Expensify CEO David Barrett on IPO and the $1T Expense Management Market

Expensify's Public Debut and Future Vision

Expensify, following over a decade of development of its expense management platform, commenced trading publicly today on the Nasdaq exchange under the symbol “EXFY.” Initial market reactions have been favorable, with the company adjusting its initial share offering price upwards, and subsequently witnessing a 40% increase in its stock value on its inaugural trading day.

Previous Coverage and Current Outlook

Extensive reporting on Expensify has already been conducted, including an in-depth analysis by colleague Anna Heim tracing the company’s evolution from its inception to its ongoing commitment to product-led growth. Alex Wilhelm also examined the company’s S-1 filing upon its initial public offering announcement last month.

Discussion with CEO David Barrett

Today presented an opportunity to speak with Expensify’s founder and CEO, David Barrett, regarding the timing of the company’s decision to go public, the rationale behind choosing a traditional listing over alternatives like a SPAC or direct listing, and his perspective on the evolving expense management landscape as corporate travel recovers post-COVID, alongside the emergence of spend management solutions from startups such as Ramp and Brex.

Key Insights from Barrett

Barrett articulated his belief that Expensify’s listing represents the “most pro-employee IPO ever,” highlighted the trillion-dollar potential within expense management – particularly for small and medium-sized businesses (SMBs) – and dismissed Brex as a direct competitor.

The following transcript has been condensed for brevity and clarity.

Why Now? The Decision to Go Public

TechCrunch: Congratulations on this significant achievement. However, the primary question is: what factors led to the decision to go public at this particular moment? Was it company preparedness, favorable market conditions, or a buoyant IPO market?

David Barrett: We frequently address this question, and our perspective is largely, “Why not?” We aren’t focused on optimizing a single transaction, and delaying a month, a year, or even a decade wouldn’t fundamentally alter our company. We simply prefer to establish liquidity along the way.

The primary driver, honestly, is providing liquidity for our early investors. We haven’t sought external funding in quite some time, leaving our venture capital firms in need of liquidity. While waiting another year might yield even greater returns, I’ve already realized substantial gains and feel compelled to distribute those benefits.

Given our profitability, we even executed a leveraged buyout of Redpoint, one of our initial investors, providing them with liquidity directly from our balance sheet. While successful, we can’t consistently repurchase investor shares at that scale annually. Achieving that level of liquidity requires a broader approach.

Ultimately, it became clear that going public was inevitable. Therefore, the question shifted from if to when.

And with our current position, we are fully prepared to operate as a public company, meeting all necessary requirements. Moreover, as a profitable entity, I am enthusiastic about the enhanced access to debt financing that public status provides.

Therefore, fundamentally, it was an inevitable step, and now is as opportune a time as any.

Choosing a Traditional Listing

I’m also interested in your choice of a traditional listing, given the availability of direct listings and SPACs. Why opt for the conventional route with its associated banking fees and roadshows when other options existed?

Initially, I was inclined towards a direct listing. Our IPO counsel, Tad Freese, is a pioneer in direct listings, possessing unparalleled expertise in the process.

However, as we delved deeper, the IPO landscape had significantly evolved in recent years. The introduction of direct listings and the resurgence of SPACs created a more competitive IPO environment, prompting a transformation of the traditional IPO process.

Many of the traditional challenges associated with IPOs have become more flexible. For instance, we aim to orchestrate the most pro-employee IPO ever. Consequently, with a few exceptions for insiders, all our employees can trade up to 15% of their shares starting today – a level of “day one” liquidity typically reserved for direct listings.

The banks are now compelled to compete with direct listings and SPACs, alleviating many traditional limitations.

Pricing and Leaving Money on the Table

Regarding pricing, I understand you initially aimed higher than anticipated. Are you concerned about potentially leaving money on the table?

I’m unsure. I believe people overanalyze the initial trading day. We’re building a company for the long term, and whatever transpires today will likely be forgotten over time.

Our approach is focused on long-term value creation. We’ve collaborated with leading partners, thoroughly examined all angles, consulted numerous vendors, and established reasonable price ranges. Generally, we adopt a conservative approach to forecasting.

Therefore, we feel confident in our pricing and believe it represents a fair value, generating significant enthusiasm for the stock and the company.

Navigating the Pandemic's Impact

Looking back at the past 18 months, the travel and expense industry faced significant challenges. How did this impact your business, and how did you overcome those obstacles?

It was undoubtedly a challenging period. From our perspective, analyzing 13 years of cohort data reveals consistent growth curves, abruptly disrupted by the events of 2020.

We viewed it as the ultimate stress test for our business model, allowing us to assess our exposure to business travel. Business travel differs from common perceptions. While high-profile travel exists, expense management is primarily a Main Street business, not a Wall Street one.

Our customer base spans the nation and the globe, with a substantial portion involving driving. My father, a salesperson, frequently traveled throughout Wisconsin and Michigan selling machinery. He engaged in considerable business travel, but rarely flew.

