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VCs are out to ‘pump and dump’ startups, Expensify CEO says. So he’s buying out his investors as he readies to go public.


david barrett expensify ceo

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These days, there’s so much venture capital sloshing around the ecosystem that fundraising for some startups is like stepping into one of those arcade cash booths that blows money around. You keep as much as you can grab.

But not everyone is playing to pocket the most capital.

Expensify is readying to go public sometime this year, but its founder David Barrett said he doesn’t know how much his company is worth. That’s because the expense reporting software-maker hasn’t had a private valuation in almost six years, the last time it raised venture capital, and has instead used profit to pay for its own expenses and growth.

It’s one of the few profitable businesses on the roster to go public this year. And if it pulls off a direct listing as Barrett plans, Expensify will be one of even fewer companies to raise less than $100 million before going public in 2021.

“I’ve made no secret of my disdain for venture capitalists,” Barrett told Insider. “Because I think the entire playbook for being a private company right now is how you pump and dump a startup to some bigger sucker.”

The company has raised only $20.2 million in venture capital total, and its last round was in 2015, he said. 

It has also completed two secondary transactions which lets shareholders, who are typically founders, early employees, or early investors, sell off some or all of their stake to other private investors.

Read more: The CEO of Expensify sent an email to 10 million customers urging them to vote for Biden. Then his employees took the brunt of the backlash.

In contrast, business-to-business payments company Bill.com, a competitor, had raised about $320 million in venture capital before its first day of trading about a year ago. Its last private valuation was $1.6 billion.

There are many reasons for not raising more venture capital. For one thing, when a startup raises money, its founders give up a percentage of the company. With each raise, their percentage of ownership decreases, even if the value of that stake grows.

The more of the company investors own, the more control they have over the company. Some startups have countered this by creating shares with super voting rights, typically 10 votes per share. But by refusing more venture money, no such antics over voting rights are required. The founders can simply remain the largest shareholders. And it seems that’s how Expensify’s chief prefers it.

Barrett’s ‘disdain’ for VCs

Barrett believes that many venture capitalists are incentivized to invest their fund’s money into startups as quickly as possible so they can go on to raise bigger funds and collect more management fees.

A venture fund has a lifespan of about five to 10 years, or longer, to invest all of their money and then return the profits to the fund’s limited partners. VCs raise funds from private investors, known as limited partners, and the venture capitalists charge fees for managing that money. The bigger the fund, the bigger the fees, says Barrett.

If a VC …read more

Source:: Business Insider

      

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