Brex co-founder says the start-up world is booming once more

Henrique Dubugras, founder and managing director of Brex Inc., speaks during the Bridge Forum conference in San Francisco, California, the United States, on Wednesday, April 17, 2019.

David Paul Morris | Bloomberg | Getty Images

The coronavirus pandemic should have been a disaster for Brex, the soaring Silicon Valley startup that lends thousands of other startups.

Founded by two Brazilian twenties who quit Stanford in their first year, the company’s rise has been staggering, even by Silicon Valley standards. Brex achieved unicorn status in 2018 after launching its first product, a company card for startups. Then the value doubled last year and funding was raised in May valued at $ 3 billion.

With nearly half a billion dollars in venture capital funding, Brex plastered San Francisco with advertising, went on a takeover spree, and even opened a restaurant. The free spending raised eyebrows in the VC community, some of whom wondered after the WeWork debacle whether Brex was another private company pumped beyond sanity. Its flagship product, an unsecured, high-limit start-up charge card, exposes them to risky, money-losing businesses that could fail in droves in a recession.

But after a difficult few months, with Brex abruptly pulling customer credit lines and letting go of employees (more on that later), something unexpected happened: in the middle of a once-a-century pandemic that put millions of Americans out of work, American Start boomed -ups times have come back, said Brex ’25 -year-old co-founder Henrique Dubugras.

“We have seen many of our clients raise a lot of money and spend a lot of money investing over the next year or whenever the economy comes back,” Dubugras, who wears a t-shirt and jeans, told Zoom in from his new home base Los Angeles. “I honestly think 2021 will be a fantastic year for all technicians.”

It’s a sharp turn from earlier this year when Covid-19 appeared to be the catalyst for a long-awaited reckoning for the venture-backed world. In March, famous venture firm Sequoia Capital warned startups not to expect the worst in a memo reminiscent of the famous 2008 memo “RIP Good Times”. To save money, wasteful companies have previously cut thousands of jobs and raised funds on punitive terms.

But the handshake in Silicon Valley proved short-lived. Public markets rebounded in March and April after the Federal Reserve and lawmakers took a series of unprecedented measures to flood the markets with liquidity and get cash into people’s bank accounts.

Rich venture capitalists

This causes the dollars to flow across the venture ecosystem. Investments in U.S. startups rose 30% to $ 36.5 billion in the third quarter, due to a record number of so-called mega-rounds of at least $ 100 million, according to CB Insights. According to the Census Bureau, new business requests rose 77% in the quarter.

“VCs get a lot of return, and these people already have three houses and planes and a boat so they have to put the money somewhere,” Dubugras said. “Everyone thinks public markets are expensive now, so there is a lot of money flowing into private markets.”

Dubugras has a unique glimpse into the health of American startups. Brex says it lends to tens of thousands of them and uses real-time data about their businesses to make dynamic credit decisions.

After a few lean months earlier this year, when spending fell by more than 10%, the average spend per customer on Brex cards is now at a record level, about 5% higher than before the pandemic, he said.

The categories have shifted, of course: Startup employees are spending much less on seamless ordering and Uber travel as restaurant and ridesharing options are down 60% and 40%, respectively, from pre-pandemic levels, the company said. Spending on travel and events is only 25% of previous spending. However, growth in online marketing and recurring software costs like Amazon Web Services and work-from-home grants have made up for those declines, he said.

Ebay, Amazon and Shopify

According to census data, new businesses are being set up at a breakneck pace, and many of those businesses – whether retailers, restaurants, or professional service providers – are “starting to look more like technology companies,” Dubugras said.

For example, business owners who may have relied on bricks and mortar in the past are mostly selling “through eBay and Amazon and Shopify and Etsy and Instagram, Facebook, Pinterest, all of these different sales channels,” he said.

This has benefited Brex and other fintech companies that provide the most modern experiences to small businesses. Companies Dubugras refer to as “frenemies”: payments company Square and e-commerce platform Shopify. According to Dubugras, Brex’s customer acquisition grew in line with the 77% increase in new business births in the third quarter.

