After spending more than a decade building out its expense management platform, Expensify went public today, listing on the Nasdaq under the ticker “EXFY.” Early returns have been positive, as the company revised its original listing price up — and still saw its shares rise 40% on its first day of trading.
We’ve written a fair amount about Expensify already, including a deep dive from my colleague Anna Heim that follows it from the company’s foundation all the way up through its continued focus on product-led growth. Meanwhile, Alex Wilhelm took a peek into the company’s S-1 when it filed to go public last month.
Today, though, I got the chance to catch up with Expensify founder and CEO David Barrett to discuss why the company decided to go public now, why it chose a traditional listing as opposed to a SPAC or direct listing and how it sees the expense management category shaping up as corporate travel begins to pick up post-COVID and a group of startups like Ramp and Brex seek to offer spend management solutions based on their own corporate card programs.
Below, Barrett explains why he believes Expensify’s listing is the “most pro-employee IPO ever,” how expense management — particularly SMB expense management — is a trillion-dollar opportunity and why he doesn’t see the likes of Brex as competition.
The transcript of this conversation has been edited for length and clarity.
TechCrunch: Congratulations on this milestone. But the obvious question is, why was now the right time to take the company public? Was it the company readiness? Market multiples? A frothy IPO market?
David Barrett: We often get this question, and I think our attitude is much more like, “Why not?” We’re not optimizing for a single transaction, and we could wait a month, a year, or 10 years and will be the same company. But we would rather have liquidity along that path.
I think what is really driving this, honestly, is just liquidity for our early shareholders. We haven’t raised money in so long that our VCs basically just need liquidity. I could wait another year and get an even more insane return, but I’ve already banked such a gigantic return I just kind of need to give it back.
Because we’re a very profitable company, we actually did a leveraged buyout of Redpoint. So one of our earliest VCs, we actually gave them liquidity just off our balance sheet. That was great, but at some point, you know, we’re profitable, but not so profitable that we can buy out our investors to like hundreds of millions of dollars a year. We can’t get that level of liquidity.
There’s really no difference between expense management, invoicing, bill pay, payroll, corporate card, procurements, consumer money transmission … They’re all a list of expenses that you give to someone and they pay in return. David Barrett
It really came down to — there’s no future where we don’t end up going public at some point. So then it’s no longer if we should go public, it’s really about when.
Well then, why not now? We’re clearly at a point where we can be a public company. We meet all the requirements. And honestly, as a profitable company, I’m very excited for the enhanced access to debt options that you get as a public company.
So I think that fundamentally it was inevitable, and now is as good a time as any.
I’m also curious about doing a traditional listing in this environment when you could do a direct listing or a SPAC. Why go the traditional route with all the bankers and roadshows and whatnot when there were other options out there?
So actually, when I started this whole process, I didn’t even want to think about anything but a direct listing. Our IPO attorney Tad Freese is the architect of the direct listing, so there’s no one in the world that knows the direct listing better than him.
The more we got into it, [we realized] the IPO market has really dramatically changed just in the past couple of years. I think the introduction of the direct listing and the resurgence of SPACs both created a very competitive IPO environment where the traditional IPO has evolved.
A lot of the challenges of the traditional IPO now are much more flexible. To give an example: We’re aiming to be the most pro-employee IPO ever. So even though it’s a traditional IPO, with the exception of a collection of insiders, all of our employees can trade up to 15% of their shares starting today. Normally, you can only get that kind of “day one” liquidity if you did a direct listing.
But now the all of the banks are forced to compete against the direct listing and compete against SPACs. So a lot of those traditional limitations have kind of gone away.
In terms of pricing, I know that you went out higher than originally expected, but are you worried about leaving money on the table or anything like that?
I don’t know. I feel like people overthink the first day [of trading]. I mean, we’re gonna be a public company for the next 1,000 years. So whatever happens today, people are just going to forget about it down the line.
Ultimately, I think our approach is that we’re building a business for the long run, we’ve worked with the best partners out there, we’ve looked at all the angles, we’ve talked to a million different vendors, we came up with reasonable price ranges … and as a general strategy, when it comes to anything like forecasting, we have always been very conservative.
So I think we feel very good about it, and I know that there’s a tremendous amount of enthusiasm for the stock and for this company. And fundamentally, we think it’s the right price and we think it’s a good price.
Let’s take us a bit of a step back, because, the last 18 months have been pretty challenging for the travel and expense industry. How did that affect your business and how did you get past that?
That was certainly a daunting exercise. Because the way we view it is, when we look back over our 13 years of cohort data, we have these perfect smooth growth curves, and then 2020 comes along and it’s a dent in all of our charts.
The one way to view it is like the ultimate stress test of our business model because we didn’t know how much exposure we had to business travel and so forth. I think one way of putting it is that business travel is different than most people normally think. People think about George Clooney in “Up in the Air,” traveling coast to coast. That’s definitely a part of it, but expense management is much more of a Main Street business than a Wall Street business.
So we have customers all over the nation and all over the world. And a huge fraction of business travel is driving. My dad was a salesperson and he drove around Wisconsin and Michigan selling machine tools. So he did a ton of business traveling, but he very rarely got on a plane.
I think we reimbursed way more Home Depot receipts than we do United Airlines receipts. So business travel and air business travel definitely took a cut. But I think we found that actually, driving business travel is a huge hidden opportunity that we didn’t even realize we were so strong in.
So I’d say it was a huge stress test in the business, and that was scary. But ultimately I feel very, very proud of how well the underlying business model has weathered that. And fundamentally, we see it as largely behind us.
