Why they invested: Zip

We at Weekend Fund started Signature Block over a year ago to give established and emerging investors varying perspectives on how to run a successful fund. We’ve co-published guides with ~100 investors on how to raise from LPs, the importance of valuations, ways to win hot deals, and more.

We’re kicking off a new series called “Why they invested” to surface the insights behind investing decisions in some of today’s fastest-growing startups. In each post, you’ll hear directly from investors on why they invested. Our goal is to help investors learn from each other.

We’ve learned a lot from “Why we invested” posts that investors from funds like A16Z, USV and others publish (a part of how Vedika got her start in investing!). As with all Signature Block posts, we’re taking a crowdsourced approach with this series to expand the diversity of perspectives we can learn from and surface patterns (and outliers!) across them.

Our first post in this series is on Zip. Founded in 2020, Zip is one of the fastest-growing SaaS startups, reaching a $1B valuation in 18 months. 

Here’s a snapshot of Zip:

• Founded: 2020
• Tagline: Modern businesses control spend on Zip
• Capital raised: $181M
• Time to $1B valuation: ~18 months
• Founders: Rujul Zaparde and Lu Cheng
• Investors: CRV, Tiger Global, YC Continuity Fund, Lenny Rachitsky, James Beshara, Todd Goldberg (Todd and Rahul’s Fund), and others.
• Customers: Snowflake, Coinbase, Canva, Webflow, Databricks, and over 200 others. 

If you only have a few minutes, here’s the TL;DR on why investors invested in Zip:

• The founder’s proven track record. Investors' primary reason for investing in Zip was their confidence in the founding team, as evidenced by their track record at organizations like Airbnb and Y Combinator. Lenny Rachitsky noted he’d invest in anything the founders did.
• Large market with low-NPS incumbents. Investors were attracted to Zip due to the significant market potential in procurement software, with terms like "boring," "massive," and "sleepy incumbents" underscoring the opportunity for disruption. The presence of legacy incumbents highlighted both the challenges and opportunities for Zip in the procurement market.
• Timing was right to solve an increasingly complex problem. Investors felt Zip's timing to disrupt the procurement SaaS market was right, noting the increasing complexity of procurement workflows within organizations and the need for solutions to manage intake processes and approval workflows more effectively.
• Dramatically better product experience powered by technical innovation. Investors were also drawn to Zip due to their product experience, highlighting their platform’s no-code workflow builder, technical innovation and consumer-grade user experience, which come together to deliver a dramatically better solution compared to others in the procurement space.
• Strong market pull for the solution. Investors were attracted to Zip due to the significant market demand for their product, emphasizing the rapid enterprise traction they achieved. 

Shoutout to Anna Khan (CRV), James Beshara, Lenny Rachitsky and Todd Goldberg (Todd and Rahul’s Fund) for contributing to this post. Shoutout to Varadh Jain for first putting Zip on our radar.

The founder’s track record

Across the board, investors highlighted the strength of the founding team as the main reason they invested in Zip. Investors' confidence in the founders' abilities was based on their proven track record built up at organizations like Airbnb and YC. Lenny Rachitsky told us that “they were the kind of people I'd invest in anything they did”. Anna Khan (CRV) told us that the Zip team are a top 1% organization. Todd Goldberg told us it was clear to him they could execute. 

There was also the recurring theme of personal relationships with the founders. James Beshara and Lenny Rachitsky worked with the founders, Rujul and Lu, at Airbnb. Lenny introduced Todd Goldberg to the opportunity after he committed (see email exchange below). 

“I worked closely with Rujul and Lu at Airbnb and the second they said they were going to build something together, I asked to invest. I did not really care what they were going to build, I knew they had the right DNA to put themselves in a good position to build something significant. I knew the space did not have a great solution out of my own experience, but I really just immediately wanted to back them because of how talented they are. I would have backed them if they said they were going to build a microwave. There was nothing groundbreaking in the analysis on my side, I was just lucky enough to know Rujul and Lu and was on their radar when they set out to build Zip.”

— James Beshara

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“For me, Zip was an easy decision for a few reasons. The first was the founders — Rujul and Lu — who worked together at Airbnb. Rujul previously founded and sold a prior YC company and then became a part-time YC partner, while Lu was a head of engineering at Airbnb. It was clear they could execute.” 

— Todd Goldberg (Todd and Rahul’s Fund)

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“The core reason is the strength of the team. Rujul, Lu, and their entire team is a top 1% organization. Their level of innovation and execution is extremely rare.”

— Anna Khan (CRV)

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“80% of my decision to invest in Zip was the founders. I worked with them at Airbnb, and individually they were the kind of people I'd invest in anything they did. But together...TAKE MY MONEY. I was chatting with them casually when they first started on the startup journey, and they pivoted 6-7 times on that journey before they landed on Zip.”

