Ramp Venture Capital Investment Memo

Tl;dr: Redpoint invested in Ramp at the $250M Series C round at $3.9B valuation. They shared an update memo to the internal team. Read to understand how a venture capital investor thinks about investing in a company and how they communicate it to their partners and potentially their limited partners.

About the VC investment memo

Redpoint Ventures shared this on the blog after Ramp officially announced a $250M Series C round at $3.9B, just four months after announcing a Series B at $1.1B (followed by a $1.6B round with Stripe). This isn’t their original investment thesis but rather an update email they sent to the internal team.

Instead of talking through our original investment thesis we thought we’d share both the tldr… Or if you’re interested in more of our thinking on ‘why Ramp,’ we wanted to share the investment memo that we used to update our team internally on what had changed since our original investment.

It’s a solid read and well written. I like the fact that they make the effort to add in charts/data points wherever they can. And a small point, but for some, a revelation, take note of how well structured everything is. Bullet points start with the actual point in bold and then are explained. You’d be surprised how few people do this properly. It makes reading far easier and impactful.

About Ramp

Ramp is a technology company that develops corporate cards designed to save businesses money. The company is redesigning how corporate spending should be managed from the ground up to save time, money, and ensure control. It provides companies higher card limits, insightful saving opportunities, automated expense management, lightning-fast receipt matching, seamless accounting integration, and more. The company was founded by the same team that built, scaled, and sold Paribus to Capital One, spearheading Capital One’s push into saving technologies. Their group at Capital One enabled automated savings on online purchases, and put over $100 million back in consumers’ pockets. Ramp is committed to providing that same value and savings to businesses. You can do some reading if interested here:

• Ramp: The Card-Sized Finance Team
• Ramp’s Double-Unicorn Rounds: Behind the Scenes

About Redpoint

Redpoint Ventures partners with visionary founders to create new markets or redefine existing ones at the seed, early, and growth stages. The firm invests in startups across seed, early, and growth phases. In total, Redpoint manages $4 billion across multiple funds. Redpoint Ventures was founded in 1999 and is based in Menlo Park, California, United States.

Usual caveats

No investment memo made voluntarily public will ever be 100% as it was. The pressure is just too high for VCs to look smarter, and not make founders uncomfortable, etc. I highly praise the VCs that share their thought leadership so we can all learn. If you’re learning to make a VC investment memo, don’t assume the memos are what you exactly need to do. Information will be redacted. Assume anything “delicate” or sensitive is not in the memos. The only memo that is 1 to 1 is the Youtube memo because it was in a lawsuit.

Venture Capital Investment Memo

Deal Calibration

Redpoint Growth initially invested in Ramp’s Series B at a $1.1B post-money valuation in January 2021. Our original investment thesis holds even more true today and as Ramp has continued to grow quickly and execute at an extremely high level. We believe that this is both a special team and company and that we should look to upsize our position and invest meaningfully beyond our pro-rata in an insider-led round that is coming together quickly at a $3.8B post money valuation.

What has changed since we invested?

Summary

1. Exponential top-line growth ahead of plan: Since January (when we originally agreed to terms on the round), the business has tripled and grown on average [redacted]% a month.
2. TAM expansion and rapid product velocity: In the last six months, the pace of product velocity has only increased with Ramp releasing bill pay giving it access to a ~$9B market and acquiring Buyer to help manage software spend.
3. Strong new senior hires: Since the last round, the company has made strong hires in Colin Kennedy as Chief Business Officer, Ashley Stepien as VP of Marketing (who Logan had worked with previously at Pendo), Benjamin Alderman, as Head of Financial Partnerships, and Kevin Sheurs as Director of Engineering.
4. Competitive landscape evolved favorably: We see Bill.com acquisition of Divvy as validation of category but also removal of direct competitor. While this is a strong move for Bill.com, it’s our belief that as the acquisition closes, product velocity will slow, giving Ramp an opportunity to pull ahead and establish itself as the independent leader in the market.
5. Continued strong feedback on customer feedback: When we invested NPS was super high and we continue to hear additional endorsements, retention, growing word of mouth, efficient acquisition, etc.
6. Efficient customer acquisition in hypergrowth: Although the company has continued to grow rapidly and ramped spending on GTM efforts, acquisition economics have remained stable. This suggests that the current pace of growth is sustainable. Similarly, fraud losses have remained extremely low, suggesting that the underwriting bar has remained high and that there is room for continued growth as they take on more risk.
7. New partnerships unlock even stronger unit economics: Ramp’s recent industry partnershipsopen a path to improving per-swipe economics and earning potential overtime. As the company’s customer base grows, these will drive additional revenue upside.

Exponential Top Line Growth Ahead of Plan

Ramp has continued to grow at a rapid pace since we initially invested in January.

Organic inbound and outbound efforts are driving [redacted] of new leads and the lead gen pipeline has similarly tripled — pacing well ahead of plan. Given the strong top-of-funnel, Ramp has ample room to sustain current growth rates particularly as new marketing initiatives come online and the outbound sales team continues to ramp and grow.

Based on our market intel, we understand that Ramp is growing more rapidly than other venture-backed competitors in the corporate card / spend management space.

TAM Expansion and Rapid Product Velocity

Ramp’s continued product build opens many new markets. The corporate card market is large as a standalone but Ramp continues to expand the addressable opportunity by releasing new products to target additional areas of spend. We are particularly excited about their bill pay product. Bill.com estimates the bill pay opportunity at $9B domestically and $30B globally. We believe finance teams will want a single solution for corporate cards, expense management and ACH/invoicing. Although in early beta, we’ve heard great feedback on Ramp’s bill pay tool.

