US-based expense management software provider Expensify has elected to begin making seed-stage investments in startups in order to harness strategic interest from potential partners, according to CEO David Barrett.
Expensify develops software that can help enterprises compile detailed expense and travel reports, utilising receipt scanning and automation.
Barrett claims the company, which was founded in 2008, is already profitable and growing 160% year on year, which in turn attracted the interest from startups that led to the announcement of its Expensify Ventures initiative in late July.
“Because of our strong brand, we have found that pretty much every new startup in the space will come to us very early on in their life because they want access to our customers and want to partner with us in order to promote their own company,” Barrett told Global Corporate Venturing.
“We realised that this means we have a pretty good deal flow in the sense that any sort of investment company always wants to get early access to really good startups and investments, and we have that because people are already coming to us.
“We are in a situation where we are profitable, so we do not really need to invest resources we do not have into the growth of the business, but at the same time the market is very rich and so it is a good time to raise money if you know what to spend it on.”
Expensify Ventures will not operate as a ‘fund’ so much as a platform from which the company can make investments. It will be funded by the $17.5m series C capital Expensify just raised from OpenView Venture Partners, Redpoint Ventures, Hillsven Capital and Point Judith Capital, although none of that cash has been strictly earmarked for investment.
“We raised a relatively small round, I would say, to give us a bit more flexibility to go off and do some things we were not doing before,” Barrett explained. “One of those is to take advantage of the deal flow coming to us, make some small target investments in strategic companies and get some early advantage with some of the most advanced technology coming to market.”
Expensify’s investments will consist of convertible notes in roughly the $60,000 to $100,000 range, and will be primarily strategic, in that it will seek out portfolio companies that are compatible with its own product offering. It will likely invest in less than 10 companies per year, but is open to startups located outside the US.
“Our interest is not really as a financial investor so we have no interest in taking a board seat or controlling the organisation,” Barrett said. “Our primary interest whenever we make an investment is a partnership, and in using the investment to secure a stronger partnership than we would get otherwise.
“We are looking for small, non-controlling stakes, typically for seed-stage investments. Then we use our relationships and partnerships to get them into markets, as well as to help them approach more established venture capital investors for much bigger rounds.”
Expensify’s decision follows a trend that has seen several enterprise software companies join the corporate venturing world of late.
Salesforce Ventures is long established, but Box and Workday have both launched corporate venturing units in the past six months, and Barrett suggested the relative complexity of the sector, due to the requirement to connect with multiple other types of software, naturally leads to increased opportunities for partnerships.
The company plans to target startups broadly operating in the expense management space, and has so far made two investments. It is keeping the second under wraps for now, but the first to be announced is in Piper, the US-based developer of a software tool that can be installed in point-of-sale systems to automatically upload receipts to the cloud.
Expanding on Expensify’s potential investments, Barrett listed: “Anything that can help in the expense management space, which is pretty broad, but I would say payments and financial technology, image processing technology, anything travel-related – these are really the areas we are looking at.
“I doubt we would look at something that does not have a partnership behind it. We want a financial return but that is really secondary, the primary purpose is to achieve some sort of strategic objective.
“We are not even just focused on technology companies, we are saying anyone that can make a strong pitch as to why working with Expensify is good for both of us, can [get funding from] us.”