Fast-growing fintech behemoth Brex is raising big money as its customer base itself — high-growth and spendy startups — is struggling.
The company, which sells a credit card tailored for startups, today announced that it has raised $150 million in a Series C extension from a group of existing investors, including DST Global and Lone Pine Capital.
With the new raise, Brex, which was co-founded by Henrique Dubugras and Pedro Franceschi, has now amassed $465 million in venture capital funding to-date.
Brex plans to use its new capital to invest across engineering, product, and design functions to improve its customer experience. It also plans to make small acquisitions to help with hiring and product goals. In late March, the startup announced that it had acquired three companies, Neji, Compose Labs and Landria, for an undisclosed amount.
Layoffs are impacting a number of businesses, and where upstart companies aren’t cutting staff, they are often reducing spend. That’s not good news for Brex, which makes money on purchases made through its corporate card.
Brex has already cut some customer credit limits to mitigate some of the exposure risk, The Information reported and Dubugras confirmed. Brex, once known for its flashy billboards, has lessened its spend on travel and restaurants to “almost zero” since COVID-19 started.
However, Dubugras seems largely unbothered on how the pandemic impacts Brex’s future. The new fundraise was opportunistic, and he noted how Stripe and Robinhood recently raised as well.
“I’m glad this round came together, but if it hadn’t, we would’ve been fine,” he said. “The capital is so we can play offensive while everyone else plays defensive.”
Its clients have always had a high risk for failure, since they are startups after all, so Brex built a model that accounts for this. “Us lowering credit limits has been happening since the existence of Brex,” Dubugras said. “It’s not something that is new to COVID.”
The new capital, according to Dubugras, is all “general purpose cash” and will go directly to the company’s balance sheet, which now has $450 million. The round was closed a few days ago.
Brex’s rise has largely come during an upmarket. The startup, which launched in Brazil, has long enjoyed time in the spotlight as a Silicon Valley success story. A New York Times headline about the startup captured its allure well: “bad times in tech? Not if you’re a startup serving other startups.”
Fintech’s uneven new reality has helped some startups, harmed others
Today’s financing news, while it is an extension of a preexisting Series C round, is Brex’s largest single raise to date. The Y Combinator graduate last raised venture capital money in June 2019, in a $100 million round from Kleiner Perkins valuing the company at $2.6 billion.
In the past, each successive Brex raise came along with a flagship product update. Months after its Series C in October, the company launched its second product: a credit card for ecommerce companies In just a few months time, the new product “multiplied Brex’s TAM and became responsible for one-third of the business’s revenue.” After its June 2019 raise, Brex launched a credit card for life sciences companies, and then a few months later, it announced Brex Cash, a product that acts like a checking account replacement for startups.
In 2020, however, its strategy appears more conservative. Dubugras compared Brex’s business similar to venture capital, in that they get the most value for themselves, and shareholders, with customers that stay and grow with the company for a longer time.
“Going to any new verticals or any kind of growth projects are not necessarily priorities for the year,” he said. “Most of the funds will go toward building the product; the investment in growth is probably done post COVID-19.
It’s up to the company, which has grown comfortably on the shoulders of an upmarket up until this point, to prove that it can retain its venture-ready growth profile. “I’m optimistic about tech, so I’m optimistic about Brex,” Dubugras said.
Comment