— Lenny Rachitsky

Large market with low-NPS incumbents

Multiple investors highlighted market characteristics in procurement software as being one of the main reasons they invested in Zip. The procurement software application market was estimated to have brought in ~5B+ in revenues in 2023. Terms like "boring," "massive," "sleepy incumbents," "large ACVs (Average Contract Values)," and "low NPS (Net Promoter Score)” came up several times. Several investors pointed out that Zip’s competition consists of legacy incumbents, indicating both challenges and opportunities for disruption. A few investors emphasized the size of the market opportunity Zip was going after validated by the size of the incumbents in the market.

“The other 20% was the market they were going after. Boring, massive, sleepy incumbents, large ACVs, and low NPS. If they could pull it off, it was clear this could be big.” 

— Lenny Rachitsky

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“The market was also large with the main competition being legacy incumbents.” 

— Todd Goldberg (Todd and Rahul’s Fund)

Timing was right to solve an increasingly complex problem

Several investors highlighted how Zip’s timing was right to disrupt the procurement SaaS market. Procurement is one of the most complex workflows inside a company today. Their timing was right to solve the growing complexity in procurement workflows in organizations, more specifically around intake processes, in organizations in managing procurement, driven by the growth of software expenses, more cross-functional teams needed to approve purchases and increased fragmentation across various tools/systems. Anna Khan pointed out the inefficiencies of managing workflows across disparate systems and a growing number of teams. Zip’s timing in bringing a consumer-grade application to the market also proved to be right, driven by higher expectations driven by consumer applications. 

“There was a very real tailwind of the changing face of procurement. With the growth of software expenses, approvals and intake touched many more parts of the organization than procurement had before (security, legal, data, multiple stakeholders). This led to approvals being mismanaged and across disparate systems that didn't talk to one another.”

— Anna Khan (CRV)

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“And consumers spend so much time on their devices, in extremely smooth, consumer applications, that it is natural for them to expect the same elegant product experience anytime they open an application or log into a website.” 

— James Beshara

Tech innovation led to a dramatically better product

Zip describes their capabilities as “The platform’s no-code configuration and intelligent workflows integrated across disparate systems enable businesses to automatically route requests for faster approval across finance, legal, procurement, IT, security, and other teams.”Multiple investors highlighted Zip's product experience as one of the main reasons they invested. 

More specifically, Zip chose the right wedge. Todd Goldberg mentions Zip's insight was into making procurement processes “slick and delightful”. They had a dramatically better product experience than existing solutions in the market. There was a recurring emphasis on the quality of Zip's user experience. James Beshara mentions how they built a “consumer-grade” experience in the procurement space. Ali Rowghani called out the innovative engineering work that powers Zip's end-to-end visualization of the procurement flow, and noted that it’s hard to replicate.

“The Zip user experience is among the best in SaaS. Underneath that effortless experience is a huge amount of very innovative engineering work. The end-to-end visualization of the entire workflow, for all stakeholders, that can be changed on the fly, is unique and will be difficult for anyone to replicate.” 

— Ali Rowghani (YC Continuity Fund), Source

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“Their insight around how to make procurement slick and delightful seemed strong, and they had a thoughtful wedge on how to bring the product to market alongside existing tools (ahead of them eventually trying to replace them).” 

— Todd Goldberg (Todd and Rahul’s Fund)

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“In building and investing in financial technology in the last 12 years, it is still one of the consumer and enterprise areas that leaves so much to be desired as a customer. From Gusto, to Mercury, to Zip, it has been the same formula as an investor: a sharp, small, extremely technically talented team can run circles around big, clunky incumbents that care more about sales initiatives than they do about their product experience.” 

— James Beshara

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Zip solved this with robust software that fully managed the intake-to-pay process - a process usually mired in complexity and unusable for the most part. Zip changes all of this and built a product that is actually used across an organization.” 

— Anna Khan (CRV)

Strong market pull for the solution

Several investors highlighted the market demand for Zip’s product as one of the main reasons they invested. Several investors talked about the speed at which they gained enterprise traction. Anna Khan highlighted the speed of enterprise demand for a startup as young as Zip being unprecedented in her investing career, while Lenny Rachitsky noted early validation from customers, including having four customers within six months of product development, and Ali Rowghani mentioned customers' readiness to buy before completing the demo.

“They had four customers by the time I talked to them and they only started building it about 6 month prior. WTF.”

— Lenny Rachitsky

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“The second reason is the growth of the business. In my decade plus of investing, I had never seen a young startup demand so much attention from enterprises so early on in their journey. Zip was able to do this due to their technical skill set and incredible selling prowess.”

— Anna Khan (CRV)

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“A number of early customers told YC Continuity that Zip’s product “addressed a very clear pain point” and that they were ready to buy before the demo was even complete.”

— Ali Rowghani (YC Continuity Fund), Source

Let us know which company you’d like us to cover in the next one. Links to our Twitter below. :)

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Until next time, 

Ryan and Vedika from Weekend Fund

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