Fintech Tailwinds and Cash Conversion Cycles with Ramp’s Karim Atiyeh

Karim Atiyeh is the co-founder and CTO of Ramp, a New York-based corporate card and finance automation platform uniquely designed to help scaling startups spend less and save more. 

In August 2021, Ramp closed a $300M Series C at a $3.9B valuation led by Founders Fund with notable participation from Stripe, Thrive, Redpoint, Coatue, Spark, and Lux Capital, among others. 

We sat down with Karim to dig into his deep fintech expertise, ranging from how to improve cash conversion cycles to what founders get wrong about bottom-up customer research. 

“Ramp was built around a thesis of financial transparency. The clients who resonate with that tend to be smart companies who’ve seen through pricey points programs and want to stick with us for a long time. It’s a win-win.” 

Fintech Evolution & Ramp’s Wedge

Prior to Ramp, Karim led his first fintech venture Paribus, an online price tracker and refund platform for consumers, through Y Combinator and a successful acquisition by Capital One. 

After the sale, Karim saw how much effort was going into optimizing points programs, and as a result, how points were being devalued for customers. In his words, credit card companies have thoroughly gamified spending by rewarding users with points when they make purchases. 

But the truth is in the fine print: the value of points continues to drop over time. 

One point is never worth one dollar, and credit card companies bank on the fact that consumers neither understand the shifting value of their points nor end up using all of them.

After leaving Capital One, Karim and his founding team at Ramp spoke to over 150 founders and finance teams embedded in rapidly growing startups to dig deeper on this prevalent issue. 

Their findings? Founders simply wanted a unified platform that would help them spend less, not provide half-hearted rewards for spending more. 

“The marketing gimmick behind the supposed value of points can turn a quick buck. But it’s unsustainable, and customers will catch on and churn.” 

Distilling Customer Pain Points

As a founder, you often  conduct bottom-up research through customer conversations to understand the core problem you’re tackling. Karim uses an analogy about Henry Ford to explain how you should structure these conversations. 

At the turn of the century, the inventor asked folks what transportation they wanted. Most responded, “A faster horse.” Instead, Ford went ahead and built a car, which stretched beyond any of his customers’ imaginations while satisfying their needs far more than the fastest horse. 

Karim’s analogy illustrates that when you ask customers what the solution is to their problems, they can only imagine within the realm of solutions they’re aware of. To this point, Karim insists that founders shouldn’t listen to customers for solutions, but rather listen for their problems. 

Karim drives home the point that it’s the founder’s responsibility to analyze all the problems and product data at hand, and respond to consumers with the solution that will best satisfy their needs — even if they initially couldn’t have imagined it for themselves. 

“If you're constantly looking to your users for answers, it’ll lead to a limited or disastrous product. Instead, you should listen to your customers’ needs and problems — not just their proposed solutions.” 

Ramping Up Cash Conversion Cycles (CCC)

According to Karim, cash conversion cycles, or how long it takes for companies to convert investments into free cash flow, is critical to understanding a company’s core risk profile.

A shortened, predictable CCC, which signals less susceptibility to macro risk, can enable your company to borrow at better rates from better partners. In turn, companies are able to avoid working with lower quality banks on sluggish timelines. 

To better maintain and gain insights into your CCC, Karim highly recommends holistic analytics products like Tydo or real-time spend reporting software like Ramp to make it easy for your team to quickly pull and track cash flow metrics, thus keeping your books clean and accurate. 

Further, to improve your CCC, brands should make it easy for customers to pay you instantly via credit card rather than checks or ACH. The latter may yield lower fees or the potential for saving a small percentage, but the former helps you land cash immediately and shorten your cycle. 

Finally, for companies operating in industries where there’s less control over certain variable factors like complex supply chains, which inherently lengthen your CCC, Karim advises teams to negotiate longer payment terms with vendors across the board.

Navigating CPG Cash Flows

When asked how merchants should optimize cash flows and navigate alternative financing options, Karim recommends three routes: credit cards, equity, and debt. With cards, he notes that you’re essentially getting a free loan. Thus, you should maximize your usage of cards. 

With equity, you're giving away a portion of the company. But if you're able to get access to great partners and stakeholders, equity can be a great opportunity to align incentives by sharing on the potential upside. Not only are you getting a great investor, you're getting someone who can help you recruit and market the brand.

Debt and working capital loans are comparably cheaper than equity over a long-term time horizon, assuming the value of your company rises. Karim recommends taking the time to optimize for clean terms with working capital providers.

For example, you might as well pay 6% instead of 4% if the terms are cleaner because it's very hard to predict where your business is going to go and what it's going to need in the future. If you signed up for onerous terms, it can actually cost you more in terms of time and potential downside for your business than the extra percentage points you're paying to your lender.

When it comes to spend optimization, Karim notes that things can surprise merchants quickly if they don't have clean books and spending isn’t in order. Just look at the impact of COVID. Lots of businesses that weren't careful with their cash flows got hit with shipment delays, and as a result they went under. They couldn't pay back or banks pulled loans from under them and they didn't see it coming because they tripped a covenant and they didn't have their books in order. 

Finally, as it relates to alternative financing, Karim points out that e-commerce merchants will always need a lot more capital for paid advertising. In his words, it’s critical to start with a very clear equation between the money spent on ads and revenue. Then, dive into the proliferation of funding options for DTC brands: Clear, Shopify Capital, and Stripe Capital, to name a few. 

But, he adds that merchants should be wary. Often, you’re paying a percentage of revenue to work with them, which could lead to you paying a high APR if you end up growing really quickly.