Silicon Valley's New Black Card

Michael Wenner
Jan 31st, 2020
Credit cards are the go-to payment method for most people throughout the world. There hasn't been much innovation in the credit card industry over the years beyond trivial changes such as adding chips to cards and partnering with brands for all sorts of different perks.

One startup in particular, Brex, has introduced an innovative product that targets the startup community. Brex underwrites its corporate credit cards—which are technically charge cards, based on the startup's funding, cash flow and spending habits, as opposed to the business owner’s personal credit score. If the startup fails, the startup's owner will not be liable as there's no personal guarantee tied to it.

Startups have to provide basic information such as their employer identification number and banking information, leading to approvals within a few minutes. A virtual card is provided instantly with a physical card mailed within a few days. Since Brex is a charge card instead of a regular credit card, it has to be paid in full at the end of each month. One benefit of this is that the startup won't run into the possibility of not paying in full and racking up interest charges.

"We didn’t want it to be something that everyone else was doing so we thought, what’s different about startups compared to traditional small businesses?" Dubugras said in an interview. "The biggest difference is where they spend money. Most credit card reward systems are designed for personal spend but startups spend a lot more on business."

Brex was founded in 2017 by childhood friends Henrique Dubugras and Pedro Franceschi. 18 months later, in June 2018, Brex came out of stealth with the launch of its card and $58 million in Series B funding. As a Y Combinator alumnus, Y Combinator Continuity led the round with heavyweight investors Peter Thiel, Max Levchin, Yuri Milner and even Visa's former CEO Carl Pascarella participating.

Brex has since held additional funding rounds—a $125M Series C funding round and $100M Series C-2 funding round. Milner's DST Global and Kleiner Perkins were notable investors in the two rounds. To date, Brex has raised more than $300 million in equity and $100 million in debt at a $2.6 billion valuation in a quick three years.

To say the Brex founders aren't ambitious is an understatement. "We want to dominate corporate credit cards," Dubugras said. "We want every single company in the world, whenever they do businesses expenses, to do it on a Brex card."

With Visa having just dropped $5.3 billion on Plaid a few weeks ago, it's clear the incumbent credit card providers are worried about startups disrupting their business and are willing to open their wallets to fight off the competition.

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