
How the founders of Brex built a billion-dollar business in less than 2 years - arosier
https://techcrunch.com/2018/10/05/how-the-22-year-old-founders-of-brex-built-a-billion-dollar-business-in-less-than-2-years/
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typpo
Many of the posters in this thread miss the point, perhaps because they have
not tried to get a credit card for their startup or small business.

Even if you have millions in the bank, the process of getting a card is long
and tedious. It took me weeks, hours of phone calls, visits to the bank, and
affected my personal credit. In the end a well-known card provider gave us a
$5000 limit. We sometimes put that much on the card in a few days, and autopay
is monthly, so someone had to manually monitor the card balance just to keep
the card working.

The experience of being a small business that wants to use a credit card
sucks. It's not even a little surprising to me that Brex is doing great.

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koolba
So where does the revenue come from? A slice of the transaction fees run on
the cards or interest on rolling balance? I can’t imagine the balances over 30
days being that high (the targets have VC money to pay their bills right?) and
the transaction fees can’t be that much either.

I can see why they’d need a lot of capital but I fail to see the business
model for actually generating (big) income.

~~~
roymurdock
they're aiming for acquisition. these days you don't need to make money as
long as there's a need for something you can often give it away for free using
VC money and then get acquired for your exit

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Rainymood
I don't understand this, what is their business model exactly? Aren't they
just giving out loans like a VC with other VC money? Why can't the VCs invest
directly without Brex taking their cut?

~~~
closeparen
Brex is a charge card; they're not really making loans, just letting
businesses wire up their bank account balances to credit card acceptance
infrastructure (which is much widely adopted than debit card infrastructure).
Like any other player in the payment card business, they get a cut of the
transaction fee charged to merchants.

~~~
skinnymuch
Don’t they still take the risk for one month? Startups aren’t all stable. Some
might get into problems during that month and not be able to pay, no? Or is
this just a debit card?

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cristiantyping
It seems to me it's similar to [http://pleo.io](http://pleo.io) but they
haven't raised that much money yet. Why is that?

~~~
arihant
Different markets and products. Pleo is not in US yet. Pleo does not
underwrite. Pleo requires balance in account for cards to work, hence it is a
prepaid solution. Brex actually underwrites and works like usual corporate
cards do.

~~~
chvid
Exactly - they (paleo) don’t really have a business model. They are just a
computerized way of documenting employees use of their cash allowances.

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ubernostrum
And nobody suggested they change the name?

You have a Brex card, you offer to pay for something: "Sure, I'll just Brex
it..."

~~~
the_watcher
There's a billboard when you get off the 101 at Octavia for Brex. It says
something like "Just Brex-it. The card, not the political fiasco." Maybe
they've tested it and I'm in the minority, but I thought it was pretty odd.

~~~
tchaffee
That's memorable. Which might be the most important factor.

~~~
the_watcher
True, it is memorable. I talked to someone who works at an ad agency and had
worked with State Farm in the past yesterday. She had the most articulate
explanation of memorability over quality I'd heard. I'm sure I'll mangle it,
but essentially, as long as the ad isn't actively bad, memorable is far more
important than being good (although the platonic ideal would be memorably
good).

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cynusx
That's impressive.

I always wanted to have an approval-flow for payments for company cards, would
be a great addition.

I'd be fine issuing cards to everybody in the company as long as I can prevent
the expense before it happens (and revoke credit card numbers when off-
boarding employees).

my 0.02 cents

~~~
awad
AFAIK, there's a timeout for card transaction (something like a few seconds)
approval that's preventing such functionality from existing

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godzillabrennus
It seems kind of crazy to see VC funding for a startup that focuses on selling
services to other startups that need VC money to exist...

~~~
jondubois
That's kind of how VC works nowadays. I was reading an article about
Softbank's Vision Fund; the article mentioned that Masayoshi Son, the CEO of
Softbank advised his companies to give each other discounts and special deals.
I guess this is something which YC has also been doing for a while.

It definitely sounds like it's going to create bubbles. If companies help each
other too much, then their success becomes increasingly artificial; all these
companies become less efficient as a group and it's only a matter of time
before companies outside of that cushy ecosystem catch up.

