Brex brings on $150M in new cash in case of an ‘extended recession’

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.

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.

Image Credits: brex

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.

Brex acquires three companies to build out its bank alternative for startups

Brex wants to help startups get the money that traditional big banks won’t lend them, and it just acquired three companies to help it do so: Neji, Compose Labs and Landria. Per Brex, 12 new people will be joining Brex in total from the three companies. 

While the San Francisco fintech startup declined to share how much each deal cost, we all know Brex doesn’t have a shortage of capital: It has raised more than $300 million in known venture capital from investors like Kleiner Perkins, DST Global, Ribbit Capital and Y Combinator, per Crunchbase

While on first thought the COVID-19 pandemic may have slowed the acquisitions, Henrique Dubugras, the co-founder of Brex, said that it simply enhanced the importance of the investments, which span across security, e-commerce and customer support. Let’s get into them respectively. 

Neji is a San Francisco-based startup that specializes in protecting customer data across multiple cloud deployments. Security is important, especially when it comes to bank transactions. Dubugras said this acquisition will focus on making sure Brex Cash, the business cash management account that connects to the Brex Credit card, is secure. 

It also scooped up Compose Labs, which powers information videos on coding and technology, and it will help grab data and analytics from Brex’s e-commerce credit card. Brex’s e-commerce credit card is similar to Brex’s flagship credit card product and includes partnerships with e-commerce tools and solutions. Dubugras says e-commerce has been a “fast growing vertical” for Brex, and that they are “adding engineering talent to specifically increase the number of data sources” used in underwriting and products around it. 

Finally, Landria helps companies organize and manage all their SaaS tools. Brex says Landria staff will help ensure transaction accuracy for customers.  

Back to the pandemic in the room. Brex, which was last valued at $2.6 billion, did not acquire all three companies as the rest of the world faced an economic downturn. Co-founder Henrique Dubugras told me that Brex began conversations with the three companies starting last fall and closed the deals this quarter. As startups across the world are met with layoffs and uncertainty, it’s clear that the lucky startups with cash in the bank from those nine-figure rounds in 2019 will be turning to different routes than customer acquisition and fundraising when it comes to growth. I bet that we’ll start to see solid growth coming from M&A, as prices for deals lower and companies have less exit opportunities. 

But regardless of our economic state, Brex’s buys are another move from the company to show that it is more than a corporate credit card company, and inherit some expertise from other companies at the same time. Let’s remember that Brex wants to be a bank for startups, and has largely swung at payment processing behemoth Stripe since launch. Stripe has launched its own credit card for startups and, unlike Brex, has years of operation to prove why it should be trusted as a major fintech company.