Fintech Brex abandons co-CEO model, talks IPO, cash burn, and plans secondary sale

Since the start of fintech BrexIn 2017, its two co-founders Henrique Dubugras and Pedro Franceschi ran the company as co-CEOs.

But starting today, the two told TechCrunch in an exclusive interview, the San Francisco-based credit card and business expense management company is moving toward a more traditional model — and what they say should be more agile – with just one CEO at the helm. . Franceschi will become sole CEO while Dubugras will become chairman of the board of Brex.

In an in-depth conversation, the two co-founders gave us an insight into what the new structure will look like, the company’s current financial status, and how it has managed to reduce its cash burn.

The close friends began working together as co-founders of another company, Brazilian payment processing startup Pagar.me, in 2012 at the age of 16. (That company ended up being acquired by Stone Pagamentos for “tens of millions of dollars” — before the two even went to college.) Although both founders knew how to code, they quickly realized that Franceschi was the “better coder.” Instead of having one person managing one part of the organization like product and engineering and another managing sales and marketing, they decided to split their duties as internal and external co-CEOs (a decision they hinted at in this episode from last year’s Found podcast).

The model worked so well at that company, they said, that they decided to use the same strategy when they founded Brex after dropping out of Stanford to join the YC Winter 2017 cohort.

“The silver lining is that we had twice as much time as other CEOs,” Dubugras said.

But the cofounders now believe that having two CEOs could pose a bottleneck to the company’s growth, preventing leadership from making quicker decisions. They also have a sense that when they eventually go public — something they don’t expect to do until 2025 or later — investors will be more attracted to a traditional model of a single CEO running the company.

“I think we’re at a level where we’re starting to see some cracks in the co-CEO model,” Dubugras told TechCrunch in an exclusive interview. “After talking, we thought this would help the company succeed. We thought this would allow for much faster and better decision making.”

Image credits: Brex

Over his years at Brex, Franceschi led the development of the company’s core financial infrastructure from the ground up, which the pair say allowed Brex “to have large margins and expand more rapidly globally.” According to the company, he “has led the entire organization for the past six years,” helping it grow to more than 30,000 customers (from start-ups to more than 130 publicly traded companies) and a suite of products that includes corporate cards, banking services and expense management. , travel and paying bills. Some of his largest clients include DoorDash, Flexport, Roblox, Compass and SHEIN, but the bulk of his revenue still comes from startups, the co-founders say.

Meanwhile, Dubugras has focused more on activities such as fundraising: the startup has brought in more than $1.5 billion in both primary and secondary transactions; its backers include Greenoaks Capital, TCV, Tiger Global Management, Kleiner Perkins, Y Combinator and Global Founders Capital, among others. He also managed relationships with banking partners and regulators and was the face of Brex “personally selling” to its largest customer “at any time.”

He added: “We each had our own responsibilities…[and] we made many decisions together. This worked very well when we were younger, but of course it became more difficult as we got older.”

Dubugras insists he is still committed to Brex.

“I will still be involved to the extent that the team wants and needs me to be involved. Brex remains my main and only thing,” she said.

Ups and downs

The once high-flying company has been on a roller coaster ride in recent years. Two years ago it was worth $12.3 billion after raising $300 million and mocking the former Meta executive Karandeep Anand to serve as Chief Product Officer after leading Meta’s enterprise product group. (He was then named the company’s first president in November 2023.)

In January, Brex laid off 282 people, or about 20% of its staff. This came after a layoff in October 2022 136 people, or 11% of its staff, in all departments as part of a restructuring. Today it has 1,000 workers.

There has also been a lot of shuffling among Brex executives. Sam Blond will leave his role as chief revenue officer in 2022 to join the Founders’ Fund (a position he left in March). Earlier this year, Brex announced that its COO, Michael Tannenbaum, was transition from his role become a member of the board. At the time, Camilla Morais, who was SVP of global operations, was promoted to COO. And it was announced that Cosmin Nicolaescu will move from his role as CTO to an advisor position this summer.

In his memo to employees at the time of his firing, Franceschi wrote that the company now “emphasized long-term thinking and ownership over short-term gains” in its corporate structure.

And then there’s the matter of his finances.

The cofounders told TechCrunch that its liquidity period is now four years. This contrasts a January item from The Information around the time of its most recent layoffs in which Brex reportedly told employees it burned through $17 million a month in the fourth quarter of 2023 and only had “enough cash to last until March 2026.” When asked about financial data at the time of those layoffs, a company spokesperson told TechCrunch that the data was “inaccurate” and directed me to the memo announcing the layoffs and wrote: “Today’s changes are driven by the desire to make Brex more agile”. and accelerate our path to profitability, building on the growth we experienced in 2023. We grew our revenue by more than 35% in 2023, while gross profit increased by 75%. This reduction in force puts us on a clear path to profitability.”

Of course, laying off workers is a proven way to reduce spending and improve liquidity.

Franceschi told TechCrunch today that Brex has halved its liquidity burn over the past year. And while he declined to disclose revenue figures, he said the company’s goal is to be cash flow positive by 2025.

When asked how the fintech startup managed to reduce cash burn, he said there was a combination of factors. First, Brex saw higher revenue growth “without increasing fixed costs,” he said.

Layoffs earlier this year “contributed to much of the savings” (and he says he doesn’t expect any more layoffs). Finally, the company worked harder to move faster.

“The biggest benefit after the layoff wasn’t just the cost savings. It was the way the company operates,” she said.

As for revenue, Franceschi said it comes mostly from interchange, although its software business is growing as startups get larger and new mid-market and enterprise companies become customers. And there is also income from interest and exchange commissions.

Franceschi said that by offering cash back and rewards, more customers use the Brex card product, which in turn generates more interchange revenue.

Meanwhile, Brex has no plans to do any primary fundraising anytime soon. But at some point it could offer a secondary sale so that before the company goes public, shareholders who want to cash out can do so without dragging the shares lower, Dubugras said.

“We don’t want to be a high-volatility public company … that really distracts from the execution of the company and the core mission,” he added. “I think an important element of having a low-volatility public company is having positive cash flow and making money, which is something we’ve historically planned for 2025. So if that happens in 2025, [an IPO] it will be right after. But we have to get there first.”

There’s no doubt that the expense management space that Brex operates in is increasingly crowded, as it competes with startups like Ramp, Mercury, and Airbase, among others. But it also competes with the likes of American Express, Concur and Citi.

Franceschi says Brex’s advantage is that it has built its technology stack “vertically integrated right down to Mastercard, ACH and money movement binaries,” while some competitors have built their business on other platforms like Stripe or Marqeta.

It works for simpler use cases, he said. But for more complex scenarios like global coverage, the depth of integration helps.

However, the competitive landscape remains heated. In April, Ramp announced that it had done so raised another $150 million with a post-money valuation of $7.65 billion. And digital banking startup Mercury announced it in May software overlay on your bank accountsoffering its business customers the ability to pay invoices, invoice customers and reimburse employees.

Brex remains undaunted.

“A lot of the momentum we’re seeing now is the net arrival of new customers on the enterprise side, versus large-scale customers with us, of course,” Franceschi said.

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