Brex wants to replace startup bank accounts with Brex Cash

Brex, a Silicon Valley fintech darling, has lofty plans to battle big banks —and Stripe.

Code-named “Gemini,” Brex today announced a new product designed to replace and improve the functionality of traditional bank accounts. Brex Cash, as it will be known publicly, is a business cash management account integrated with the Brex Card, a corporate card for startups launched in 2018.

Brex tells us they’ve built the core banking infrastructure from scratch, allowing the company to forgo third-party processing fees and provide a much-needed tech infusion to antiquated banking systems. In partnership with Boston’s Radius Bank, Brex Cash will allow customers to send payments quickly and easily with no fees attached. Rather, Brex plans to reward its users for making or receiving payments using Brex Cash with points redeemable for cash back, travel and air miles. Customers will also receive 1.6% interest on deposits.

It’s not a bank, but in practice, it can replace a bank, says Brex co-founder and co-chief executive officer Henrique Dubugras .

“Our idea is that new businesses —the new Y Combinator companies we hope a big percent of them never open a bank account,” Dubugras tells TechCrunch.

Brex now has many similarities to a bank. What differentiates it is its lack of physical branches — it’s exclusively digital — and it’s insurance. Traditional banks are insured by the Federal Deposit Insurance Corporation (FDIC), which protects up to $250,000 per depositor. Brex Cash is backed by the Securities Investor Protection Corporation (SIPC), a nonprofit agency overseen by the U.S. Securities and Exchange Commission that insures up to $500,000 and specializes in protecting customers of brokerage firms from the loss of cash and securities.

We think we’ve won a lot of credibility. Before, who was going to give their money to a random-ass startup called Brex? -Brex co-CEO Henrique Dubugras

Additionally, Brex invests its customers’ money in a money market mutual fund of U.S. treasury bonds. “If Brex goes out of business, customers’ money will be safe,” the company writes in a press statement. “The only scenario where money could be lost is if the U.S. government defaults.”

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Brex Cash user interface

“It’s not that we are inventing this — this model exists with Fidelity,” says Dubugras. “Fidelity isn’t necessarily a bank — we are bringing that concept to businesses to give lower fees, better interest rates, better experiences and more security.”

Brex, a graduate of the winter 2017 Y Combinator cohort, has quickly become a Silicon Valley success story for the ages. The rapid adoption of its startup credit card, which doesn’t require a personal guarantee, and its ability to issue cards instantly and provide higher limits than other options on the market has attracted thousands of customers and venture capitalists. The business, led by a pair of young Brazilian repeat entrepreneurs, including Dubugras and co-CEO Pedro Franceschi, has collected more than $300 million in equity funding, including a $100 million C-2 financing that valued the company at $2.6 billion earlier this year.

“There will always be customers that are skeptical, but I think by starting out with a card, we built a lot of trust,” Dubugras said. “It was us giving them money instead of them giving us money. A few years in … We think we’ve won a lot of credibility. Before, who was going to give their money to a random-ass startup called Brex?”

In the weeks ahead of TechCrunch Disrupt San Francisco, where Dubugras announced Brex Cash on Wednesday, the CEO told TechCrunch that Brex had no immediate fundraising plans and that they were “waiting for the right time” to raise again. As for what’s next, he said the company is discussing the launch of a debit card and plans to add another 100 employees in the next year, bringing the Brex headcount to 400.

The Brex news follows the launch of Stripe Capital, a new offering from payments behemoth Stripe that will make instant loan offers to customers on its platform, and the announcement of the Stripe Corporate Card. Akin to Brex, Stripe will issue a no-fee, no interest rate credit card intended for Stripe customers. Brex and Stripe, two Y Combinator grads, will go head-to-head in a battle for customers, particularly YC grads looking for friendly financial tools.

Immediately following Stripe’s announcements, the business announced a $250 million funding at a $35 billion valuation. Brex may be following a similar playbook, announcing a major product on the heels of a large capital infusion.

Brex Cash represents a new era for the company. Though the product may be costly for Brex, it opens the business up to thousands more potential customers. Now, any startup, regardless of funding, can create a Brex account to store cash, explains Dubugras, and all companies using Brex Cash will be immediately issued a Brex corporate credit card.

“If you’re starting out, if you don’t have funding yet, you can still receive your payments using Brex,” Dubugras said. “That’s a super big deal for us.”

