SALT LAKE CITY: Brex, one of several financial technology (fintech) startups that’s considering an initial public offering, wants to make sure it’s ready to present investors with a predictable business before it decides on pursuing the move, according to chief executive officer Pedro Franceschi.
“It’s easy to go public, it’s hard to be a public company with low volatility and very high predictability in the business,” Franceschi said in an interview, adding that Brex plans to be cash flow positive by the middle of this year.
“Predictability is crucial and we want to get really great at that over the next few years.”
Brex, founded by Franceschi and fellow Y Combinator alum Henrique Dubugras, received US$1.5bil of the venture funding that flowed into the American fintech sector during the period of low interest rates following the onset of the Covid-19 pandemic.
The company offers corporate cards, business bank accounts and expense management software.
Brex earns money through swipe fees, deposit interest, foreign exchange conversions and software subscriptions.
The company expects its annual net revenue to reach US$500mil in 2025, according to a person familiar with the company’s operations, who asked not to be named discussing internal projections.
At its peak in January 2022, Brex secured a US$12.3bil valuation as it charted a course to take market share from incumbent financial firms, including American Express Co, JPMorgan Chase & Co and Citigroup Inc.
It also competes closely against fellow fintechs Ramp and Mercury, which have similar product offerings.
Ramp won a US$7.65bil valuation in April 2024 and Mercury is in talks to secure new funding valuing it at over US$3bil.
Private market research firm Sacra estimated Ramp’s annual net revenue run rate hit US$648mil by the end of its financial year 2024 and that Mercury reached US$500mil in annual net revenue run rate the same year.
As interest rates rose through 2023, Brex hit a rough patch. Its startup-heavy client base suffered as venture funding slowed and pressure to reach profitability mounted.
As its startup clients cut back on spending, Brex’s fee revenue from card swipes took a hit while it still needed to support a roughly 1,400-person staff.
In the fourth quarter of 2023, the business was burning an average of US$17mil a month, The Information reported.
These days, Brex’s cash burn is down 82% year-on-year, Franceschi said. This comes after the company reduced headcount significantly.
Brex currently has about 1,100 employees, down 21% from the end of 2023.
“The reality is the company gets bigger and all these layers of management, all these processes, all these metrics and it’s easy to forget what actually creates value for the customer,” Franceschi said.
“Basically, what we did is get rid of two layers of management entirely and we brought leaders closer to the model, closer to the customer and we narrowed down our scope to do fewer things.”
In addition to cutting spending, the startup increased its focus on winning clients, including artificial intelligence startup Anthropic, investing app Robinhood and audio-technology company Sonos.
Its enterprise business segment saw a net revenue increase of 80% in 2024, according to the company. — Bloomberg
