Invest Like the Best with Patrick O'Shaughnessy
· 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.
· Patrick O'Shaughnessy, Karim Atiyeh
[00:00:00] S0: To do that, to create that enterprise value, I'm coming back to this original algorithm that you laid out, which is this neat model that if you do a better job and make a thing easier to use, they spend more and you make more money. [00:00:00] S1: Exactly. [00:00:00] S0: This incredibly highly aligned thing. What were the next couple turns of that crank? So originally you were really good at receipts and something basic to save some time. What's your memory of the earliest explosive moment of customer adoption? What was going on? What were you building? Just give us the next couple turns of that algorithm.
· Karim Atiyeh
[00:00:00] S1: Yeah, I mean, really, once we got in, then the algorithm became, let's try to get our best estimate on how much total time is being wasted by customers and get that time down as much as possible. So we think a lot about the value that we create for customers in terms of minimizing time waste. So you look at time and money wasted: money wasted on transactions that shouldn't have happened, time wasted on reviewing transactions or adding information related to transactions so they can be reviewed. And you get the sum total of that time, and you start building products that minimize the time spent. Can you predict what that transaction was for instead of asking the user for a memo? Can you get price benchmarks about what products cost so that that person doing procurement doesn't have to go spend a lot of time doing research? Can you extract the information from an invoice that was received and account for it properly so that you don't have to spend a lot of time figuring out what accounting category a transaction falls into? And we kept essentially mapping out the total amount of time wasted in all parts of a finance team that we touched. And we look at that as the total addressable market. And as we build products, you get more adoption, you get more customers excited to use more of Ramp, and the total value that we deliver for them is higher. And I'd say there were points early on where you get customers that just don't want to hear the pitch at all. They're, I'm really only interested in the card part. I'm really only interested in cash back I'm going to get and maybe the API that you offer. I remember one early customer that I'm sure you're familiar with that sadly cannot mention in just broadly in aerospace engineering, famous for wanting to build everything in-house, a lot of their software in-house. Healthy skepticism of external vendors while they weren't going to build their card product. But as a result, their perspective when they wanted to use Ramp was, we're really only interested in the card. All the other software we want to build ourselves. It's great. We're excited that we offered an API because they're fantastic. We can plug into the card that you've built and we can map it to our internal ERP and extract all the data we need and we'll build a software. The first six months roll around.