Watching Silicon Valley Bank melt down from the front row, with Brex CEO Henrique Dubugras, on this week’s DecoderPod
No, that’s not exactly how we think about it. When we started Brex, one of the things we realized is that a lot of the reasons why payments and spending were broken was because you always ended up at the bank. In the end, you’re always trying to work with the banks and use their technology and their software, and you’re always limited by them.
Yeah, that’s what I’m drilling down into here. There’s a set of backend financial services or travel services, and then it seems like Brex is just a much better, more streamlined, more controllable interface to a lot of things that are antiquated in the backend. We sold that company, and then we got to the US and we were like, “You know what? We’re tired of fintech and all these banks and regulations. We don’t want to do that anymore. We want to do something at the bleeding edge of technology, like Bill Gates and Steve Jobs — you know, all the visionaries that were in Silicon Valley.” VR came to mind as the next computing platform. We got into YC with this VR idea, but we decided to give up a couple of weeks in.
That was the first value proposition, and it only worked for venture-backed companies, because the only thing that was different was the fact that we were underwriting that way. Then what happened was that a lot of these companies grew. We acquired a lot of companies in 2017, 2018, and now five years later, they’re bigger.
The way Brex is structured is traditionally; we’re functional. We still haven’t moved, I would say, to business units or anything like that. We have product, product engineering, sales, comms, and HR as some of the functions directly reporting to my co-CEO, Pedro [Franceschi]. Then, unusually, you have a co-CEO. You mentioned him already; his name is Pedro. How do you divide up the work with your co-CEO? That relationship doesn’t always work.Look, we’ve been working together for 10 years now, and it works really well. The way we do it is internal versus external. I have zero direct reports, which is amazing.That is the dream. I’m not that great of a manager. I do everything external — fundraising, big customer meetings, partnerships, press, et cetera.
Then he gets all the teams aligned on executing on the changes that we decided. In the past, it was a little bit like the features. Right now, the teams talk to customers directly to get the features, scope it out, and prioritize. Product strategy, for example, is one of the main things that we both discuss and debate on a lot to get to conclusions.question. You’re the co-CEO, you’ve obviously founded a number of companies, and you have a partner that you’ve worked with for a long time.
Three, we really believe in capitalism that is not all about shareholders, but stakeholders. “Hey, it’s not all about making money. You really need to make your customers, your employees, and yourself happy.” I think some balance of these three things is probably how we think about most decisions. This is also a pretty massive opportunity for you. I just want to start with your experience of a bank run. I think very few people have lived through it the way that you might’ve lived through it, and I want to talk about what that opportunity represents. Walk us through Silicon Valley Bank. We’re hearing reports that regulators actually might have been giving warnings. Did you see it coming?
It got to the billions in like three hours. We just thought it was super weird. There were so many people pinging me to open accounts — because we can open accounts the same day, versus other banks which take a whole week to open accounts. It was a lot of weird stuff. At that point, I knew something was going on and it was going to be bad.
The hedge funds can’t operationalize lending to 1,000 different companies. We were pretty unique, because, one, we could operationalize that and, two, even if you could operationalize it, they only had a Silicon Valley Bank account. Who could even open an account for them to get it? We could open an account to actually deposit the money as well. We raised all this money, over $1 billion.
The other question I have, as it relates to SVB. There’s this line out there that this is the first bank run caused by Twitter. Maybe it’s Twitter and maybe it’s a bunch of Signal chats, group chats, or iMessage DMs, but the speed of information coupled with the ease of use of their app, of their service, basically created the opportunity for a bank run.
At Brex, I’m not a bank. I’m not allowed to do whatever I want with the money. The only thing I’m allowed to do is allow you to do what you want with your money, and you own the underlying securities. For example, we offer money market funds. You can buy money market funds on Brex, and you own the shares of those money market funds. If you want to sell that immediately or if you want to buy longer-term stuff, that’s on you and you’re taking that risk, not Brex. We’re not deciding that.
That’s the reality, but what’s the backstop for you? I mean, these are not necessarily FDIC-insured accounts. There’s some amount of that happening, but if there’s a run on Brex, what keeps the company together, if all of your revenue comes from these transaction fees? I think that the opportunity for us is a little bit different. The big change for customers is that before, people wanted to concentrate all their banking relationships in one bank. So the biggest thing about Silicon Valley Bank was, “Look, you come with us and we can do your checking account, we can do your credit card, and we can do private banking for you and your executives.
I think it’s going to be really hard. I think it’s going to be way worse for customers if they’re not around. There’s a lot of stuff like these regional banks that understand specific niches; they, and the small banks, can be a lot more tailored, and they’re an important piece of the American banking system. I come from Brazil, where we only have a few big banks. Guess what? The service sucks.
Twenty-seven now. All right. I’m not. I have a lot of gray hair in this beard. I vividly remember the financial crash of 2008, with a lot of people confidently getting something very important very wrong. This has echoes of it — and I’m probably wrong about this, who knows? — but it does not feel quite as catastrophic overall as the 2008 situation. Banking and finance is an old industry. It’s a lot of relationships; it’s a lot of older folks.
No. Looking at the direction we’re going, I see Brex growing into spend management across every industry. This banking stuff happened and a lot of people are talking to us about it, but we’re doing a lot of our core businesses — corporate cards, spend management, and Concur replacement — for companies across every different segment and providing service. That’s why we compete a little bit with SVB, but we also want them to survive, because it’s honestly just a small part of our business.
Now you’re launching a new set of products to take over more of travel, which is a lot of what Concur will do. You go on a trip, you need to book the trip, you need to spend money on the trip, and then you need to file your expenses on the trip. What’s the new product and how does it help you take on Concur?
Now you have your Brex card, which is authorized to spend within that budget. Every restaurant that you swipe at, you don’t need to get a receipt. That auto may be there, and you don’t need to put a memo. Everything is there. You can just swipe away and that’s it. Then you would get to your hotel, you would do your trip, you would come back, and we would automatically get the receipt from that hotel, so you don’t have to actually worry. You can just check out and walk out.
So what we do is we are just completely unbiased. We don’t take any of that money; that’s not part of our business model. We have a lot of other ways we make money, so we just show a completely unbiased inventory. We don’t have the question of, “Can I find it cheaper on Google Flights?” You can find everything on Brex that you can find on Google Flights. I think that also helps the adoption of the product, because everyone now can find all the flights.
If they don’t want to approve it, we have a very easy way to revert that and actually charge the employee a discount from their payroll or bank account if it’s supposed to be personally paid. We make that flow much easier. Some companies do decide to say, “Hey, I’m not going to approve it.” We don’t usually like that.
I would say they don’t think it’s the only thing that’s going to retain employees, but it’s part of the package. It’s less bureaucracy. Some of these big companies you’re talking to have a head of de-bureaucratization. It’s a product out of the head of de-bureaucratization. Look, it helps, man.I know, I know, but you get these companies where all these finance teams are making the decisions.
I just want to come back to the opportunities in front of you right now. There’s that one, which seems big, and you seem very focused on it. Again, I told people, “I’m going to go talk to Henrique,” and they were like, “See if Brex is going to take over for banks.” That is an opportunity you just don’t seem focused on or interested in.
Look, we’re six years old. Our VCs still have most of their fund left. We don’t feel any pressure. I think if we were pushing 10, 11, 12 years, then maybe, but at six, we have a good amount of time. Probably, depending on what I like. I’m pragmatic. It’s what exists, and banking is a regulated industry, so we’re always dependent on the government for doing stuff.