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The pure hell of managing your JPEGs
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
Natasha and Alex and Grace and Chris were joined by none other than TechCrunch’s own Mary Ann Azevedo, in her first-ever appearance on the show. She’s pretty much the best person and we’re stoked to have her on the pod.
And it was good that Mary Ann was on the show this week as she wrote about half the dang site. Which meant that we got to include all sorts of her work in the rundown. Here’s the agenda:
- Funding rounds from: Ramp, which raised $300 million at a $3.9 billion valuation; NoRedInk, which put together an impressive $50 million Series B; and Playbook, which is building a sort of Dropbox for designers. Each company gave us something different to noodle on, be it the diverging strategies at Ramp and Brex, how NoRedInk is different from Grammarly, and why Dropbox is not the Dropbox for designers.
- Then we spun the globe to narrow our focus to Latin America, a booming startup scene that Mary Ann recently profiled for Extra Crunch. In a nutshell, venture capital is helping drive an enormous wave of startup activity in the region — or perhaps a wave of startup activity is driving a boom in venture investment? — leading to huge companies, and perhaps some tech-powered inclusion of more folks into the modern banking and digital economy. (For more, here are notes on the Brazilian market’s rising exit tally! And Flink raised, which was worth chewing on as well.)
- We quickly pivoted to the hot-button issue of the moment for every startup (and business): hiring. Natasha noted how startups used to focus on runway, and now they are looking to fill empty seats amid the great resignation.
- Finally, we nattered about huge venture results from Boston, big numbers from Austin and what increasingly feels like an everything bubble. Chicago is doing well, too. Pick a city, it’s putting up big numbers.
And that’s a wrap, for, well, at least the next five seconds.
Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday morning at 7:00 a.m. PDT, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts.
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Ramp and Brex draw diverging market plans with M&A strategies
Earlier today, spend management startup Ramp said it has raised a $300 million Series C that valued it at $3.9 billion. It also said it was acquiring Buyer, a “negotiation-as-a-service” platform that it believes will help customers save money on purchases and SaaS products.
The round and deal were announced just a week after competitor Brex shared news of its own acquisition — the $50 million purchase of Israeli fintech startup Weav. That deal was made after Brex’s founders invested in Weav, which offers a “universal API for commerce platforms.”
From a high level, all of the recent deal-making in corporate cards and spend management shows that it’s not enough to just help companies track what employees are expensing these days. As the market matures and feature sets begin to converge, the players are seeking to differentiate themselves from the competition.
But the point of interest here is these deals can tell us where both companies think they can provide and extract the most value from the market.
These differences come atop another layer of divergence between the two companies: While Brex has instituted a paid software tier of its service, Ramp has not.
Earning more by spending less
Let’s start with Ramp. Launched in 2019, the company is a relative newcomer in the spend management category. But by all accounts, it’s producing some impressive growth numbers. As our colleague Mary Ann Azevedo wrote:
Since the beginning of 2021, the company says it has seen its number of cardholders on its platform increase by 5x, with more than 2,000 businesses currently using Ramp as their “primary spend management solution.” The transaction volume on its corporate cards has tripled since April, when its last raise was announced. And, impressively, Ramp has seen its transaction volume increase year over year by 1,000%, according to CEO and co-founder Eric Glyman.
Ramp’s focus has always been on helping its customers save money: It touts a 1.5% cash back reward for all purchases made through its cards, and says its dashboard helps businesses identify duplicitous subscriptions and license redundancies. Ramp also alerts customers when they can save money on annual versus monthly subscriptions, which it says has led many customers to do away with established T&E platforms like Concur or Expensify.
All told, the company claims that the average customer saves 3.3% per year on expenses after switching to its platform — and all that is before it brings Buyer into the fold.
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Why did Bill.com pay $2.5B for Divvy?
