Brex - Building a Billion Dollar Business in Less Than Two Years
Brex, after the collapse of SVB is looking to be the next most important financial institution for startups, but the competition is heating up- looking at you Ramp & Mercury.
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This Week’s Top Pick in The Secondary Markets
Brex is a corporate card and expense management platform started by Brazilian-born Henrique Dubugras and Pedro Franceschi. Brex has raised a total of $1.5B in funding from the likes of Y Combinator, Kleiner Perkins, DST Global, Tiger Global and Greenoaks.
The platform was launched in June 2018, initially Brex was a part of Y Combinator’s W17 Batch, where the company distributed their corporate cards to other startups for free, and monetized volume at 2.17% interchange rate, unlike Amex which charges $300-600 for a card.
For startups and SMBs getting a corporate card from traditional players like AmEx, requires excessive manual paperwork, long waiting time, high monthly charges, and still they get a card with low credit limit, even though they might have $1-2 Million in bank account.
Dubugras and Franceschi already a seasoned entrepreneur realised this problem and started building Brex to solve it, since then Brex has crossed $10B in valuation, added more features—banking, expense management, venture debt, travel management, financial modeling, and others—en route to building a Silicon Valley Bank-like suite of financial products for startups.
Term Sheet Analysis
Brex went through YC in W17 and launched its full product to the public in June 2018, couple of months later, in October 2018, the company raised its Series C and was already a Unicorn. The founders-Henrique Dubugras and Pedro Franceschi-were only 22 years old when the company hit the coveted $1B valuation mark.
Today, Brex is valued at more than $10B and made an estimated $400M in revenue in 2022, a 67% increase from 2021. Brex initially relied on the interchange fees by distributing the cards for free and providing the companies with 10-20x of their bank account deposits. It quickly expanded horizontally by eating into more of its customers’ financial stack through software and moving up the stack from startups to selling into enterprises. Some other sources of revenue include seat-based fees from Brex’s financial management SaaS, fees from bank partners where Brex parks its customers’ cash, interest on venture debt loans, and affiliate commissions for referring customers through its card rewards program.
Performance in the Secondary Markets
The company was constantly on the road to raising funds in the last two years, mostly due to the boom in the venture markets means a boom for their business. They have raised at least one tranche of funds every six months in 2021 and 2022. In the secondary markets, the stocks are also in demand, but due to the mix of dilution and increase in supply for the stock, the price has constantly fallen from ~$44 to ~$19 from September 2021 to April 2023. Brex’s business saw a sharp spike after the Silicon Valley Bank & Signature Bank collapsed, with it, the value of its stock also increased.
The Future of Expense Management
Although SVB and Signature Bank left the door open for Brex, but still the competition from other venture-backed startups is fierce. Ramp launched its “startup credit card” in 2020 and replaced rewards with cashback and bundled in expense management SaaS. Ramp created switching costs and incentivized teams to have only 1 credit card company—forcing Brex to launch its own expense management product to catch up.
Mercury jumped the queue by providing their linked bank accounts and debit cards, startups need a bank account from Day 1, so Mercury became the first preference. Incumbents in the spend management category are also expanding their product suite in fear of being left behind -Bill.com acquired Divvy in May 2021, Airbase launched a standalone bill pay product in June 2021, and Rho added expense management software in August 2022.
This comes at a time when the venture business is in shambles, so to expand its market and potential, Brex is going global. The company has announced new global capabilities that significantly expand its ability to support US multinational businesses in Brazil, Canada, Israel, Japan, Mexico, Singapore, South Africa, the Philippines, 36 European countries, and more. As the venture business picks up again, and Brex doesn’t get left behind by its competition in the US, and by expanding its global footprint, Brex is looking to become a financial giant not just in expense management but in the banking sector, at least for startups.
Top Stories
OpenAI’s Sam Altman and other AI giants -DeepMind CEO Demis Hassabis to veteran AI computer scientist Geoffrey Hinton, MIT’s Max Tegmark and Skype co-founder Jaan Tallinn- back warning of advanced AI as ‘extinction’ risk.
iRecorder -Screen Recorder, a popular Android app, began secretly spying on its users months after it was listed on Google Play, stealing microphone recordings and other documents from the user’s phone.
JPMorgan has told customers with personal credit lines at First Republic Bank that it will no longer offer those lines when they come up for renewal. The failed lender, which has been sold to JPMorgan, had offered personal lines of credit to its wealthy client base as a key way of attracting customers.
“Thought Leadership”
Jensen Huang, two days after Nvidia's historic quarterly earnings, delivered the commencement speech at National Taiwan University - Link to the full speech.
Last Week in Numbers
2000: Serve Robotics, an Nvidia-backed autonomous sidewalk delivery robots maker, will deploy 2000 robots to deliver food through its partnership with Uber Eats in multiple US cities starting with Hollywood and Fairfax.
$115 Million: Tools for Humanity, the team-building Worldcoin, raised $115 million in a Series C round led by Blockchain Capital.
$5000: Twitter announced a new API tier today called Twitter API Pro for startups that costs $5,000 per month. The tier gives developers the ability to fetch 1 million tweets per month and post 300,000 tweets per month and gives them access to the full archive search endpoint.
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