High product velocity and quality is a key part of what got us excited about Ramp. They have continued to execute even beyond our expectations. Since the last round they have:

• Launched Bill Pay: They’ve completed development on an AP workflow and ACH payments solution that allows customers to manage invoices / bills directly in Ramp (vs. a third-party software like Bill.com).
• Launched card controls: This gives customers the ability to control what employees spend on by issuing cards that can only be used on specific spending categories (e.g. SaaS only cards, travel-only cards). [redacted] of Ramp cards issued now have restrictions on the type of spend allowed
• Made strategic acquisition of Buyer: Folding in the capabilities of Buyer to negotiate SaaS bills on behalf of customers and deliver additional cost savings.
• Added mobile wallet support: This allows employees to request and be issued virtual and physical cards directly from / to their smartphone.
• Rolled out reimbursements to all companies: The launch of out-of-pocket reimbursement capabilities means that the expense management tool is now a full replacement for Expensify. [redacted] companies have now been able to cancel their Expensify accounts and migrate fully to Ramp.
• Launched multi-step approvals: Additional approval capabilities helps them expand upmarket and address larger orgs.

Strong New Senior Hires

Ramp has continued to build out a world-class management team. Since January, there have been a couple of key new hires brought into the org:

Colin Kennedy—Chief Business Officer (LinkedIn)

• Colin joined from Stripe where he was the Global Head of Partnerships and led global partnerships for both the core payments platform and newer banking and financial products. In his time at Stripe he launched 5 new products
• Prior to that, he was the Chief Revenue & Operating Officer at Marcus (owned by Goldman) where he led development and execution of commercial & product strategy and grew P&L by 5x.
• He has also spent time as the Chief Commercial & Operating Officer at Clarity Money (acq by Goldman) and VP of Global Business Development & Digital Payments at Amex.

Ashley Brucker Stepien—VP Marketing (LinkedIn)

• Former VP of Marketing at Webflow and VP of Revenue Marketing at Pendo
• Prior to that she spent time as the VP of GTM at Appirio as well as a Principal Consultant at Marketo
• Ashley was hired based on our introduction. Logan knew her from her previous time at Pendo

Kevin Sheurs—Director of Engineering (LinkedIn)

• Kevin joined from Bowery Farming where he was the Head of Software Engineering. He was the first engineering hire and architected their core operating system from the ground up
• Prior to that he was the CTO at VHX and the Director of Software Engineering at Vimeo
• Benjamin Alderman (Head of Financial Partnerships)
• Ben joined from Visa where he ledNorth America B2B fintech and partnership efforts.
• Prior to Visa he was with American Express for almost a decade where he was head of business development for travel payments.

Outside of senior hires, the recruiting engine that Ramp has built is up and running. Since the beginning of the year, they have doubled headcount to ~100 people, with strong hires across product, marketing, and engineering. We have consistently been impressed with the caliber of talent that Ramp has been able to attract across all levels in the org.

Competitive landscape evolved favorably

We see Bill.com acquisition of Divvy for $2.5B as validation of category but also the partial weakening of a direct competitor. It’s not a secret that new product velocity tends to slow initially as integration with the acquirer is prioritized followed by the slow trickle of departures of many employees that helped build the product. As the two entities are busy figuring out the details of the merger, It’s our belief that this will open the opportunity in the market for Ramp to establish themselves as the independent leader and superior solution in the market.

It should be noted that this does continue to be a noisy category with a large amount of venture funding flowing into competitors both locally and internationally. Ramp will need to continue to rise above the competitive noise.

Continued strong feedback on customer feedback

After our investment we continue to speak to Ramp customers and make introductions to potential customers. A sampling of some of the feedback we’ve heard since:

• “We went from 10% receipt capture to 80% with Ramp. The timing savings for the finance team was easily 40+ hours a month. No other vendor I’ve worked with has come close in terms of experience and ease of use. My salespeople have come up to me unprompted to say how great the system is.
• “I’ve recommended Ramp to others. They ship and implement features insanely rapidly. Their ability to categorize and map expenses is better than anything else we’ve seen. The prediction features are also best in class. I would love to rip out Expensify and Bill.com for Ramp.”
• “Ramp’s mission is well-aligned with my goals of spending less. It’s easy to identify duplicate spend, set limits for employees and give departments autonomy for their spend. I’m impressed with how much the product has improved since I started using it.”
• “If I had known how fast Ramp would develop I never would’ve signed with another vendor. They’re going to get everything on one platform.”

This sentiment is also true publicly. Ramp has maintained a 4.9/5 rating on G2 and reviews highlight the ease-of-use and analytics capabilities.

Efficient customer acquisition in hypergrowth

Although Ramp has continued to ramp up GTM investments and grow the customer base, key metrics across CAC, retention, and credit loss have remained stable. This shows that this hypergrowth is likely sustainable.

As shown below, CAC dynamics have remained highly efficient and even declined in some months.

Similarly, retention dynamics remained strong and have improved relative to last year where they saw an impact from COVID.

In terms of loan performance, Ramp’s lifetime charge-off and fraud is a cumulative [redacted]of TPV. YTD in 2021, there has not been a single dollar of losses due to charge offs. Ramp has continued to take a conservative approach to credit underwriting and that their current models are performing well. It also suggests that there is opportunity for them to take on additional risk and increase approvals as they continue to grow.

New partnerships unlock even stronger unit economics

Ramp has also signed key new partnerships that will improve per swipe economics both in the short-term and as the company continues to scale. As Ramp transitions over to their new issuing stack, top line take rates will improve from [redacted] to [redacted]. As the company scales, volume benefits also kick in which should yield an additional [redacted] improvement in swipe economics. We believe this provides additional upside to currently projected earning potential for the business.

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