“We have never started more businesses,” he said. “The restaurant that closed next to you, another entrepreneur is going there and starting something else, you know?”

Dubugras said if he started a business now he would try to capitalize on the impact of big changes like the introduction of remote working. His company went on a remote-first model in September. “What are the second degree changes from remote working?” he said. “If remote working is more popular and people are moving from the big cities to the suburbs, what are the new things they will need?”


It’s hard not to find Dubugras’ history and its relatively unguarded nature appealing. Dubugras grew up with his co-founder Pedro Franceschi as a technically obsessed teenager in Brazil (Dubugras is from Sao Paulo, Franceschi from Rio de Janeiro). Dubugras was only 14 when he started his first company and later started a payment company with Franceschi before moving to the United States to attend Stanford University. The couple broke up after eight months and started Brex after joining Y Combinator when they discovered that many of their co-entrepreneurs were struggling to get corporate credit cards.

After the pandemic, Brex had initially denied job cuts. As the situation worsened, Dubugras and Franceschi withdrew and released 62 employees, or about 17% of their workforce, at the end of May.

“We kind of said we weren’t going to do it and then it got worse and we said, ‘oh, f – k,’ he said. We lost some trust as a result. I think I learn from this never to say that we won’t do it again. “

When I tell Dubugras the story of a Brex customer I spoke to, he immediately sits up and his easygoing demeanor changes slightly. The customer, an online retailer, attributed his success in part to the copious loans Brex had given him prior to the pandemic (Brex has given businesses 10 to 20 times more credit than traditional lenders like American Express). But in April, Brex suddenly withdrew almost all of his loan and knelt down his business.

“Greater Good”

While Brex positions itself as the New Economy Leader, the Founder understands, it draws on two huge lines of credit from old-school banks – Barclays and Credit Suisse – on more than $ 300 million total revolving credit facilities to borrow to forgive. If Brex customers had losses above a certain threshold, the banks could have torn credit lines, which would have been a disaster.

“In March and April, nobody knew what was going to happen in the world,” said Dubugras. “We had to make some tough choices to cut a few [credit lines] and to make sure we did not have any losses triggering our arrangements with our banks so that they can keep lending us and we can keep serving businesses. “

He continued, “These decisions were made for the general good in a sense. That is,” If we call our lines of credit or something like that happens, we have to close all lines of credit. “

The losses increased, but according to Dubugras they were manageable.

“We estimate that 70% of our companies will go out of business every few years because we are serving startups and most startups fail,” he said. “I think that’s well known and okay. All of our credit models and all of our processes are assuming major churn due to business failure.”

By June, Brex was growing rapidly again, Dubugras said, and the company was restoring many of its customers’ credit lines. Brex would have gone well if the situation had worsened, he said, because there is enough cash.


Dubugras does not lose sight of the fact that many of its VC-backed customers, especially in tech and online businesses, are thriving, but millions of Americans have lost their jobs. Jamie Dimon, CEO of JPMorgan Chase, who runs the largest US bank, said this week the pain has been focused on the “bottom 20%” of wage earners, many of whom have spent their savings in the wake of the pandemic.

“Unfortunately, the world is becoming more and more polarized when it comes to belongings,” said Dubugras. “It turns out that we serve a large part of the companies in the start-up country. A large part is about moving from the old economic sectors to the new economic sectors.”

Brex is a couple of years away from an IPO, though it will likely enter markets in other ways beforehand, Dubugras said. He acknowledges that the company needs to diversify its sources of funding as its bank lenders could draw on their credit facilities. As early as next year, Brex is likely to invite rating agencies to review the company’s loan claims and ultimately create bonds to be sold to major investors like insurance companies and pensions, he said.

Meanwhile, Dubugras said he is no longer trying to convince skeptics that Brex is built for the long term.

“We’ve done our best to counter this for a long time and report on why Brex is good business and the only thing that has brought us has been more competition,” he said. “At this point, I’d rather leave the VC community and think that this is not sustainable.”

With contributions from Nate Rattner of CNBC

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