Invest Like the Best with Patrick O'Shaughnessy
· Karim Atiyeh
[00:00:00] S1: It was a terrible pitch, but we went and essentially sold this to, yeah, friends and family, people who trusted us not because of the product we had built, but just because of their belief in our capability to improve the product over time. So these were people that we had gone through Y Combinator with in 2015 with Paribus. These were my brother who was also starting his company. A lot of our friends who were entrepreneurs in New York and in the startup ecosystem in New York, those were our early customers. They were partners more than they were customers, frankly. They were design partners. The first differentiation we really built, and we pulled from some of the skill set we had acquired at Paribus, was a very robust integration with your email. You make card transactions, a lot of the receipts go to your email. How do we tie these two things together as effectively as possible? And we are really, really good at parsing emails while preserving the privacy of your business emails. We built some tech that would identify the emails that are very likely to be receipts, extracting those, identifying purchases and tying them to your card transaction. And that step alone actually saves a lot of time from the workflow of submitting expenses. You look at your statement, it's, oh man, where's the receipt for that thing? And we got very, very good at mapping receipts in your inbox to the transaction. The next step is we got very good at essentially transforming the merchant acceptor identifier into a human-readable text. You often look at these credit card statements, what is that? It makes no sense. What is McDX? It's, oh, that's McDonald's identifier. Okay, good. Why don't we just call that thing McDonald's? So we built the tech to clean up the merchant names. We built the tech to map the receipts in your inbox to receipts in your statement. And then we just kept improving the product one step at a time and taking it further and further and further. But that was the very first version of Ramp. It just really good mapping of receipts. In terms of how we thought about investors, Eric and I did not really want to raise at the beginning. Part of the reason we wanted to start Ramp as well was it's one of those things that we could do because we had the right to do.
· Karim Atiyeh
Because we were second-time founders, we had some capital set aside and building a business like Ramp required capital because you need to fund the receivables of your customers. We're like, great, we have more capital than we did as first-time founders. We have more credibility. We don't really need investors. The first investor that we got connected with was because around that time I was playing Fortnite with my brother and some of his friends. And turns out that there were a lot of other founders and people in the startup ecosystem that we were playing with. And one of them was Delian Asparouhov at Founders Fund. He was pretty sure on some sort of garden leave because he had left Khosla with Keith Rabois and was about to join Founders Fund. And I was still at Capital One, still thinking about Ramp, exactly how it was going to look like, and when we were going to leave Capital One to start the company. And I remember telling Delian, I was like, oh, I think we had put in our notice. I remember telling Delian, I think I'm going to stop playing Fortnite. I need to start getting serious because Eric and I are starting another company. And he got very curious and he tells me that he and Keith had just started, I think at Founders Fund, and they were essentially looking to fund an idea just like this one. And I think he tells me something along, oh, I'm going to be in San Francisco next week. Why don't you come and pitch us on Ramp? I then call Eric, he's like, what do you think? Should we do this? We don't really need the investment. And both got really excited, particularly because Keith himself was a legendary investor and had had a legendary run and was particularly knowledgeable about that space. He had helped start Square, was early at PayPal. He was uniquely positioned to understand exactly what we were trying to do. And we felt he would be the perfect investor for our kind of business. We were interested to talk to him more for the advice than the money, which is, I guess, the best way to meet investors.
· Patrick O'Shaughnessy
[00:00:00] S0: What have you learned about investors since Ramp has been, I would call it, extremely successful at raising capital, but from the right people? Your cap table is an extremely impressive list of investors. How are you so good at it?
· Karim Atiyeh
[00:00:00] S1: The framework that I have for it is we don't think of investors very differently than we think of our employees. The difference is you can't buy Ramp stock on the open market. You can be a private investor in Ramp or you can come work at Ramp. And these are the two ways that you are able to get Ramp equity. Employees invest their time and their effort, and investors invest their capital or their LPs' capital. They're not that different. And in the same way that we select for employees who we think bring something to the table and can help us differentiate and push the envelope further, that's how we think about our investors as well. We think of it as a long-term partnership, and we think about what they can bring to the table as well. And it's very different for every investor. Some investors have expertise that they can help us with, and a lot of them have networks and great portfolio companies that we think can be great partners to us, et cetera. So we've always thought about it very similarly to how we think about interviewing great employees. In the same way that you think of employees, you could bring the best person into the company, but if you don't spend time with them to onboard them and figure out what you exactly want them to do and what their skill set is and empower them to do the best work that they can, you're not going to get a lot out of it. If you bring investors on board and not nurture that relationship and actually get to know them better and understand what they're really good at and how they can help you, you're not going to get a lot out of it. So we do spend a lot of time obsessing over how to keep our investors aware of the business, how it's going, what challenges we're facing, and how they're best positioned to help us. We spend a lot of time educating them about the business and its challenges. And I think it's a lot more powerful to do that over a long period of time so that they see the evolution, as opposed to just reaching out to your investor once in a while when you need something.
· Patrick O'Shaughnessy, Karim Atiyeh
[00:00:00] S0: It seems historically there's been more demand for it than supply of it. How much are you using that to drive them helping you between rounds in order to gain access to future supply of Ramp equity? Are you deliberate about that? [00:00:00] S1: Of course, a lot. I realize that we were very lucky to be in a position where at almost every round there was a lot more demand from investors than there was supply. But I see it as a great opportunity to make sure that a lot of investors that we're excited about can often get maybe a starting position in Ramp and build up the position that they're really excited to get over time. And we make that very obvious. We go into the relationship one step at a time, and a lot of investors get a small allocation in one round. And as we build a relationship and they get more excited about the business, we get more excited about working with them. They have an opportunity to invest in subsequent rounds. And there's been a dynamic that really has started in our seed round and still hasn't ended. Most of our investors, might be all of them, have participated in multiple rounds. [00:00:00] S0: What was the hardest round you ever raised? [00:00:00] S1: I would say it might have been 2022. You had a little bit of a down market that started in maybe Jan or Feb of 20—if I'm getting my dates right. [00:00:00] S0: 22 was the bad year.
· Karim Atiyeh
[00:00:00] S1: Yeah, 22 was the bad year, right. So it was end of 2021 might have been the peak, and 22 was the bad year. So maybe that round was somewhere towards the end of 22 or 23 or something like that. Not because it was hard to raise the round. It was more because it was hard for me to make peace with the fact that the valuations had gone down. But not so much that, but more of a, why the hell would we raise? Because we don't really need the cash and the valuations are down. So what the hell is the point of that? It's hard to say. Part of me thinks that, yeah, I was wrong, and part of me was, well, we'll never know. But the reason it was so interesting is because when things happen, especially in the private markets, a lot of external observers might have the perception of, well, the last mark that that company had was at a time where valuations were not really anchored in reality. So what really is the mark today? No one really knows. So it ends up creating that uncertainty for investors, for employees, for everybody. And there's an element of, hey, the valuation is what it is. Who cares? The act of raising a round only just makes it known. It doesn't change anything about the valuation. It's a price discovery mechanism. So that round, I think of a lot more as great, let's just discover what the price really is and where the market really is, so we could set a checkpoint and start building from that checkpoint. Which in retrospect, yeah, it was a hard round to get aligned on the need to raise. But at the end of the day, we also saw it as, look, at the end of the day, if we get great people on board and great investors on board who are excited about the journey ahead, who really cares where the checkpoint is? We're never really trying to maximize what the valuation is at every single round. That doesn't really matter. It's about what the ultimate enterprise value that we can create is. And I think that just comes from the sum total of value we're creating for our customers.