Ramp | A bull case summary
As one of the hottest startups in 2021, I figured it may be interesting to share some thoughts around why they have been able to grow so fast in such a crowded market.
Product: Ramp is a corporate card issuer and expense management company. Its core product is a corporate card platform that allows employers to create and manage spend on virtual as well as physical cards for employees. Unlike a traditional corporate credit card, Ramp issues charge cards that do not require credit checks or founder guarantees. Additionally, unlike most corporate cards that have complex rewards programs, Ramp just offers 1.5% cash back on all products. Today, customers can sign up for Ramp for free, with no paid tiers. The company makes money from ~2.5% interchange fees on all transaction volume.
Market: Ramp plays in the highly competitive but massive corporate card industry, estimated to be worth ~$32bn globally and $14bn in North America, growing at ~4-7% (prnewswire.com). Traditional corporate cards from Amex and Capital One dominate mature and enterprise customers segments. However, they can be a hassle to get, especially for SMBs and startups because they require background checks, credit checks, and founder guarantees. In recent years, a handful of corporate card startups formed to provide a more accessible solution with better automation and integrations, including Brex, Divvy, Payhawk, Pleo, Airbase, Ramp, and more. Specifically, Ramp has found a sweet spot with startups and SMB customers who value simplicity and ease of use. Customer calls with two startups indicate that they chose Ramp over Brex for its simpler user interface and 1.5% cash back regardless of the spend category, which fit their needs better.
Thesis: There is a lot to like about Ramp.
(1)Ramp has a differentiated value. Unlike other corporate cards, Ramp provides a straightforward 1.5% cash back program rather than complex reward points systems. This is the highest cash back offer out of any corporate card. Additionally, they use software to provide insight around other cost savings opportunities, such as duplicate subscriptions and more. These benefits have helped Ramp achieve strong product market fit. The company has near-perfect ratings on G2, and beats competitors such as Brex and Divvy on a wide range of metrics.
(2) Furthermore, Ramp has one of the easiest sign up processes. It is free to make an account and requires no background checks or credit checks. The company also has a great reputation among startup founders. Its easy sign up process plus strong word-of-mouth marketing has helped it grow with limited customer acquisition spend to date.
(3) With strong product market fit and easy sign up process, it is no surprise that the company has seen phenomenal growth. Revenue grew ~60x in 2020 and employee headcount is expected to double in 2021. Furthermore, Ramp’s revenue grows as customer spend grows. This means that Ramp incurs minimal incremental costs as it scales with existing customers, driving strong CLTV/CAC metrics.
(4) Beyond its core product, Ramp has multiple avenues for further growth. With all the transaction details the company has access to, they could expand into more CFO office services such as bookkeeping automation. Additionally, they could explore a partnership with major investor Stripe to provide banking products and more to customers. By doing corporate cards for startups and SMB customers well, they’ve gained control over data of individual transactions. Ramp can leverage this plus customer trust to expand to other financial services targeting the SMB market to sustain its growth trajectory.
Risks: The largest risk Ramp faces is competition. However, we believe that Ramp’s ease of use and straight forward rewards positions it well to be a leader in the SMB and startup segment. If Ramp tries to expand to larger customers or expand product offerings, they may face more competition from companies that already offer fuller suite of products and get lost in the crowd. However, we believe that Ramp’s strong early adoption is a major signal of product market fit that positions it to be a winner in its core customer segment. Additionally, it is likely that the market is big enough to support multiple winners.
Founders: Ramp’s founders Eric Glyman and Karim Atiyeh are serial entrepreneurs and have been working together since 2014. The first company they founded is Paribus, which helps online shoppers get refunds when prices drop on items they’ve purchased. Paribus sold to Capital One in 2019. Their track record of success increases our confidence that this is the right team to lead Ramp as it scales.
Valuation: With an ARR of ~$15m in December 2020, Ramp’s $1.6bn valuation in April 2021 implies ~107x revenue multiple. Assuming the company has now reached ~$30m+ in ARR and is valued at a similar multiple, we expect valuation in the next round to reach $3.0bn+.