Expensify’s IPO — A look back on why PJC invested early
I was introduced to David Barrett, the CEO of Expensify, on February 25th, 2014. Fortunately, an executive in my network recommended the company as an investment opportunity for PJC. It fit a whole host of criteria that we had for potential investments at the time; David was a first-time founder, the company was relentlessly resourceful, balancing growth and profitability, and customers loved the product.
Following a first meeting with the company and initial diligence, I was immediately impressed by David Barrett and the quality of his answers. Expensify was founded during the great recession, and it showed as we looked at every detail of the company. It was a great business with a very strong culture and a truly unique vision.
The vision was to make Expense reports that don’t suck, and as we knew through our own experience with expense reports on excel, it was truly a painful process that sucked.
We led a $3.5M round of financing on May 15, 2014. At the time the company had $3M in ARR. Today, the company’s ARR sits at $141M and they are publicly traded under the ticker EXFY.
So why did we invest in Expensify?
The company’s unique approach to expense management was built on key, complementary elements such as its ease of use and configuration by every employee within an organization, not just decision-makers or managers. This enabled the company to build a viral, bottom-up business model driven by the employee and their word-of-mouth adoption. The impressive CEO coupled with an enormous addressable market and unique company culture that consisted of a long-term vision of happiness for all employees got us excited to partner with the company.
Sales Efficiency
For decades software has been sold in a “top-down” fashion, whereby software providers deploy a legion of sales representatives focused on selling large, multi-year contracts to decision-makers and business owners. This model is tried and true but it’s costly and, in many cases, inefficient.
At the time, Expensify was pioneering a relatively new “bottom-up” sales approach to selling which got us very excited due to its incredible efficiency. The adoption of Expensify within an organization often starts with the individual employee, who downloads the Expensify mobile application or signs up on their website for free and uses it to easily submit expenses to their manager with a few taps. After the employee realizes the benefits of their platform, they become a champion of Expensify and often spread it internally to other employees. With multiple employees using Expensify and valuable features simplifying a manager’s job, the decision-maker purchases a subscription to Expensify and becomes a paying customer with a few members, virally expanding from there.
The Entrepreneur
David Barrett is not only a visionary in his market, but he also had an unbelievable grasp on his finances, something not seen every day in the earliest stages of company growth. David and I spent hours discussing his vision for the product and company, but also hours of discussing his finances and why he needed exactly $3.5m to execute on several specific initiatives. Each time we ended our conversations David always reiterated his path to building a multi-billion-dollar business.
As Expensify was gearing up to go public, I went back through some of the references that we got from folks about David.
The comments below best depict the type of Entrepreneur David Barrett is and the type of first-time founder PJC likes to partner with.
“Unending curiosity and perseverance — David will explore a problem or challenge to its absolute depths. He will go further than anyone, including any competitor.”
“Ingenuity when problem-solving and innovating — He’s one of the most creative problem solvers I know and one of the very few peers I feel I can go toe-to-toe with.”
“A great mix of creative and analytical — related to #2, the holy grail of entrepreneuring is that magical mix of analytical and creativity — David brings that in spades and you can be certain his answers, product insights, vision for the future will be ahead of, far more compelling, and far more successful than the competition’s.”
source: Travis Kalanick, 4/19/2014
An exceptionally large TAM
Expensify was addressing a massive market opportunity for companies with less than 1,000 employees and segmented these companies into three cohorts based on employee count: (1) companies with 1–9 employees, (2) companies with 10–499 employees, and (3) companies with 500–999 employees. Many companies address this market, however, the approach that the company was taking seemed best. Their strategy was to lock in loyal customers with their initial product, an expense management system, which is the best in the market, and then pursue ancillary business opportunities like:
· Bill Pay
· Invoicing
· Credit Card
· Travel — personal trip planner
· Personal payments
At the time we estimated that the total addressable market (“TAM”) was approximately over $20 billion worldwide and over time with new innovative products the market opportunity could get over $100 billion.
Love for the Product
As we began asking around about Expensify, we received an overwhelming response, which was, “we use Expensify and love their product”. I think it’s one of the only investments that I have made, and I have invested in more than 100 companies, where everybody I talked to about Expensify was either using the product or had heard of the product and had great things to say about it.
NASDAQ: EXFY
We have proudly watched as David and his team brought the Expensify vision to fruition over the past 7 years and have continued to launch new and innovative products to their customers. Congratulations to David Barrett and the entire Expensify team for building a multibillion-dollar business. We are excited for the future and what’s next for David and his team, and we look forward to continuing this journey with EXFY.
— David Martirano, Managing Partner at PJC