Brex Cash was built under product lead Ritik Malhotra, who joined the team as part of an acquisition of his startup, Elph. Brex poached the company, which was focused on blockchain infrastructure, right out of YC for an undisclosed amount. In retrospect, the deal looks much more like an acqui-hire of Malhotra, who had the digital payments infrastructure acumen necessary to complete this project.

“It’s an easy way to move money, which is the lifeblood of a business,” Malhotra tells TechCrunch of the new product.

Brex Cash is itself not a cash cow for Brex; rather, the startup makes money on purchases made on its corporate card, in which it charges the merchant, not the customer. This model is particularly beneficial when its customers are spending a lot of money, growing quickly and raising capital. In a downturn, however, this model isn’t as attractive.

Brex seems unconcerned with the possibility of an impending recession. Brex writes that even in downturns, entrepreneurs will start companies and attempt to raise money. The Brex Cash product, regardless of the economy, will help Brex better underwrite Brex Cards, as it gives them better access to a customer’s financial health.

In a battle against Stripe, Brex is at a disadvantage. At only two years old, the company may have garnered a lot of credibility in a short time but it doesn’t have the decade of experience building fintech products that Stripe has and, more importantly, it doesn’t have 10 years of customer loyalty.

Less than 1 year after launching its corporate card for startups, Brex eyes $2B valuation

Brex, the fintech business that’s taken the startup world by storm with its sought after corporate card tailored for entrepreneurs, is raising millions in Series D funding less than a year after it launched, TechCrunch has learned.

Bloomberg reports Brex is raising at a $2 billion valuation, though sources tell TechCrunch the company is still in negotiations with both new and existing investors. Brex didn’t immediately respond to requests for comment.

Kleiner Perkins is leading the round via former general partner Mood Rowghani, who left the storied venture capital fund last year to form Bond alongside Mary Meeker and Noah Knauf. As we’ve previously reported, the Bond crew is still in the process of deploying capital from Kleiner’s billion-dollar Digital Growth Fund III, the pool of capital they were responsible for before leaving the firm.

Bond, which recently closed on $1.25 billion for its debut effort and made its first investment, is not participating in the round for Brex, sources confirm to TechCrunch. Bond declined to comment.

Brex, a graduate of Y Combinator’s winter 2017 cohort, has raised $182 million in VC funding, reaching a valuation of $1.1 billion in October 2018 three months after launching its corporate card for startups and less than a year after completing YC’s accelerator program.

Most recently, Brex attracted a $125 million Series C investment led by Greenoaks Capital, DST Global and IVP. The startup is also backed by PayPal founders Peter Thiel and Max Levchin, and VC firms such as Ribbit Capital, Oneway Ventures and Mindset Ventures, according to PitchBook.

The company’s pace of growth is unheard of, even in Silicon Valley where inflated valuations and outsized rounds are the norm. Why? Brex has tapped into a market dominated by legacy players in dire need of technological innovation and, of course, startup founders always need access to credit. That, coupled with the fact that it’s capitalized on YC’s network of hundreds of startup founders — i.e. Brex customers — has accelerated its path to a multi-billion-dollar price tag.

Brex doesn’t require any kind of personal guarantee or security deposit from its customers, allowing founders near-instant access to credit. More importantly, it gives entrepreneurs a credit limit that’s as much as 10 times higher than what they would receive elsewhere.

Investors may also be enticed by the fact the company doesn’t use third-party legacy technology, boasting a software platform that is built from scratch. On top of that, Brex simplifies a lot of the frustrating parts of the corporate expense process by providing companies with a consolidated look at their spending.

“We have a very similar effect of what Stripe had in the beginning, but much faster because Silicon Valley companies are very good at spending money but making money is harder,” Brex co-founder and chief executive officer Henrique Dubugras told me late last year.

Stripe, for context, was founded in 2010. Not until 2014 did the company raise its unicorn round, landing a valuation of $1.75 billion with an $80 million financing. Today, Stripe has raised a total of roughly $1 billion at a valuation north of $20 billion.

Dubugras and Brex co-founder Pedro Franceschi, 23-year-old entrepreneurs, relocated from Brazil to Stanford in the fall of 2016 to attend the university. They dropped out upon getting accepted into YC, which they applied to with a big dreams for a virtual reality startup called Beyond. Beyond quickly became Brex, a name in which Dubugras recently told TechCrunch was chosen because it was one of few four-letter word domains available.