I think that eventually we'll get to a point when we collectively realize that
the software development practices that we've adopted over the past decade are
actually much less efficient than many other alternative approaches. For the
past decade, the most efficient approaches and tools have been overlooked
almost completely because they were developed outside of any VC ecosystems; so
they didn't get any exposure or chance to prove themselves.

~~~
cal5k
This is actually a deeply engrained practice in Japanese business culture -
“keiretsu”, or interlocking companies.

~~~
fatjokes
So... "synergy"?

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CPLX
It’s an interesting concept for sure. But one thing that seemed confusing was
how exactly do they handle underwriting? Do they credit check the applicants?
Employees? Check the business bank accounts?

Granting credit is a sophisticated market, is this just a case where they look
for founders that have perfect credit and assume they’re probably OK? Do they
even use standard CRA’s at all?

Like what’s the basic underwriting premise?

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ape4
Not to be confused with Bre-X.
[https://en.wikipedia.org/wiki/Bre-X](https://en.wikipedia.org/wiki/Bre-X)

Subject of the film Gold.
[https://en.wikipedia.org/wiki/Gold_(2016_film)](https://en.wikipedia.org/wiki/Gold_\(2016_film\))

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powera
This isn't a "billion-dollar business"; it's an overhyped company that gives
credit cards to startups that raised money at a billion-dollar valuation.

They may have already reached their entire market for their existing business;
the billion-dollar valuation only makes sense if they can plan to grow into
other credit card markets.

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GreeniFi
You can’t patent a credit product. As soon as other lenders see this business,
their margins will be competed away. That 2BN valuation looks very artificial.

~~~
fro0116
You think this time big financial institutions are going to maneuver quickly
enough to become viable competitors in this market before a startup
establishes a decent foothold with a comfy moat?

That has literally never happened before to my knowledge. See online payments
with Paypal, robo-investing with Betterment, crypto-currency with Coinbase,
etc.

The more likely scenario would be other startups rising up to compete with
them, but it seems like these guys have a decent head start with 100 million
funding and what looks like a compelling product judging from their traction.

~~~
GreeniFi
I take your point re the ability of banks to innovate. But the Brex product is
not technological. They are simply saying, we’ll lend against cash collateral.
That’s the type of things banks _might_ be better at.

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Novashi
A financial company is going to extend 10x as much credit as established
institutions ( _without_ collateral) to random startup execs? And two other
selling points being that they're writing a financial platform from scratch
and you'll get your card more quickly so your business doesn't fail from
waiting on the mailman to deliver a normal business credit card?

The APR would have to be sky-high and would start accruing the day after.
There's a reason banks don't give a shitload of money to just anyone who can
pay ~$1,000 form a corporation.

Are they going to write fraud detection from the ground-up too? Same with all
of the customer support apps that allow reps to deal with issues?

This makes _no sense_ to me. The risk here seems stratospheric unless "Visa
Commercial" is already offering all of these, and Brex is just re-branding it.

Edit: Pagar.me would count as financial experience. I missed that sentence in
the article.

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philip1209
> is going to extend 10x as much credit as established institutions (without
> collateral) to random startup execs?

There functionally is collateral. They monitor your bank account, you need min
$50K in cash in it, and they only extend credit that's something like a
quarter of your cash balance. It's a charge card, so you can't carry a
balance.

It makes a lot of sense for cash-rich startups. The model doesn't work (in
this form) for many small businesses.

~~~
CPLX
So basically it’s a product for valley startup type companies that just closed
rounds of financing, but don’t yet have sophisticated financial controls and
cash management and banking relationships?

That makes a lot more sense, but is that really a large addressable market? Is
the idea to beat Amex with reporting?

~~~
philip1209
I think the idea is "cash is all the trust we need." It's parallel to Square
or Stripe. "Is getting a merchant account really that hard?" Yes, it turns out
it is. It's the same thing with credit cards - you shouldn't have to
personally guarantee your company's credit.

It also competes directly with the expense market. If everybody can have a
controlled company card, why do you need expense software?

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umichguy
The perfect card for the UK after March 2019. I will just BrexIT the expenses.

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jaequery
Isn't issuing credit cards to Startups, almost like equivalent to issuing
cards to gamblers in Vegas?

~~~
thrav
Gamblers who were just handed millions of dollars... seems like a recipe for a
rich casino.