We didn’t see a bunch of churn amongst customers; it was more that every customer pulled back — almost like a spring. And then once the vaccines came out, then that spring got released. And now we’re seeing a very rapid recovery, and we’re back to our core trends.
Along the same lines, you shifted your business model a little bit to focus more on the card product as opposed to your traditional SaaS platform. From a strategic perspective, why did that make sense? And what have you seen in terms of early adoption?
Well, it’s been great. One big advantage we have is that we have so many existing customers and they already process so many reimbursements. So we launched the Expensify card in early 2020 right before the pandemic. And my CFO likes to joke that it was the most poorly timed corporate card launched in the last 100 years.
But even though we launched this card in the worst possible conditions, we’ve signed up over 4,000 companies onto the Expensify card in one COVID year. To put that in context: Divvy, which got acquired by Bill.com, took five years to get to 6,000.
So we feel like we are way ahead of the curve when it comes to adoption because it’s not about acquiring new customers off the streets — it’s about cross-selling into a very large existing customer base.
But I wouldn’t say the strategy has changed. We’ve been pursuing a very methodical strategy for quite a long time. It just happens to be this is the time for [the Expensify card]. Now, that sounds a lot like bullshit.
But I would say that our design from the earliest days is based on this idea — that sounded insane a long time ago, and it sounds slightly less insane now — but it’s basically that all of the fragmentation we see in the payment space is artificial fragmentation.
There’s really no difference between expense management, invoicing, bill pay, payroll, corporate card, procurements, consumer money transmission … These are all entirely different industries today, but we think they’re all exactly the same thing. They’re all a list of expenses that you give to someone and they pay in return.
The difference is entirely contextual. If I give a list of expenses to my company, that’s an expense report, but if I give expenses to my client, it’s an invoice. If I receive expenses from a vendor, it’s a bill, and if I give it to my roommate, it’s a money request. But under the hood, it is the same exact accounting and money transmission technology, the UI patterns are the same, everything’s the same.
So what we’ve been working on for 13 years isn’t an expense reporting app, it is a payments super app — basically a universal payments engine. And expense management was just our first application on top of that.
Now, expense management is the most sophisticated and complicated kind of payment possible. It involves the most coding, people and so forth. So we very intentionally started with it, because once you can do expense management, you can do everything else.
Like in our world, a paycheck is just an expense report submitted twice a month, an invoice is an expense report with a slightly simpler approval process. A bill is just the recipient side of an invoice. Even a Venmo-style P2P [transaction] — that’s just invoicing simplified down for the consumer.
So our design from the very start was to build a platform recognizing that essentially every payment is a conversation between two or more people trying to resolve some underlying financial tension.
That’s why our design from the earliest days is much more like Facebook or LinkedIn than Salesforce or Concur. We’ve been building a financial social network to capture all of these real-world financial conversations onto a common platform.
Now, when I think of the opportunity size — even in expense management, which is just one of our many use cases, people look at it as a mature industry, but we look at it as almost entirely untapped.
If you were to add up literally all of the customers of all of our competition, it would add up to maybe 100,000 companies in the world. Call it 200,000 companies or 500,000 companies, but there are hundreds of millions of businesses in the world. And virtually none of them use [any expense management tools].
So the idea that it’s a mature industry when there are a dozen nearly identical companies in a dozen artificially fragmented industries and collectively they have acquired almost none of the global opportunity — that is not the end of the story. This is not a mature industry. We are barely in the first inning for this entire thing.
The problem is that every other company out there uses a traditional sales model. And that traditional sales model, the enterprise sales model, only works the enterprise. Yes, we have enterprise customers and we can support the largest companies in the world.
But the enterprise sucks from a business perspective: It is super competitive, has super-low margins, has a very slow sales process and has a high cost of sale. So we choose to focus on the SMB market because most people work in SMBs, and almost no SMBs are using anything today. And because there’s so little competition, there’s no margin erosion. We earn over three times more revenue per employee in the SMB market than the enterprise.
We ultimately feel like there’s a trillion-dollar opportunity there if someone can build a platform to link a billion people through their money. We feel it’s inevitable. And it’s going to look a lot more like Expensify than Concur.
The flip side of that is that there’s a lot more competition in the spend management and corporate card space from the startup side of things than maybe five years ago. I’m curious why you think that is and how you see the market developing in light of companies like Ramp and Brex popping up?
We view the market a little differently. Like, we view them as just another corporate card. The idea of a corporate card with software is not new. Visa, Mastercard, AmEx, all of them have that. So the difference with Brex is not the business model, it’s just an underwriting model.
Fundamentally, Brex does not compete with Expensify. We do not lose customers to Brex. A huge fraction of Brex customers use Expensify because they’re one of our many supported corporate cards. In the same way that we’re not afraid of American Express, which has an astronomical ad budget, and we’re not afraid of Brex, who really competes with AmEx. They’re not trying to dislodge Expensify — they’re trying to dislodge traditional corporate card players.
So when we look at all the new card businesses, we don’t see a competitive landscape, we see the traditional corporate card space undergoing some interesting transformations and we’re just eating popcorn on the side.
You like AmEx? Great, we’re gonna make a ton of money off of you. You like your Brex card? Great, we’re gonna make a ton of money with you. Oh, you don’t like either of those? Great, we’re gonna make a ton of money off of you by giving you a new card. We actually don’t care.
We’re an open ecosystem going after a global opportunity. That Brex-style interchange opportunity only really works in the United States and only really works in the cash-rich, credit-poor startup space — which is an interesting space, but it’s certainly not the majority.
So we’re just going after a very different business model, a global opportunity, and we’re going after it with just a completely different acquisition strategy.