Brex and Zip Partner to Reduce Burn Rate, Eye IPO

Brex Forms New Partnership with Former Competitor, Zip

Brex has announced a collaborative venture with Zip, a company that was previously considered a competitor. This decision, revealed exclusively to TechCrunch by both companies’ CEOs, marks another strategic shift for Brex.

Brex’s Evolution from Startup Focus

In April 2022, Brex declared a significant expansion into both the enterprise and software sectors. This announcement represented a notable change for the fintech company.

Initially, Brex catered primarily to startups and small to medium-sized businesses (SMBs) with its corporate card offerings. Over time, the company aimed to transform into a comprehensive financial operating system for businesses of all sizes.

The move into software was intended to diversify revenue streams, shifting the focus from solely relying on interchange fees to generating recurring income through subscription-based services.

Recognizing Limitations in Enterprise Service

However, Brex has since acknowledged potential limitations in its ability to effectively serve enterprise-level clients. Art Levy, chief business officer, indicated that interchange fees still constitute the majority of the company’s revenue, although software revenue is experiencing consistent growth.

In a surprising move last fall, Brex partnered with Navan to launch “BrexPay for Navan,” integrating its corporate card with Navan’s travel management platform, targeting enterprise customers. This collaboration was unexpected given the increasing competition between Brex and Navan (formerly TripActions) following Navan’s expansion into broader expense management after the COVID-19 pandemic.

Introducing “Brex for Zip”

On Tuesday, Brex unveiled another partnership designed to enhance its enterprise offerings. The collaboration with Zip, a five-year-old procurement startup valued at $2.2 billion after a $190 million funding round last October, will result in “Brex for Zip.”

This new offering integrates Brex’s virtual cards directly into Zip’s platform, aiming to provide enterprises with a streamlined approach to procurement and payment processes. It seeks to prevent unauthorized spending and simplify global operations through a unified card program.

Shared Customer Base and Growth Opportunities

Pedro Franceschi, Brex’s co-founder and CEO, and Rujul Zaparde, Zip’s CEO and co-founder, explained that the partnership’s appeal stems from the companies’ combined service to over 30,000 businesses, including some shared clients.

Notable companies utilizing both Brex and Zip include Anthropic, eToro, BetterUp, Carta, Coinbase, Gong, Zapier, Wiz, and Neuralink. Both companies are prioritizing growth within the enterprise sector and anticipate the combined offering will bolster their positions.

Strong Financial Performance

Brex reported a 70% increase in enterprise revenue in the first quarter, accompanied by a net revenue retention rate exceeding 130% for that segment. Zip also experienced its most successful quarter to date, with 155% growth in its strategic enterprise segment.

Zip’s customer roster also includes prominent names such as OpenAI, Discover, Snowflake, Reddit, and Sephora.

Leveraging Zip’s Procurement Expertise

Brex recognized that Zip’s procurement solutions were more advanced than its own capabilities when targeting enterprise clients.

“A corporate card is often sufficient for startups with uncomplicated procurement workflows. However, enterprises with complex procurement processes benefit significantly from solutions like Zip,” Franceschi stated.

Notably, Zip claims a perfect record of retaining all its enterprise customers.

Acknowledging Past Challenges and Focusing on Efficiency

Brex’s willingness to partner reflects a degree of humility, acknowledging past instances of overexpansion and subsequent growth challenges. Co-founder Henrique Dubugras admitted during a 2022 TechCrunch Disrupt panel the need for a more focused approach to serving its startup customer base.

These partnerships with Zip and Navan also represent a strategic shift towards reducing product development expenses. This aligns with Brex’s efforts to decrease cash burn, a priority the company has openly addressed. In January 2024, Brex reduced its workforce by 282 employees, representing nearly 20% of its staff, as part of a restructuring plan.

Positive Impact on Cash Burn

According to Franceschi, these efforts to control spending are yielding positive results. Brex’s cash burn decreased by approximately 90% year-over-year in the first quarter.

• Key Partnership: Brex and Zip collaborate to enhance enterprise offerings.
• Revenue Growth: Brex saw a 70% increase in enterprise revenue in Q1.
• Cash Burn Reduction: Brex reduced cash burn by 90% year-over-year.

Brex's Financial Trajectory and Future Plans

Established in 2017, Brex has successfully secured over $1.5 billion through both primary and secondary funding rounds. The company achieved a peak valuation exceeding $12.3 billion in 2022. As of February, projections indicated an anticipated annual net revenue of $500 million for the current year.

A significant revenue increase was observed in April, with realized revenue climbing by more than 154%. While currently operating at a loss, Brex anticipates achieving profitability before the end of the year, according to Franceschi.

IPO Considerations and Strategic Partnerships

An initial public offering (IPO) remains a future objective for Brex, though the timing is carefully considered. “Our aim is to become a public company, but only when we are fully prepared,” Franceschi explained to TechCrunch.

He further elaborated that establishing a robust governance structure is paramount. While progress towards an IPO is being made, factors such as the company’s financial standing and prevailing market conditions are also under evaluation.

Currently, Brex is actively pursuing a strategy of collaboration with other businesses. The partnership with Navan regarding travel services stemmed from Brex’s recognition of its ability to effectively serve smaller clients, while acknowledging the potential benefits of external support for its larger enterprise customers.

Addressing Customer Pain Points

“We consistently received feedback from customers regarding inefficiencies caused by disconnected systems,” Franceschi shared with TechCrunch. This insight drove the decision to seek strategic alliances.

This approach can be characterized as “coopetition,” a blend of cooperation and competition. Within the fintech sector, a growing number of companies are finding it advantageous to partner with or invest in startups that have developed solutions they wish to integrate or enhance.

A recent example is equity management platform Carta’s investment in SimpleClosure’s $15 million funding round, following Carta’s decision to discontinue its own development of a comparable product.

Customer-Driven Decisions and Synergistic Integration

The decision to partner was ultimately guided by customer feedback for both Brex and Zip. Zaparde stated to TechCrunch, “This partnership emerged organically, driven by the needs of our customer base.”

Franceschi concurred, emphasizing the goal of creating a synergistic integration. “We focused on how to develop a deep product integration where the combined effect would be greater than the sum of its parts – a ‘one plus one equals five’ scenario, which is what we are now delivering to the market.”