Rujul Zaparde and Lu Cheng knew they wanted to start a company together—but they had some rules.
The two, who first met at Airbnb, had left their jobs with comically bad timing in 2020. But Cheng and Zaparde were determined to figure out what might work for them and as a business.
As the surrounding world reeled from the pandemic, the pair spent months developing a 16-point set of criteria to determine if a business idea was worth pursuing. It’s a colorful set of rules. There’s the “bomb test,” a gallows humor screening of a potential business idea’s scalability, sustainability, and enterprise software-ness. Then there’s the hair-on-fire principle, which describes a must-solve problem that cannot, under any circumstances, be ignored.
“It’s a real problem that they have to solve, because it’s causing that much pain,” said Zaparde.
Others include: “Why is now the right time to start the company?” And “Is this really sticky and super hard to rip out?” They tried on different ideas and even stumbled on a prospective services business that began generating revenue faster than they’d imagined—but they nixed it. Their startup idea had to fit all the criteria. And that’s how they got into the business of procurement, the labyrinthine corporate process of finding, buying, receiving, and checking goods.
It’s a process that every business undergoes but no one seems to like, which is perhaps putting it mildly. Once, someone cried to Cheng and Zaparde in procurement-induced frustration.
“We had a notes doc that had about 120 pages, and the word ‘pain’ shows up 110 times in it,” said Cheng. “People had these visceral reactions to the challenges around procurement and how the industry has evolved, how types of spend have evolved, and how technology just hasn’t caught up.”
And there was that key word: Pain. Procurement problems were hair-on-fire problems. In the four years since Cheng and Zaparde founded Zip, the procurement software startup has covered a lot of ground—backed by Y Combinator, CRV, and Tiger Global, it was last valued at $1.5 billion in 2023. Zip’s current customers include OpenAI, Discover, Sephora, and Snowflake.
This week marks another big milestone for Zip: The company today announced its expansion into Europe, the Middle East, and Africa (EMEA) and revealed a design rebrand. This is all just two days after IDC placed Zip at the top of its newly minted “spend orchestration category,” even beating out publicly traded giants like ServiceNow.
“This is an acknowledgment that they actually have found a legitimate category,” said Zip investor Ali Rowghani, who’s former managing director of YC’s Continuity Fund, former CFO at Pixar, and former COO at Twitter. “I think it’s going to be really big. From an investor’s point of view, it validates the thesis that there’s a real problem here that not just a small number of companies have, but that a lot of companies have.”
And the problem, more or less, is this: Procurement can cover almost anything, from pens and printers to industry-specific must-haves. It inherently requires many layers of approval—there have been more and more layers added over the years, as companies have gotten bigger and more complex. So, requests get denied and no one knows why. Procurement has become a procedural maze with trap doors, hidden corners, and nonsensical dead-ends. And like a maze, it’s hard to see clearly and (without tech help) impossible to see as a whole. The overall effect: Procurement divisions feel like black boxes, and the people who work in them are usually unseen and underappreciated. Case in point, when was the last time you thanked your procurement specialist?
Zip already has international customers, and that’s been true “from the very beginning,” according to Cheng. For example, Tel Aviv and New York-based Pagaya since 2022 has been a Zip customer. David Eckstein, Pagaya’s director of procurement, said via email that, though the procurement process in most places is considered “chaotic,” that’s something that Zip “solved for me, for us.” Other existing international Zip customers include U.K.-based semiconductor company Arm and Germany-based digital bank N26.
So, the EMEA expansion is a formalization of something that’s been happening for years. Zip is opening a new office in London and will be hiring aggressively there, and will also court talent in Germany and France.
“We’ve seen a lot of pull from EMEA naturally,” Zaparde said. “We didn’t have an EMEA team at all until about a year or so ago, give or take…We had just been receiving all this inbound from prospective customers, because they had this pain around procurement intake and orchestration.”
Zaparde and Cheng, respectively CEO and CTO, are eyeing APAC next. But that’s down the road. Today (and probably today only) Zip is concentrated on San Francisco, where it’s holding its second-ever conference, Zip Forward, and unveiling new products like AI invoice coding. Buses and billboards across the city will feature the company’s brand redesign, taking something that was frankly generic and turning it electric blue.
It would be a big week for anyone. But it’s especially so for a startup that was founded just four years ago to solve a problem setting hair on fire.
Elsewhere… Yesterday, former FTX executive Caroline Ellison was sentenced to two years in federal prison. Here’s more from my colleague Leo Schwartz.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: [email protected]
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Nina Ajemian curated the deals section of today’s newsletter.
VENTURE DEALS
- Whatfix, a San Jose, Calif.-based digital adoption platform, raised $125 million in Series E funding. Warburg Pincus led the round and was joined by existing investor SoftBank Vision Fund 2.
