Airbase Raises $60M to Revolutionize Corporate Spend Management

Airbase Secures $60 Million in Series B Funding

Airbase, a company specializing in corporate spend management, has announced the successful completion of a $60 million Series B funding round. Menlo Ventures spearheaded the investment.

Recent Market Activity

This funding announcement follows the acquisition of Divvy, a competitor in the corporate spend sector, by Bill.com for a substantial sum. Furthermore, other prominent companies in this area, such as Brex and Divvy, have previously secured significant nine-figure funding rounds.

Fundraising Timeline

Thejo Kote, CEO of Airbase, clarified that this funding round wasn't a direct reaction to the Divvy sale. He stated in an interview with TechCrunch that the company had initiated its fundraising efforts prior to the announcement of the Divvy acquisition.

An Expedited Process

The fundraising process differed from the conventional approach. Kote explained that he didn't engage in prolonged presentations to venture capitalists. Instead, Airbase proactively indicated its openness to additional capital in April, and a term sheet with Menlo Ventures was signed just ten days later.

Menlo Ventures' Perspective

Matt Murphy, a partner at Menlo Ventures and now a member of the Airbase board, shared with TechCrunch that his firm had been closely monitoring Airbase for a considerable period. This prior interest enabled a swift response when Airbase signaled its willingness to accept further investment. Murphy acknowledged the highly competitive nature of the venture capital landscape in 2021, noting the effort required to secure a meeting with Airbase.

Valuation Details

Kote revealed that the new capital was raised based on a post-money valuation of $600 million. This indicates that the Menlo-led transaction encompassed 10% of the company’s total shares.

Airbase is positioned to further develop its platform with this new influx of capital, continuing to innovate in the corporate spend management space.

Market Segmentation in Corporate Spend

Recent reporting by TechCrunch concerning the corporate spend sector has primarily centered on the revenue trajectories of competing companies. A key point of contention has been whether these companies should monetize the software accompanying their corporate cards, or offer it freely.

However, Thejo Kote, CEO of Airbase, proposes a different perspective on market segmentation, focusing on the scale of the target customer. For instance, Divvy initially concentrated on small and medium-sized businesses (SMBs), whereas Airbase has prioritized the mid-market segment.

The Importance of Customer Targeting

Targeting specific customer segments is crucial, according to Kote. Mid-market organizations are actively seeking a unified solution to consolidate the various, previously separate, point solutions they currently utilize.

Within the realm of corporate spending, this translates to a willingness to invest in new software, provided it effectively replaces multiple existing services. This could involve consolidating expenses like corporate cards and expense management software into a single platform.

Validation of a Software-First Approach

Kote characterized the acquisition of Divvy by Bill.com as a significant affirmation of Airbase’s core belief. He posits that software will be the defining factor in this market, previously dominated by corporate cards, and that competing solely on card offerings represents a “race to the bottom.”

Airbase’s Competitive Advantage

Airbase’s CEO believes his company currently holds a product advantage of six to eight quarters over its rivals. The market will ultimately validate this claim.

However, the company’s strong belief in its strategy, coupled with its recent funding, should provide sufficient time and resources to demonstrate its vision. This will allow Airbase to assess the accuracy of its market positioning relative to both customer demand and competitor offerings.

Investor Confidence in Airbase

Menlo Ventures has demonstrated significant confidence in Airbase, making its largest investment to date from a fund not focused on rapid growth. What factors led Murphy and his colleagues to find Airbase so promising? From the investor’s standpoint, Airbase possesses the potential to consolidate fragmented solutions within mid-sized businesses, aligning with Kote’s vision.

Murphy further elaborated that, in numerous organizations, managers often lack real-time budget visibility, discovering over or under spending only after a quarter concludes. This reality underscores the appeal of fully integrated software solutions.

The importance of this perspective lies in its implications for Airbase’s potential market size. Rather than solely focusing on the total non-payroll expenditure of prospective clients and applying a transaction fee, a more accurate assessment of the company’s Total Addressable Market (TAM) might involve calculating mid-market software spending across expense management, accounting, and related areas.

Furthermore, Airbase’s ability to generate revenue from interchange fees and other sources positions it favorably for sustained, long-term expansion.

However, Airbase faces determined competition. Ramp has secured substantial funding and is actively developing its own software capabilities. Offering a no-cost entry point, Ramp represents a particularly aggressive competitor within the interchange-focused segment of the market.

Brex is also intensifying its marketing efforts and boasts significant financial resources, a strong software focus, and a recently introduced paid SaaS offering.

Airbase now benefits from its largest-ever cash reserve and is actively expanding its team. Recent hires include a CFO, general counsel, and VP of sales, bringing expertise from companies like Mattermost, Robinhood, and Dropbox.

These developments strongly suggest preparations for a future Initial Public Offering (IPO). A potential timeline points towards 2024.