As expected, Bill.com is buying Divvy, the Utah-based corporate spend management startup that competes with Brex, Ramp and Airbase. The total purchase price of around $2.5 billion is substantially above the company’s roughly $1.6 billion post-money valuation that Divvy set during its $165 million, January 2021 funding round.
Divvy’s growth rate tells us that the company did not sell due to performance weakness.
Per Bill.com, the transaction includes $625 million in cash, with the rest of the consideration coming in the form of stock in Divvy’s new parent company.
Bill.com also reported its quarterly results today: Its Q1 included revenues of $59.7 million, above expectations of $54.63 million. The company’s adjusted loss per share of $0.02 also exceeded expectations, with the street expecting a sharper $0.07 per share deficit.
The better-than-anticipated results and the acquisition news combined to boost the value of Bill.com by more than 13% in after-hours trading.
Luckily for us, Bill.com released a deck that provides a number of financial metrics relating to its purchase of Divvy. This will not only allow us to better understand the value of the unicorn at exit, but also its competitors, against which we now have a set of metrics to bring to bear. So, this afternoon, let’s unpack the deal to gain a better understanding of the huge exit and the value of Divvy’s richly funded competitors.
Divvy by the numbers
The following numbers come from the Bill.com deck on the deal, which you can read here. Here are the core figures we care about:
- “~$100 million annualized revenue,” calculated using the company’s March results multiplied by 12. That puts Divvy’s March, 2021 revenues at around $8.3 million.
- “>100% revenue growth YoY,” again calculated by leaning on the company’s March results. So, we can’t be sure that its full Q1 2021 growth was over the 100% mark. Still having its most recent Q1 month generate a three-figure growth rate is good. It also lets us know that the company did no more than $4 million or so in March 2020 revenue.
- “~$4 billion annualized TPV,” or total payment volume. Again, this is a March number annualized.
This lets us price the company somewhat. Divvy sold for around 25x its current revenue rate. That’s a software-level multiple, implying that the company has either incredibly strong gross margins, or Bill.com had to pay a multiples-premium to buy the company’s future growth today. I suspect the latter more than the former, but we’ll have to scout for more data when Divvy shows up in Bill.com results after the deal closes; that data is a few quarters away.
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Brex, Ramp tout their view of the future as Divvy is said to consider a sale to Bill.com
Earlier today recent dog-parent Alex Konrad and fellow Forbes staffer Eliza Haverstock broke the news that Divvy, a Utah-based corporate spend unicorn, is considering selling itself to Bill.com for a price that could top $2 billion. For the fintech sector, it’s big news.
Corporate spend startups including Ramp and Brex are raising rapid-fired rounds at ever-higher valuations and growing at venture-ready cadences. Their growth and its resulting private investment were earned by a popular approach to offering corporate cards, and, increasingly, the group’s ability to build software around those cards that took into account a greater portion of the functionality that companies needed to track expenses, manage spend access, and, perhaps, save money.
The latter category was what Ramp focused on when it launched. It worked. More recently Ramp added expense tracking efforts to its own software suite. And Brex, an early leader in its efforts to get corporate cards into the hands of smaller, and more nascent businesses, has also built out its software efforts. So much so that the company, in conjunction with its huge recent fundraise, announced that it will begin offering a software package for a monthly fee.
Competitors like Airbase charge for their code, while some, like Divvy, traditionally have not.
Enter Bill.com. As the software work from the corporate spend startups has improved, it may have begun cutting into the corporate payments and expense software categories. For Bill.com in the payments world, and Expensify in the expense universe, that possible incursion could prove to be a growth-retarding concern. Thus, it makes sense to see Bill.com decide to take on the yet-private corporate spend startups that are playing the field; why not absorb a growing customer base and fend off competition in a single move?
To get a better handle on how the startups that compete with Divvy feel about the deal, TechCrunch reached out to both Ramp CEO Eric Glyman, and Brex CEO Henrique Dubugras. We’ll start with Glyman, who broadly agrees with our read of the situation:
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Square and PayPal earnings bring good (and bad) news for fintech startups
Earnings season is racing past us, with the big ride-hailing companies’ numbers in, all of the Big Five having wrapped their reporting and lots of SaaS numbers in the market. But amidst all the noise, The Exchange has kept an eye on two companies in particular: PayPal and Square.
