Brex Valuation Doubled: How They Achieved Rapid Growth

Brex Secures $425 Million in Series D Funding

Brex, a financial technology firm specializing in corporate cards and spend management solutions for businesses, has recently announced the successful completion of a $425 million Series D funding round.

This latest investment values the company at approximately $7.4 billion. Notably, this capital injection occurred less than one year following Brex’s previous raise of $150 million, which established a pre-money valuation of $2.9 billion.

Rapid Valuation Growth: An Examination

The swift increase in valuation and the scale of this funding round – the largest to date for Brex – prompted inquiry into the factors driving this success.

TechCrunch engaged in a conversation with Henrique Dubugras, Brex’s CEO, following the announcement. The discussion centered on the details of the new investment and the rationale behind it.

The Impact of a Remote-First Approach

The conversation also explored the effects of Brex’s adoption of a remote-first work model.

Specifically, the discussion covered how this shift has influenced the company’s ability to recruit talent that aligns with its core values and fosters a more diverse workforce.

The benefits of attracting a culture-aligned and more diverse talent pool were a key focus of the interview.

Increased Clientele, Expanded Offerings

The company’s recent financial reports were highlighted by the unveiling of Brex Premium, a software package for which the unicorn startup will now levy a fee. As previously detailed by TechCrunch, a notable divergence has emerged among corporate spend-management platforms concerning the implementation of charges for the software utilized alongside their corporate cards. Brex has now definitively made this transition, aligning itself with those that do, at least for certain users.

Brex Premium will be available to customers at a cost of $49 each month. According to Dubugras, this pricing is more competitive than the cost of the systems it aims to supersede. Businesses seeking a unified solution for bill payments, expense tracking, and related functions may find it particularly advantageous.

Furthermore, this service has the potential to significantly enhance Brex’s overall revenue run rate through the addition of high-margin, recurring software subscription fees – a development keenly sought by investors in the public market.

Turning to the subject of investment, let's revisit Brex’s funding round. Key questions arise: What has been the pace of Brex’s growth in recent months, what factors led to the selection of Tiger Global as the lead investor (given over $1 billion in investment requests), and what are the future prospects for the company?

Let's address these points sequentially:

Brex's Expansion

As stated by Per Dubugras, Brex experienced a revenue and total payment volume (TPV) increase exceeding 100% between March 2020 and March 2021.

The company’s initial seven months saw it surpass $1 billion in TPV, as reported by its CEO.

Consequently, the cumulative TPV added over the subsequent 12-month period was significantly greater than this initial milestone.

This substantial growth is the primary driver behind the doubling of Brex’s valuation.

An examination of how this growth was achieved is particularly insightful.

Broadening Customer Access

In January, Brex significantly broadened its eligibility criteria for service access, though this change was implemented with minimal public announcement.

Previously focused on venture-backed startups, Brex extended its offerings to include e-commerce businesses and other companies, allowing a wider range of entities to apply for their cards.

This expansion, however, came with a shift in credit terms.

While the original customer base qualified for 30-day charge cards, the newly onboarded customers primarily utilize single-day credit.

By effectively limiting the credit timeframe to a single day, Brex has been able to increase its customer base without increasing its overall credit risk, according to Dubugras.

Impact of New Credit Policy

The requirement for new customers to settle their balances daily did not impede Brex’s growth trajectory.

In fact, the company reported an 80% increase in customer acquisition during the first quarter of 2021 compared to the last quarter of 2020.

Currently, 45% of Brex’s customer base consists of small and medium-sized businesses (SMBs).

This indicates that the inclusion of SMBs has positively contributed to the company’s overall growth.

• TPV: Total Payment Volume
• SMBs: Small and Medium-Sized Businesses

Tiger Global's Investment in Brex

The participation of Tiger Global in Brex’s latest funding round wasn't entirely unexpected, much like finding a familiar item on a diner’s menu. However, the situation involves nuances beyond Tiger Global’s recent active investment period.

Henrique Dubugras, speaking with TechCrunch, highlighted a pre-existing, multi-year relationship with the investment firm as a key factor in the speed of the deal. The favorable valuation of the round undoubtedly contributed to its swift completion.

According to the CEO, Brex was specifically seeking a crossover investor – an entity capable of maintaining its shareholding through and beyond a potential public offering, and potentially participating in the initial public offering (IPO) itself.

Currently, Brex does not have immediate plans to launch an IPO.

Understanding the Crossover Investor Role

A crossover investor bridges the gap between private and public markets. They typically invest in companies that are nearing an IPO, providing capital and expertise for the transition.

These investors are crucial for companies like Brex, as they offer continued financial support and stability as the company navigates the complexities of becoming a publicly traded entity.

Brex's Strategic Focus

Brex’s pursuit of a crossover investor signals a long-term vision. The company is positioning itself for sustained growth and eventual access to public capital markets.

This strategic move demonstrates a commitment to building a robust and enduring business, rather than rushing towards a premature IPO.

Looking Ahead for Brex

This marked the second consecutive discussion TechCrunch has held with Henrique Dubugras, Brex’s CEO, who is based in Los Angeles. Brex transitioned to a remote-first operational model in September 2020.

This detail isn't simply an observation about the differing approaches companies are taking regarding a return to traditional office settings; it serves as a lead-in to our discussion about talent acquisition.

Expanded Hiring Pool

According to Dubugras, adopting a remote-first strategy has significantly expanded Brex’s potential hiring pool – its Total Addressable Market (TAM) for employees.

By seeking talent beyond the confines of Silicon Valley, Brex has experienced accelerated hiring, increased diversity, and improved cultural alignment among its new hires, as stated by the CEO.

Companies embracing a remote-first approach may gain a sustained competitive edge in staffing by accessing a broader talent base with less competition, provided they successfully maintain their core company culture.

Future Growth and Funding

The company anticipates needing a robust workforce, as its leadership expresses strong confidence in future prospects. Dubugras conveyed to TechCrunch his considerable optimism regarding upcoming developments.

He highlighted positive indicators, including a rising Total Payment Volume (TPV) per customer.

With the recent $425 million in funding providing several years of operational runway, Dubugras believes Brex could potentially file for an S-1 registration statement without needing further capital raises. Time will tell if this prediction holds true.