Fintech

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

Published

8 months ago

12 June, 2024

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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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

Today

To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”