Pedro Franceschi, Brex’s sole CEO, has a new mantra for his struggling startup: profits.

Brexit

Pedro Franceschi starts his day not with coffee but with Vedic meditation, chanting mantras to wake up his mind. He tracks his sleep, steps, sugar intake, and workouts religiously—it’s a disciplined mindset he’s trying to instill in his employees as the new sole CEO of fintech startup Brex.

Latest value estimated at $12.3 billion in 2022The company provides business credit cards, expense management software, online bill pay and other financial services on a platform that the company says is easier to use and has higher credit limits, particularly for high-growth, venture-backed companies whose expenses appear disproportionate to their cash flow.

The young co-founders of the company, French, 27, and Henrique Dubugras28, have played the role of co-CEO up to this point, with Dubugras playing the public role of a visionary hype man and Franceschi running operations internally and solidifying the details. But last month Brex made a surprising announcementstating that Franceschi would become its sole CEO while Dubugras would become chairman of the board. Dubugras will remain at Brex full-time, with the co-founders handling many of the same responsibilities as before: Dubugras will manage the board’s investor relations, Franceschi will oversee Brex’s technology, operations, and staff. But as the company faces pressure to turn a profit and its private market valuation, according to Caplight, has plummeted more than 65% to $4 billion, Franceschi’s talk of an initial public offering seems like wishful thinking.

“The limiting factor is whether you’re really aligned on where you’re going, so we tried to make that clear from the beginning,” Franceschi says, referring to the problems Brex encountered when the company had two CEOs.

Brex started with corporate credit cards, pitching them to other Silicon Valley startups in 2018 as an option that could provide high credit limits underwritten by startup-specific financing like venture funding. In other words, Brex was willing to give startups credit cards. without requiring guarantees from the founders. After 2019 has begun to expand into areas such as bill paying, corporate expense management, travel management and, most recently, checking accounts, in an effort to effectively become the only company to manage a CFO
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Along the way, Brex struggled to define its target customer base. In 2022, it abandoned tens of thousands small and medium-sized businesses like hair salons, coffee shops, and mid-sized e-commerce companies because they lacked institutional support. Ramp, another post-Brex spend management fintech that is widely considered its closest competitor, has capitalized on this situation by onboarding many of those same customers, having been consistent in serving U.S.-registered businesses in any segment with a minimum checking account balance.

Focusing on a target market has been costly. According to The Information, Brex has burned $200 million in 2022the same year the company raised $300 million. At the time, startup funding was plentiful and their customers were using their Brex cards, spending freely. Brex reduced its losses to about $17 million in Q4 2023. Second Victor Lazartea general partner at Benchmark Capital who first invested in Brex as a personal investor in 2017 and joined its board of directors in 2018, Brex has been overinvesting in credit risk-related products for smaller companies. The firm 20% fired of its workforce in January 2024 and has no plans to increase headcount in the near future. “You just hire a bunch of people and start working on a bunch of different things because you have a bunch of resources,” Franceschi says.

Now Franceschi says Brex has learned from its mistakes and is determined to spend its remaining funds more carefully. Franceschi says its cash burn is down to about $10 million a month and it has enough funds to last another four years.

Brex says it targets corporate clients and small businesses with institutional backing (“two employees to 20,000 employees”). Franceschi is keen to point out that it serves more than 130 public companies, including Robinhood, Doordash and Warby Parker. Because credit card specialist Brex is not a bank and doesn’t profit from the interest margins that credit card companies typically enjoy, its main source of revenue is so-called exchange fees, which add up to 2.7% on each transaction, Brex says.

Franceschi calls his new plan “Brex 3.0,” an operating model that he says has reduced management layers and adopted a single roadmap for the entire company, with four major software releases per year. His summer release It has introduced accounting automation tools, customizable credit card spending limits for different spending categories, and line items in bill payments. It is also shifting its sales strategy from trying to sell businesses its entire product range to selling products one at a time, a technique that may be more compelling for enterprise customers, who have a harder time switching services because of their complexity and size.

Franceschi describes Brex 3.0’s new core goal as helping its customers “make every dollar count“—a promise that sounds very familiar. Ramp has long measured its growth by the percentage of money it saves its customers, currently at 5%.

People close to Franceschi, however, say he is more process-oriented, efficient and precise than outgoing founder Dubugras, who is described as more of a visionary. “I remember that first lunch very vividly, sitting with these two 16-year-olds,” Benchmark’s Lazarte recalls. “Henrique was like, ‘Hey, let’s meet again,’ but Pedro? Everything I said, it was like Pedro was dissecting me. He was very interested in the details.”

In company meetings, Franceschi has always taken the lead, setting deadlines and actions to take, while Dubugras mostly stays quiet, but to strategize and draw attention to the big picture, people who have worked at Brex say. With the title change, reports no longer need to seek approval from both co-founders to move projects forward; Franceschi will have the final say on a day-to-day basis.

Brex CFO Ben Grammell says the prospect of going public is still several years away, explaining that both macroeconomic conditions and Brex’s financials need to improve first. While the company says revenue is up 35% in 2023 and gross profit is up 75%, the company has yet to produce net income.

Grammell says, “A leadership change like we’ve had recently is probably not something you want right before you go public—you want to have a period of transition and stabilization before the process.”

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