We’re not really concerned with their overall revenue and profit metrics. Instead, we’ve been hunting around in their numbers for hints and notes about what is going on inside of fintech itself. Why? There are a host of hugely valuable fintech unicorns that have to go public in the future that also share some market space with one or both of our public charges.
What can we learn from looking at what PayPal and Square reported to their own investors?
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Lots, it turns out.
As TechCrunch reported when PayPal dropped its Q3 numbers, the public company had bullish results from its Venmo service, payment processing and consumer activity metrics. The numbers pointed to strong consumer adoption of fintech services during the pandemic, something that we presumed was not unique to PayPal itself, but was likely indicative of a generally warm environment for consumer fintech services.
Square continued the trend, posting a set of results that contains nearly all positive data for consumer fintech activity — with one critical caveat for Q4 that we’ll get to at the end.
Still, what the majors tell us about the fintech space indicates a warmth in activity that explains why Chime, Robinhood and others have had such fun in 2020, accreting tectonic capital to keep their growth hot.
Digging through Square’s earnings gives us a window into consumer payment activity, card usage, stock purchases and more. Let’s see what we can learn, and to which unicorns it might apply.
A very fintech 2020
Let’s start by talking about the broader fintech market before niching down.
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Ramp is a corporate card focused on helping you spend less
Meet Ramp, a new startup that offers corporate credit cards with 1.5% cash back on everything. The company thinks that a cash-back program combined with an analysis of your payments to help you spend less is more valuable than alternative corporate card offerings.
Ramp is launching publicly today and has raised $25 million in funding from Keith Rabois, Coatue, BoxGroup, Conversion Capital, Soma Capital, Backend Capital and more than 50 business angels.
The startup doesn’t charge fees. All your employees can have a white Visa card for $0 per month. There are no foreign transaction fees and no interest either. The company plans on making money with interchange fees — like all card issuers, Ramp will get a very very tiny cut on all transactions.
One of the main selling points of Ramp is that it offers you control and visibility. You can set different limits for each employee, create as many cards as you want and set up spending rules. The service also helps you centralize receipts and attach them to each expense. There are some integrations with accounting software.
Like Brex, Ramp is going to work particularly well with high-growth startups. When you sign up, Ramp doesn’t require personal guarantees. You also get higher spending limits than what you’d get from traditional corporate cards — Ramp says you can expect limits that are 10 to 20 times higher than typical limits.
Unlike Brex, Ramp doesn’t have a complicated point-based reward system. You’re not going to earn more points when you order a Lyft or book flights through Brex. Instead, with Ramp, you get 1.5% back on all your purchases — it can be a recurring subscription, an expensive flight, a team lunch… 1.5% on everything.
Existing customers include some well-known startup names, such as Ro, Candid, Better, Eight Sleep and Truebill.
Ramp goes one step further by analyzing how you spend money. For instance, if you’re paying multiple subscriptions to the same service, Ramp is going to flag that as a duplicate subscription. If you’re spending an unusual amount of money on a specific service, Ramp will recommend a lower subscription tier.
The startup also offers free credits for dozens of third-party services, such as Amazon Web Services, Amplitude, Plaid, Datadog, DocSend, Notion, Twilio, Sendgrid, etc. Overall, it represents $175,000 in free credits.
Ramp was founded by Eric Glyman and Karim Atiyeh. The team previously founded Paribus, a startup that helps you save money on online purchases that was acquired by CapitalOne.
It’s a solid offering overall. There are probably many startups that are looking for a simple corporate card solution with a cash-back program. And the fact that Ramp wants to help you spend less shows that the startup cares more about providing a good user experience over generating quick revenue.
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