Ramp and Brex draw diverging market plans with M&A strategies

What recent deals tell us about the battle lines being drawn in spend management

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.

Buyer, according to reports, has helped customers save an average of 27.3% on SaaS contracts. It does that by offering a “customized and proactive approach” to negotiating down purchases like large annual contracts.

So anyway, Ramp wants to get more customers by helping them spend less, and it believes Buyer is one more way to do that.

Growing the potential pie

Brex is also interested in helping businesses manage their inflows and outflows, but it’s playing a different game. The company, which launched in 2017 and also raised $425 million at a $7.6 billion valuation earlier this year, has traditionally been focused on providing corporate cards and similar perks to startups and small and medium-sized businesses.

While Ramp seems primarily interested in providing customers a detailed view into company finances with an eye toward cost control, many of Brex’s big announcements and initiatives lately have focused on helping provide small businesses — particularly e-commerce sellers — faster access to cash flows through instant payouts.

The company’s acquisition of Weav is directly positioned to help meet this goal. Weav’s API will let Brex — and by extension, its customers — connect to other e-commerce and financial services platforms, making it easier and faster for them to sell products and accept payments.

The deal could also open up new markets for Brex beyond the e-commerce vertical. With connections to payments and financial services platforms like Stripe, PayPal and Square, Weav could provide access to an even longer tail of merchants, creators and solopreneurs that Brex’s platform currently doesn’t reach.

Further differences

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.

Brex announced its paid tier — called Brex Premium — this April alongside its most recent fundraise. Brex Premium costs $49 per month, a pricing tier clearly aimed at smaller businesses rather than enterprise accounts. This fits with Brex’s larger focus on small-business services.

Ramp’s corporate focus and lack of a paid software option almost seem to be in conflict. After all, if Ramp is targeting larger companies, why not charge them for the software it has built? The company is building an increasingly robust suite of financial services that are valuable, which means it is deliberately leaving money on the table to grow more quickly and converting implied lost software revenues into something akin to sales and marketing spend.

Or, it is simply betting that in the long run, the value of software in its space will converge around the $0 mark as free services slowly beat Brex and other corporate spend startups that offer both paid software along with cards. Airbase is one such example.

Notably, Brex Premium’s spend control feature is something that Ramp offers for free. Of course, the two companies would argue about which product is superior, but it’s a notable divergence in deciding what is worth asking customers to pay for and what is not. Ramp is actively devaluing Brex’s work by sticking to its free-for-customers business model.

The free model can work. Divvy exited for north of $1 billion on the back of its zero-cost service. But interchange revenues only go so far, even at scale, and they are perhaps more cyclical and macro-impacted than recurring software fees — especially software incomes tied to core corporate systems.

Regardless, the business model differentiation is now hardly the only difference between the two companies. Their acquisitions differentiate them, perhaps slotting them into two different areas of customer focus. If so, perhaps the pair won’t be in as close of a conflict as we might have originally expected — at least for the time being.

In time, Brex may want to focus its customer-acquisition energies upmarket. And Ramp is hardly turning away SMB customers with its free service.

If there is a detente, it may not last.