Ramp Raises $30M to Disrupt Corporate Spend Management

Ramp, a company focused on streamlining corporate spending, has secured an additional $30 million in funding, the company revealed today. TechCrunch previously reported on Ramp’s initial launch earlier this year, also noting that the startup had already accumulated approximately $23 million in funding before this latest round.

This recent investment was finalized in August 2020, following initial discussions that began in June. This new capital represents Ramp’s second priced funding round following an $8 million seed round in August 2019, and the first after a $15 million raise completed in February 2020. D1 and Coatue joined the investment as new partners, alongside existing investors.

Eric Glyman, Ramp’s CEO, described the new equity as similar to a Series A3, explaining that they had largely utilized documentation from a previous funding round, but with an updated valuation. Some venture capital observers might classify this new raise as the company’s Series B – the second priced round after the seed stage – or even a Series C, considering the size and nature of Ramp’s initial seed funding compared to Series A rounds from the 2000s.

Regardless.

Ramp did not require these funds from a necessity standpoint. According to Glyman, the company still held a portion of its original seed funding when securing this latest investment. This suggests that Ramp possessed over $45 million in cash reserves as of August 2020.

When questioned about the rationale for raising capital despite not needing it, the CEO explained to TechCrunch that the new investors possessed exceptionally strong investment histories. Glyman also stated that the terms of the round were favorable, minimizing dilution for existing shareholders. He further noted that the additional funds would enable Ramp to expand its team more rapidly and with greater assurance.

While this funding round is noteworthy, the competitive landscape in which Ramp operates is particularly compelling. Therefore, it’s important to consider the value of the software itself, and when Ramp and its competitors might begin to increase pricing for their services.

Software

Ramp is actively competing for a portion of the corporate spend management market, a dynamic sector attracting significant venture capital investment. This high concentration of companies has intensified competition, fundamentally changing the strategies for providing credit and charge cards to businesses. The requirements for success within this specialized area are now considerably more demanding.

This shift is occurring because the issuance of credit and debit cards to both individual consumers and corporations has become largely standardized. Consequently, newer companies seeking a share of spending through interchange fees are developing increasingly sophisticated software packages to complement their core products. If attracting new clients with innovative cards proves difficult, the focus shifts to offering extensive digital tools designed to help companies oversee and control their financial outflows.

Numerous examples illustrate this trend. Brex, for instance, has expanded its offerings to include cash management solutions and expense reporting tools. Ramp introduced its own expense management software earlier this year, and Divvy provides a similar service alongside other software tools related to card usage.

Venture capital firms have invested $55 million in Ramp, over $400 million in Brex (excluding debt financing), and more than $250 million in Divvy. The ongoing development of increasingly comprehensive software platforms built around corporate cards is therefore a key area to observe, given the substantial financial commitments made to the leading companies in this space.

Ramp is reinforcing this point with new software releases alongside its funding announcement. The company recently integrated vendor management tools and is now adding reimbursement features, enabling employees to be repaid for expenses not charged to company cards.

Each of these three companies believes it possesses the most advanced software suite.

The efforts of Ramp and its competitors to enhance their card offerings with software have resulted in substantial customer acquisition. Divvy reported to TechCrunch this week that its customer base grew by 120% in 2020, with total spending on its platform increasing by 100% this year. Brex declined to disclose its growth statistics.

Ramp publicized its own growth data as part of its recent announcements, stating that it reached $100 million in spending on its platform within the first 18 months of operation (a timeframe that deviates from standard accounting practices), and that 25% of all spending facilitated by the company for corporate clients occurred within the last 30 days.

There appears to be ample opportunity for these startups to expand their market share, and sufficient capital available to support their growth.

Finally, a key question arises: When will these corporate spend management startups transition to charging for their software suites? Currently, their primary revenue source is interchange fees, earning a small percentage from each transaction processed through their cards. This model is scalable and minimizes barriers to attracting new customers, as free financial tools are widely appealing.

However, they will inevitably begin charging for their software. The high valuation of Software-as-a-Service (SaaS) revenue makes pursuing this income stream unavoidable. Eventually. This shift may signal the end of the current competitive rush to acquire corporate clients and the beginning of a more mature phase for the software niche. At that point, we can anticipate the emergence of new competitors and a repetition of the cycle.