is the growth engine of an embedded payments business and it is entirely separate from the take rate: one determines how much volume there is, the other how much of it the platform keeps. It also matures by cohort rather than jumping, and it has a ceiling.
Merchant credit risk
The exposure a platform takes when it pays a merchant for a transaction the cardholder can still dispute, on work the merchant has not yet performed. It is a credit loss rather than a fraud loss, it scales with the deposit float rather than with revenue, and who bears it — the platform, a sponsor bank, or the merchant — is a structural choice with direct margin consequences.
Settlement float and its funding
A platform that pays merchants faster than the networks pay it carries a receivable that scales with daily volume, usually funded by a warehouse facility drawn against that receivable. The interest is a cost of the product. The facility is not leverage, and netting it into net debt without netting the receivable it is secured against is a real and common error.
Payment facilitator status
Becoming the merchant of record rather than referring merchants to a sponsor bank. It hands the platform more of the economics and all of the underwriting liability at the same time, which is why a model that improves the take rate without moving the loss rate has taken the upside of a structural change and left out its cost.
Counterfactual reasoning
Answering an implications question by constructing the world in which the thing being studied does not exist, rather than by listing effects. It is the strongest available structure for a qualitative question, and on this subject it is also the only way to identify who actually lost the economics the platform now collects.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: memo and Excel model, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Total payment volume and net revenue take
- —Interchange and scheme fee pass-through
- —Loss rates and funding cost
- —Attach rate on the software base
- —Regulatory exposure to interchange caps
- —Long-term margin structure
Memo
The written recommendation and how it was reached
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the memo, the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and Memo (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Pellinore — Embedded Payments Exercise
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
Is payment volume the revenue number?
No, and treating it as one is the fastest way to fail this exercise. Volume is the base; revenue is a take rate on it. Of that take, interchange and scheme fees are largely paid away to issuers and networks. Build on volume, then present gross revenue and net revenue side by side and say which one every ratio you print is struck on.
Which revenue line should I strike the multiple on?
Either, as long as you say so and are consistent — and as long as the peers you set it against are on the same basis. The ratio between an enterprise value over gross revenue and the same enterprise value over net revenue is nothing but the ratio between the two revenue lines, so a reader who knows the basis can move between them. A reader who does not can be off by a factor of two without an arithmetic error anywhere.
What does an interchange cap actually do to a platform like this?
Work it through rather than assuming. Interchange is a cost that is passed through, so a cap reduces the network cost in full while gross revenue falls only by whatever the platform elects to give back in price. The question that matters is what share the platform retains, how long it retains it, and what the platform has to take on to earn the right to keep any of it at all.
How much of the eight hours should go on the model?
Less than you think. The brief says explicitly that model hygiene is not what is being graded, and the memorandum is the deliverable. A back-of-the-envelope model that announces its own crudeness and makes the written argument falsifiable beats a polished one attached to two pages of hedging.
What do I do with the attach panel?
Work it up, read what its construction implies about what it is counting, name in specific terms what you could not resolve, and then use it for the one thing it can carry rather than the thing it looks like it carries. The temptation is either to ignore it because it is awkward or to lean on it because it was given to you. Both are wrong, and the correct answer looks like effort followed by restraint.
Do I need to charge stock-based compensation?
You need to decide and to say so either way. The market quotes companies like this on a measure that excludes it. If you value it on the same measure without saying so, you have valued a company that never pays for the equity it issues. Whatever you decide, strike the ratio on a named revenue line — on gross revenue it is a different number describing nothing.
Is there a leveraged buyout in this case?
No, and importing one is the most common way to get this exercise wrong in kind rather than in detail. There is no sponsor, no acquisition debt, no cash sweep, no exit multiple and no returns bridge. The only borrowing is a settlement facility drawn against a matching receivable, and treating that as leverage is itself one of the errors the case is built to catch.
Is this format still used?
Yes, and it is the most transferable of the long-only and growth formats because it is closest to the actual work. A firm sends three open questions and one imperfect file, and wants to see how you decide what is worth knowing, where you stop, and what you are willing to put your name to.
About This Venture Investment Exercise Case Study
Venture Investment Exercise case study for venture & growth interviews. 480-minute format covering total payment volume and net revenue take, interchange and scheme fee pass-through, loss rates and funding cost. Includes the full prompt, a written memo, a tied-out Excel model and an audio walkthrough.
This case study sits in Venture & Growth, under Investment Exercises. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
480-Minute Format
The time limit a real assessment would give you
Memo
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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