Brex’s funding history

March 2017: Brex graduates Y Combinator
April 2017: $6.5M Series A | $25M valuation
April 2018: $50M Series B | $220M valuation
October 2018: $125M Series C | $1.1B valuation
May 2019: undisclosed Series D | ~$2B valuation

In April, Brex secured a $100 million debt financing from Barclays Investment Bank. At the time, Dubugras told TechCrunch the business would not seek out venture investment in the near future, though he did comment that the debt capital would allow for a significant premium when Brex did indeed decide to raise capital again.

In 2019, Brex has taken steps several steps toward maturation.Recently, it launched a rewards program for customers and closed its first notable acquisition of a blockchain startup called Elph. Shortly after, Brex released its second product, a credit card made specifically for ecommerce companies.

Its upcoming infusion of capital will likely be used to develop payment services tailored to Fortune 500 business, which Dubugras has said is part of Brex’s long term plan to disrupt the entire financial technology space.

This new startup wants to be the ‘Netscape for crypto,’ and some investors think it has a shot

Three-month-old Elph wants to make it easier for you to find and use blockchain-based apps. How? Through a portal that’s promising to enable users to click through to see how their crypto holdings are faring, to buy and sell CryptoKitties, or to find and use other decentralized apps.

Its cofounder and CEO, Ritik Malhotra, says it will eventually be the “Netscape for crypto.”

If it sounds outlandish, that’s mostly because there are still so few blockchain apps from which to choose. Malhotra and team trust that this will change over time, however, and investors seem to trust them, including Coinbase, The House Fund, and numerous individual investors who just provided the company with a little less than a million dollars in pre-seed funding.

A large part of the appeal is the founders’ pedigree. Malhotra was a Thiel fellow, for example, stepping away from UC Berkeley in order to make the requisite two-year commitment demanded of the prestigious program. Malhotra and Tanooj Luthra, Elph’s cofounder and CTO, had also previously cofounded and led a YC-backed startup, Streem, that sold to Box in 2014. Afterward, Luthra joined Coinbase as a senior engineer on Coinbase’s crypto team, learning the ins and outs of the nascent but fast-growing industry.

But the company’s premise is compelling, too. Most crypto outfits today require users to walk through numerous manual steps to create and store their wallet, and authenticate that they are who they say before they can start actively engaging with the service. With Elph, users simply sign up with an email and password, says Malhotra; Elph then handles account management across apps based on the unique ID that it assigns them.

“It’s an app store,” explains Luthra. “You log in, you see a bunch of decentralized apps, you click them, and they open up. We’ve handled all the interfacing with the blockchain and done the heavy lifting in the background for you.”

These decentralized app developers don’t need to buy into Elph’s vision; they all respond to open web3 protocols that allow them to interact with the Ethereum blockchain and Ethereum smart contracts. Elph has been able to implement the web3 APIs in its app, meaning everyone is talking the same language.

Elph is also working on a developer SDK to make it even easier for developers to build blockchain-based apps.

Malhotra and Luthra seem to be carving their careers out of abstracting away the complexity of highly technical things. Streem built desktop software for cloud storage services, for example, enabling customers to stream files to their desktop environments. (Notably, it also raised just $875,000 from investors to build out its product.) More recently, while working at Coinbase, Luthra realized he was witnessing “this huge boom of new, decentralized apps coming out that are hard for anyone to access or use who isn’t fairly technical.” It’s “kind of like the Internet in 1994 right now,” he says. “So we decided to simply it.”

The company is opening up its public beta launch today, which you can check out here. Because most users need to be educated about which apps are being built, the portal today allows them to browse apps by category — much like sites like Netscape and Yahoo once did when the Internet was still young and its content a confusing morass for web surfers.

The team has plainly paid attention to creating an engaging experience that aims to make finding and using these apps fun. As for how Elph accrues value for itself and its investors, the idea is employ token mechanics, meaning that new features will be added over time by “maintainers” or people who work on the app store to either jazz it up or else rank apps for Elph and receive tokens as rewards in exchange for their efforts. (These tokens, presumably, will be available to trade over time on cryptocurrency exchanges that are easily accessed through . . . Elph.)

Elph isn’t the only outfit to identify this same opportunity. Coinbase, for example, last year rolled out Toshi, a browser for the Ethereum network that aims to provide universal access to financial services.

Still, it’s early days, obviously, and momentum appears to be building slowly. Today, there are roughly 3,000 decentralized apps up and running, roughly four times more than there were a year ago. Some day, believes Malhotra, there will be millions.

If Malhotra and Luthra play their cards right, Elph may help you find them.