Skift Take

The IPO frenzy continues, this time with a controversial CEO who wants to shake up the way employees file expenses and save the planet at the same time.

Equal parts humanitarian manifesto and financial statement, Expensify’s initial public offering document outlines a highly ambitious recovery plan and a bid to raise money in the face of dwindling customers.

The finance software company aims to list on the Nasdaq stock exchange, and financial documents filed in the build-up detail how an army of revitalized small and mid-size businesses could lead the corporate travel recovery. “There are over 100 million businesses in the world, but less than 0.1 percent actually use some form of modern expense management. Excel/email — or a physical, paper envelope — are our primary competitors,” the company said in its Nov. 8 U.S. Securities and Exchange Commission filing.

These types of travelers are already bolstering the bottom line of hotel groups like Hilton, whose CEO Christopher Nassetta said there will continue to be “a great strength in small and medium enterprises, which aren’t fully back to pre-Covid levels but are pretty close,” during an investor call at the end of last month. It reported a third quarter $240 million profit.

Now, tapping into the recovery, Expensify wants to raise around $250 million by offering 9.7 million shares at a price range of $25 to $27. The date has not been set, but it’s widely expected to go public on Nov. 10.

A public listing at $27 a share would value the Portland, Oregon-based company at more than $2 billion. The proceeds will be used for general corporate purposes and working capital, while some is earmarked for bonuses for staff during the fourth quarter.

Like Nassetta, Expensify CEO David Barrett is feeling confident, because until Monday the range was priced at $23 to $25. But do potential investors share his optimism that business travel — its lifeblood for expenses — will return to sufficient levels to fuel Expensify’s own recovery after a challenging couple of years? And will the market buy into the CEO’s wider goal of saving the planet?

Pandemic Impact

Expensify was founded in 2008, when it claims it revolutionized receipt tracking by allowing people to take a photo of any receipt for automatic transcription. Over the years it evolved into a financial software company, adding invoicing, billing, travel and personal payment features. It integrates into a company’s other financial, human resource and travel platforms, while it launched a corporate card last year.

It was fast growing until the pandemic hit. Business travel is a significant driver of expenses on its platform, and the company reported a net loss of $1.7 million for 2020, and a $1.2 million loss in 2019.

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“Conditions caused by the Covid-19 pandemic such as economic instability, remote work and travel restrictions have negatively affected demand for our platform as employees incurred fewer work and travel-related expenses and submitted fewer expense reimbursement requests to their employers, and as small and mid-size business downsized or went out of business,” the company said.

The average number of paid members on its platform dropped 15 percent from 742,000 in the quarter ended March 31, 2020 to 630,000 in the quarter ended June 30, 2020. That did climb back slightly to 639,000 in the quarter ended June 30, 2021.

For the six months ended June 30, 2021, it made a profit of $14.6 million.

Expensify has received at least $71 million in equity investment from investors, according to reports, including OpenView Venture Partners. Looking ahead, Expensify may not be able to rely on a quick-fire business travel rebound, but the company believes the market for expense management is almost entirely untapped. Barrett looks like he’s counting on the smaller firms to lead the travel recovery now.

. It has outlined a total addressable market worth $16 billion in the U.S. and $21.5 billion in its core geographies, which consist of the U.S., UK, Canada and Australia.

It’s a crowded market though, and many other companies are targeting the ongoing digitization of the way companies handle payments. In its filing, Expensify identified rivals as Bento, Brex, Divvy, Emburse, Expensya, Fyle, Happay, Pleo, Ramp, Spendesk, TravelBank, Webexpenses and Zoho Expense.

Danish fintech startup Pleo recently raised $150 million, giving it a valuation of $1.7 billion. Ramp is another fintech newcomer that plans on disrupting corporate travel and expenses. Then there are travel-focused platforms like TripActions Liquid, as well as Neo1 from American Express Global Business Travel.

“We face significant competition, the market in which we operate is rapidly evolving, and if we do not compete effectively, our results of operations and financial condition could be harmed,” Expensify said in the filing.

Viral Ambition

A key plank of its recovery will be a “bottom-up business model,” which explains why it launched a free product last month. It wants its members to champion its free platform internally, spreading it via word-of-mouth to other employees and convincing decision makers to adopt Expensify companywide.

“Everyone goes after enterprise, so why not go in at the bottom,” said Gavin Smith, founder and director of Element Travel Technology “The benchmark is no longer Concur. It’s got a big following, and a big sales engine, but they’ve not released any new features. It could become the next Kodak.”

Expensify may also look to enhance its travel offering too. It already offers a “travel concierge” but in the filing Barrett said: “As the world reopens and our wanderlust takes hold, Expensify will be there booking your flights, managing your hotels, keeping track of your tabs, and settling up as you go.”

In the filing Expensify also said it will continue to invest in developing features complementary and adjacent to expense management. “At most companies, not every employee generates expenses that would be submitted via an expense report on a monthly basis. As we add additional features that are used by all employers, we have the potential to monetize the segment of our customers’ employees that are not submitting expense reports.”

The company didn’t respond to a request for comment on new features at the time of publication.

Barrett also wants to save the planet — another key aspect of the public listing doc. It’s not really a surprise from the outspoken CEO who recently came under fire for mixing politics with business.

In the SEC filing, Barrett said the new corporate card “helps create a more generous world” because users generate Karma Points. Every time someone makes a purchase with the Expensify Card, Expensify donates 10 percent of card revenue to Expensify.org, its charitable arm. It currently has five funds based around climate justice, food security, housing equity, reentry services and youth advocacy.

“The funds are distributed to a purchase-appropriate cause — for example, booking a flight triggers a donation to plant trees to offset carbon emissions; booking a hotel triggers a donation to help reunite people experiencing homelessness with family,” the company said.

On trend, Expensify is also calling itself a payments superapp, while it claims to be building the first financial social network.

The CEO appears to have thrown everything he can into getting investors to back his company. The risk is that it may be too much, or too confusing, to win them over.

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Tags: american express global business travel, concur, emburse, expense management, expense technology, expenses, tripactions

Photo credit: Expensify is counting on employees returning to business trips and spending more money. Christiann Koepke / Unsplash

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