- Quantum Systems, a Munich, Germany-based drone technology developer, raised €100 million ($111.7 million) in Series B funding from Notion Capital, Porsche Automobil Holding SE, and existing investors.
- M2P Fintech, a Chennai, India-based BaaS and infrastructure API provider, raised $100 million in Series D funding. Helios Investment Partners led the round and was joined by existing investor Flourish Ventures.
- Torq, a New York City-based cybersecurity automation platform, raised $70 million in Series C funding. Evolution Equity Partners led the round and was joined by Bessemer Venture Partners, Notable Capital, Greenfield Partners, and Strait Capital.
- HyperLight Corporation, a Cambridge, Mass.-based photonic integrated circuits and photonics solutions provider, raised $37 million in Series B funding. Summit Partners led the round and was joined by existing investors Xora Innovation and Foothill Ventures.
- Centivo, a Buffalo, N.Y.-based affordable healthcare company, raised $25 million in Series C funding from Cone Health Ventures, MemorialCare Innovation Fund, and existing investors B Capital, Cox Enterprises, F-Prime Capital Partners, and others.
- LiveFlow, a New York City-based accounting automation platform, raised $13.5 million in Series A funding from Valar Ventures.
- Icon, a Los Angeles, Calif.-based retirement technology company, raised $9.2 million in funding. Tom Blaisdell and TTV Capital led the round and were joined by Zeal Capital, ReThink Impact, and BBGV.
- Mesa, an Austin, Texas-based homeowner membership platform, raised $7.2 million in seed funding. Streamlined Ventures led the round and was joined by Starting Line, Assurant Ventures, Vera Equity, and others.
- Reflect Orbital, a Los Angeles, Calif.-based reflective satellite developer for solar energy capture, raised $6.5 million in seed funding. Shaun Maguire led the round and was joined by Starship Ventures, Baiju Bhatt, Keller Rinaudo Cliffton, and Keenan Wyrobek.
- Darkbright Studios, a Wilmington, Del.-based game developer, raised $6 million in seed funding. BITKRAFT Ventures led the round and was joined by Play Ventures, Anthos Capital, King River Capital, and others.
- Daylight, a Brooklyn, N.Y.-based transaction recommendation engine, raised $6 million in seed funding. Union Square Ventures and 1kx led the round and were joined by existing investors Framework Ventures and Chapter One and angel investors.
- Platformatic, a San Francisco, Calif.-based cloud-native Node.js application platform, raised $4.3 million in seed funding. Rialto Ventures led the round and was joined by existing investors Decibel and Panache Ventures.
- Desia, a London, England-based intelligence and AI productivity system for investment professionals, raised $3.3 million in pre-seed funding. Dig Ventures led the round and was joined by 2100 Ventures, Exor Ventures, Octopus Ventures, angel investors, and others.
- Eion, an Oakland, Calif.-based carbon removal company, raised $3 million in a Series extension from Growmark, AgFunder, Ridgeline, and others.
PRIVATE EQUITY
- Blackstone and Vista Equity Partners agreed to acquire Smartsheet, a Bellevue, Wash.-based work management platform, for approximately $8.4 billion in cash.
- Godspeed Capital acquired BNP Associates, a Denver, Colo.-based air transportation design and engineering firm. Financial terms were not disclosed.
- PAX Services Group, a portfolio company of New State Capital Partners, acquired Consolidated Coatings, a Baltimore, Md.-based building restoration services provider. Financial terms were not disclosed.
- Stellex Capital Management acquired Fox Brothers Holdings Group, a Lancashire, England-based construction and infrastructure industry services provider. Financial terms were not disclosed.
- The Retirement Planning Group, backed by Genstar Capital, acquired Parrott Wealth Management, an Austin, Texas-based asset management firm. Financial terms were not disclosed.
- Waste Eliminator, backed by Allied Industrial Partners, acquired Unlimited Disposal Dumpster Service, a Canon, Ga.-based commercial waste management firm. Financial terms were not disclosed.
EXITS
- Sixth Street agreed to acquire a minority stake in EdgeConneX, a Herndon, Va.-based data center solutions provider, from EQT. Financial terms were not disclosed.
OTHER
- Novartis agreed to invest $65 million in cash in Generate:Biomedicines, a Cambridge, Mass.-based generative biology company.
IPOS
- FrontView REIT, a Dallas, Texas.-based outparcel properties acquisition, ownership, and management company, plans to raise $277.2 million in an offering of 13.2 million shares priced between $17 to $21 on the NYSE. The company posted $56 million in revenue for the year ending June 30, 2024.
PEOPLE
- Ten Eleven Ventures, a Burlingame, Calif.-based venture capital firm, added Scott Lundgren as operating partner and CTO. Previously, he was at Carbon Black.
