Zip, a firm based in San Francisco that aids companies in managing their spending, today announced a new round of funding: a $100 million Series C at a $1.5 billion valuation, which the company disclosed exclusively with Forbes. Y Combinator, a returning investor, led the funding round with contributions from CRV and Tiger Global.
According to cofounder and CEO Rujul Zaparde, the Series B funding round was preemptive, which means that investors rather than the founders started the funding process. “We knew we didn’t need to raise, and our Series B could have been the last round that we ever raised between then and going public at some point in the future, and that’s certainly the case today,” Zaparde says. “It was opportunistic, but as we thought about it, we thought, yes, it makes sense for us to do this now because it allows us to be that much more aggressive with our product, research, and development,”
The cofounders of Zip, Zaparde, and Chief Technology Officer Lu Cheng, who departed Airbnb in 2019 and 2020, respectively, understood they wanted to launch a business together but had no idea what problem they would attempt to address. After a few “embarrassing” ideas and more than a hundred calls to different specialists in only two weeks, they found themselves smack dab in the middle of the laborious and complicated world of procurement: the process of finding, approving, and paying for software and hardware. In May 2022, less than two years after its founding in July 2020, their procurement business Zip soared to a billion-dollar valuation. According to Anna Khan, a partner at CRV, which took part in Zip’s Series A, B, and C rounds, Zip has had little issue stealing market share from established leaders in the procurement area like Coupa and Bill.com. As a result, hundreds of new clients have joined Zip, including Northwestern Mutual, Snowflake, Grafana Labs, Coinbase, and Canva.
Since it’s frequently challenging for diverse teams throughout a company to connect in one location throughout the process, Zip’s product focuses on becoming a “single front door” for any employee to initiate and complete a purchase or vendor request for things like laptops and software subscriptions. To make the procurement process quicker and more transparent, Zip wants to make it easier for the appropriate teams at a company to access the appropriate materials at the appropriate times. The business accomplishes this by using a codeless interface on top of its workflow system.
When Zip originally began operating, its solution was geared towards the phase of procurement it refers to as “intake-to-procure,” which begins with a general buy request and frequently leads to the approval of a contract with a particular vendor. Along with the investment news, Zip is now introducing a solution called “procure-to-pay,” which connects a business’ accounts payable and purchasing divisions. Series C fundraising for the company was actually closed in September of last year, before the tech downturn got worse, but according to Zaparde and Cheng, they decided to wait until now to announce the money and product releases jointly.
Zip will keep using the cash to make additional product, technical, and design investments, including recruiting. In the past year, the company went from having 60 to about 250 employees, and over the next 18 to 24 months, it plans to add another 100. Along with its current headquarters in San Francisco and a Toronto office, Zip, a hybrid company, also built a new branch in Dallas.
Zip will concentrate on being productive, particularly in these period of the IT crisis. When the business raised its Series C round of investment, a “large, large majority” of the money from its prior funding round was still in the bank, according to Zaparde. Our top objective was choosing the best partner, according to Zaparde, rather than placing an excessive emphasis on other considerations. He emphasised the close relationship Zip had with Y Combinator, which had led Zip’s Series B and had hosted Zaparde as a visiting partner for a year.
According to CRV’s Khan, interest in finance that comes from investors rather than the other way around is not specific to Zip’s Series C.
As “thought partners,” Khan and Zaparde met for the first time in 2020 after Khan learned about Zip through Y Combinator. At the time, Zip had a staff of just three people, including the two cofounders. They got together every two weeks to talk about changes at their separate businesses.
“Most investors wouldn’t get excited if you told them there’s a new product being built in the procurement space,” adds Khan. But the laborious, unexciting sectors are what make my ears perk up. My “investor spidey sense” began to alert me that something extraordinary was occurring.
Khan made the decision to make an investment in the summer of 2021. Khan explains, “Thankfully, Rujul accepted, and that kicked off Zip’s first institutional seed round.
A component of the “something special” is its mix of what Khan refers to as a “beautifully consumer grade product on the front end that’s also enterprise grade on the back end” that was connecting with major clients in 60 days as compared to the more traditional 12 to 18 month sales cycle.
One of Zip’s first clients, cloud-based data platform Snowflake, notes to Joe Frederick, senior director of procurement and strategic sourcing, that Zip’s visualization—part of the product appears to be a stylish decision tree—was a major factor in Snowflake starting to use Zip’s software. Frederick, who had previously used procurement software from more established Coupa (which private equity company Thoma Bravo acquired for $8 billion in February), emphasised Zip’s flexibility to personalise and modify its solution to meet Snowflake’s demands as well as Zip’s lower price.
Frederick claimed they would have spent “millions of dollars” on Coupa had they expanded using Zip’s tiered price structure per user. Scaling with Zip ended up being less expensive than expected, he claims.
Zaparde praises Zip’s “unique end-to-end procurement process,” as he puts it. Another Zip customer and head of strategic sourcing and procurement at analytics company Grafana Labs, Matthew Hardin, concurs that Zip’s intake-to-procure method is more distinctive but noted that the procure-to-pay market is crowded with companies. Like Frederick, Hardin switched from Coupa, the market leader (which also advertises its procurement software as “end-to-end”), to Zip. Along with the bigger, more established procurement organisations, Hardin also named Vendr, a fellow unicorn in the industry, as a potential rival. Before settling on Zip, Frederick and Hardin looked at a few other procurement options.
Zaparde refuses to comment on Zip’s revenue because it is not yet profitable. As with CRV’s Khan, Zip is in the “top 1% in all metrics, including capital efficiency, growth, and growth in ACV [annual contract value]” of the companies in her portfolio, she claims while praising the company’s efficiency.
According to Khan, “you should be getting more than a dollar back in return for every venture dollar that you spend.” He has overwhelmingly shown that, in significant part. As long as you recognise that, you should continue to advance.
Both Zaparde and Khan suggested going public as a potential outcome as the business continues to grow and gain clients. Going public and becoming successful will probably go hand in hand in Zip’s situation, according to Khan.
Scaling is one of the major long-term difficulties for Zip, according to Khan and Frederick.
Frederick, who attends a regular meeting with the co-founders of Zip and has “probably spoken to Rujul [Zaparde] 50 times,” wonders how they’ll continue to find time to communicate with everyone and address their criticism. Scaling from two to 250 personnel is one thing, but scaling from 250 to thousands of employees is, of course, more challenging, particularly in procurement, which Khan refers to as one of the “stickiest” businesses and compares switching procurement systems to undergoing a heart transplant.
However, Zaparde remains upbeat and highlights numerous product releases that are “coming down the pike,” including work on automated accrual that Hardin and Grafana Labs are doing together.
Based on his previous work as a visiting partner at Y Combinator, Zaparde’s original customer strategy was to refrain from doing business with anyone he knew. In the words of Zaparde, “If we can get 10 people to buy it cold, then we’ll know we’re addressing a real problem.”