We likely processed more Home Depot receipts than United Airlines receipts. Air travel-related expenses did decline, but driving-related business travel proved to be a significant, previously underestimated opportunity.

It was a rigorous test of our business, and admittedly, a frightening one. However, I’m immensely proud of how well our underlying model weathered the storm. We believe the worst is largely behind us.

We didn’t experience significant customer churn; rather, customers temporarily reduced their spending, like a compressed spring. With the advent of vaccines, that spring released, and we’re now witnessing a rapid recovery, returning to our core growth trends.

The Shift to a Card-Centric Model

You’ve also adjusted your business model to prioritize the card product over your traditional SaaS platform. From a strategic standpoint, why did this make sense, and what early adoption rates have you observed?

The results have been excellent. A key advantage is our extensive existing customer base, already processing numerous reimbursements. We launched the Expensify card in early 2020, right before the pandemic – a perhaps ill-timed launch, as my CFO jokes.

Despite launching in challenging conditions, we’ve onboarded over 4,000 companies onto the Expensify card within a single COVID year. For context, Divvy, acquired by Bill.com, took five years to reach 6,000.

We believe we’re ahead of the curve due to cross-selling into a large existing customer base, rather than acquiring new customers.

However, I wouldn’t characterize it as a strategic shift. We’ve consistently pursued a methodical strategy. The timing simply aligned with the Expensify card’s potential.

From the outset, our design was based on a concept that seemed radical then, and slightly less so now: the fragmentation within the payment space is artificial. There’s no inherent difference between expense management, invoicing, bill pay, payroll, corporate cards, procurement, or consumer money transmission. These are distinct industries today, but we believe they are fundamentally the same – a list of expenses paid to someone in return.

The distinction is purely contextual. Submitting expenses to my company constitutes an expense report, while sending them to a client is an invoice. Receiving expenses from a vendor is a bill, and requesting money from a roommate is a money request. However, the underlying accounting and money transmission technology, and the user interface patterns, remain consistent.

For 13 years, we haven’t been building an expense reporting app; we’ve been developing a payments super app – a universal payments engine. Expense management was merely our initial application.

Expense management is the most complex type of payment, requiring significant coding and resources. We intentionally started with it, as mastering expense management enables us to tackle everything else.

A paycheck is simply an expense report submitted twice monthly, an invoice is an expense report with a simplified approval process, a bill is the recipient’s side of an invoice, and even a P2P transaction is a simplified consumer invoice.

Our design has always been to build a platform recognizing that every payment is a conversation between two or more parties resolving a financial matter.

That’s why our design resembles Facebook or LinkedIn more than Salesforce or Concur. We’ve been building a financial social network to capture real-world financial conversations on a common platform.

Considering the opportunity size – even within expense management, often viewed as a mature industry, we see it as largely untapped.

The combined customer base of all our competitors represents perhaps 100,000 to 500,000 companies globally, while millions of businesses remain unserved. The notion of a mature industry with minimal adoption is inaccurate. We’re barely in the first inning.

The challenge is that most competitors rely on traditional sales models, which primarily target large enterprises. Enterprise sales are competitive, offer low margins, have slow sales cycles, and incur high costs. We focus on the SMB market, where most people work, and where adoption is minimal, offering higher margins and lower acquisition costs.

We believe a trillion-dollar opportunity exists in linking a billion people through their money. This outcome is inevitable, and will likely resemble Expensify more than Concur.

Competition in the Spend Management Space

Conversely, the spend management and corporate card space has seen increased competition from startups in recent years. Why do you think this is, and how do you foresee the market evolving with companies like Ramp and Brex emerging?

We view the market differently. We see them as simply another corporate card. The concept of a corporate card with integrated software isn’t novel. Visa, Mastercard, and American Express all offer similar solutions. The distinction with Brex isn’t the business model, but rather the underwriting model.

Fundamentally, Brex doesn’t compete with Expensify. We don’t lose customers to Brex. A significant portion of Brex customers utilize Expensify because it’s one of the many supported corporate cards. Similarly, we aren’t concerned about American Express, with its substantial advertising budget, or Brex, which primarily competes with American Express. They aren’t attempting to displace Expensify; they’re challenging traditional corporate card providers.

When we analyze the new card businesses, we don’t perceive a competitive landscape; we observe the traditional corporate card space undergoing interesting transformations, and we’re simply observing from the sidelines.

If you prefer American Express, great – we’ll generate revenue from you. If you like your Brex card, great – we’ll generate revenue with you. If neither appeals to you, great – we’ll generate revenue by offering you a new card. We’re indifferent.

We’re an open ecosystem pursuing a global opportunity. The Brex-style interchange opportunity is largely limited to the United States and the cash-rich, credit-poor startup sector – an interesting niche, but not representative of the broader market.

We’re pursuing a different business model, a global opportunity, and employing a fundamentally different acquisition strategy.