When the Magic Came: How Xpenser’s Web App Turned into Startup Gold
As San Diego’s point man for Xconomy, I must say I admire the xtremely hip name of Xpenser, a startup that helps people track and manage their work-related expenses.
Founder Parand “Tony” Darugar tells me the basic concept of the company came to him out of necessity in 2008, while he was a Yahoo director of architecture on “Panama,” a project that overhauled Yahoo’s advertising systems after the $1.6 billion Overture Services acquisition. Darugar says he was overseeing teams in San Diego, Sunnyvale, CA, and the Los Angeles area, so he was traveling a lot. His airfares, hotel bills, and other expenses were piling up. But Darugar says he continually put off his personal expense reports because there was a general sense of urgency surrounding the project.
Over one six-month period of procrastination, Darugar says he accumulated more than $30,000 worth of unreimbursed expenses.
Darugar confides that his wife, a financial planner, didn’t exactly give him a high-five for his personal record. Still, he says that point marked the beginning of Xpenser. In addition to clearing his backlog of expenses, Darugar created a Website for tracking his personal expenses and wrote a mobile app that enabled him to send a text message on his BlackBerry as he incurred each expense. For example, he could send himself a message saying, “$60 for taxi from airport to hotel.”
His concept was to immediately send himself the pertinent information about his business trip expenses while they remained fresh in mind, instead of trying to remember the details weeks or months later.
Darugar says his friends and co-workers asked to join the system, and he added more features to the Website over time. “I started doing it to scratch my own itch, and the Website just kept growing.” When he described what he had created to his friend Paul Kedrosky, a venture investor and senior fellow at the Kauffman Foundation (and a San Diego Xconomist), Darugar says Kedrosky’s enthusiastic reaction made him realize that he had created something that was startup-worthy.
Darugar decided to make it a business in 2009. Darugar says he made it possible for users to send information about their personal expenses by instant messaging, e-mail, Twitter, browser search box, voice, iPhone, Android, and WebOS. In 2010, he began adding policy conditions to the system, so, for example, a business expense for more than $5,000 can be automatically routed to a supervisor for approval.
“The early part in the life of a startup is finding a problem that people really want to take care of, and we really have that,” says Darugar, who previously worked at two startups. He was the chief architect at San Francisco-based Blue Titan Software and the founder and chief architect of San Diego’s VelociGen.
The real magic came, though, when Darugar made it possible for Xpenser customers to use their camera phone to take a picture of a receipt and send the image to their own Xpenser home page—where the system extracts the relevant data and enters it into the user’s online spreadsheet.
Darugar, who specialized in machine learning while getting his undergraduate and master’s degrees in computer science at UC San Diego, says the challenge was in coding the system to interpret and categorize messages in any format. The goal is to create a system that can categorize a receipt for “XYZ Web Hosting” as a computer and Internet expense and another for “ABC Host” as a meals and entertainment expense.
“The whole point is to make it automatic, and we do that by applying machine learning to these repetitive, boring tasks,” Darugar says. “We make it really easy.” The system even has the capability of recognizing an overseas business expense that is incurred, for example, in euros, and using currency conversion rates to also show the amount in dollars.
Xpenser eliminates the need to stuff receipts into an envelope or wallet, Darugar says, because the technology satisfies IRS requirements for backup information that is legible, searchable, and tied to a particular event or expense. While Darugar was initially focused on tracking expenses for big companies, he says the company’s core clients now tend to be small and medium businesses with 50 to 2,000 employees.
“We have a lot of real estate agents who use this,” Darugar says. “They love being able to just SMS [text message] their mileage.”
Darugar says the next evolution of the company is focused on tracking time for professional services, and on integrating finance and administrative capabilities that will make it possible for consultants and other professional service providers to bill directly for their services. “It’s a beautiful area for us,” he says.
Today, the San Diego software-as-a-service provider has four employees and about 80,000 customers, although Darugar says those are not all paying clients because he’s been using a freemium business model. He’s financed the company himself, and says Xpenser is not currently looking for investors. “We found a business,” he says. “We found something people are willing to pay for, and it’s been self-funded. So when I take funding, it’s going to really be for the next stage of growth.”