Henrique Dubugras and Anu Hariharan Discuss Brex's Corporate Card For Startups | Transcription

Transcription for the video titled "Henrique Dubugras and Anu Hariharan Discuss Brex's Corporate Card For Startups".


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Intro (00:00)

Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinators podcast. Today's episode is with Henrique Dubuagross and Anu Hari Haran. Anu's partner here at YC and Henrique is the co-founder of Brex. Brex provides corporate credit cards for startups, and they went to YC in the winter 2017 batch and just closed their series B, which was led by YC continuity. So in addition to discussing how the Brex team built out their service, Anu and Henrique also cover the specifics of what it takes to build a fintech startup in 2018.

Founder'S Journey And Hiring Practices

Childhood (00:27)

And Henrique shares advice for young founders because he started his first company at 16. All right, here we go. Hi, everyone. I'm Anu, a partner at YC continuity, and we have Henrique here, who is the founder of Brex, which was a YC winter 17 company. The exciting news about Brex is they're actually launching soon, and they offer corporate credit cards. They're basically redefining how corporate credit cards work for startups. So we're very excited to have Henrique here. Henrique, let's start a little bit about your background. We obviously at YC have known you for a very long time, both you and Pedro. And you guys started your first fintech startup when you were at the ages of 15 and 16, which is not something we see every day. So can you tell us a little bit about what was the first company you founded, and then how did you find your path to YC. Yeah, for sure. So first, thanks for having me here. Yeah. And so Pedro and I, we both started coding pretty early. I think that was super helpful. I think that was a little bit lucky. How early was that? So I started when I was 12, because there was this game I wanted to play. It was like a paid game. And my parents, they want to pay it for me. And I figured out if I learned how to code, I could play for free. And Pedro, nobody knows how he started coding, but he started coding when he was like nine years old. And then during our teenage years, we did a lot of interesting things. So I participated in building this emulator for this game. And I learned a lot of how to code it because of that. And I built a version of that game. Pedro, on the other hand, when he was 12, he found the first jailbreak for the iPhone 3G, which got a lot of attention. And so we had doing our teenagers a bunch of experiences already in tech that led us to believe it's possible to start a company. So for me, it was that I was working at this startup. And the founder, I thought it was a really cool guy.

First company Pargo (Payment Processor, 2012) (02:44)

And my thought was, if he can do it, I can do it too. And then I tried to start. An education company, and that didn't work out. And then I met Pedro in the end of 2012, basically fighting on Twitter, programming text editors, VIM versus EMACs. And I was VIM, he was EMACs. And I won. And we basically became super friends and decided to start a company together, which was Pargarmi. Pargarmi was like a payment processor, online payment processor down in Brazil. I think the comparables here would be like something like Stripe or Braintree or WePay or like those kind of companies. And we grew that company from to a pretty reasonable size. It was like a really good experience. And you raised only $300,000? Yeah, it wasn't by option that much at that point. So we were 15 and 16 when we started a company. So it's not like a lot of people in Brazil were willing to give us much more than that. And then after we raised the money, we were like, oh, this is so much money. Like we can do whatever we want of this. And we were lucky that payments in Brazil, it's in terms of margin, a better business than most of the world. So we were able to have a profitable company since I think the end of the first year. Okay, that's great. And that was super helpful because then we just grew with our own profits. We didn't have the need to fundraise and profit solve a lot of problems if you can have them. That's true. And you sold the company four years later when your team size was around 100. Yeah, so we grew to company. I feel this task, but the time we sold it, we're doing a little bit over 1.5 billion in transaction volume.

Sold Pargo (Transactions Volume, Team Size, September 2016) (04:32)

We had, I think, a little bit over 100 people, I think 110, 115, something like that. And we sold it September 16. So that was probably like three years and a half, almost four years. Not a lot of people have built 100 people team and they're less than 20. Why did you sell it? A couple reasons. I think that we always thought that, pug army, it could be a big business. But it couldn't be something I think as big as our ambition. Because I don't think we had a lot of edge internationally. So Brazil is a pretty big market for payments. You can see like Pugs de Grille just IPO'd for an $9 billion. But I didn't think we had an edge to go international. We wanted to build a global company and we got got it into Stanford also. So we're kind of curious to see how that went. Stanford always gets you. Yeah, exactly. And from international, it was my dream saying it was 14 to go to Stanford. So it's kind of like that. And I remember right from your application days, one year into Stanford, you guys had applied to YC with actually an augmented reality startup. And by the time you graduated from YC, that's how you launched Bex. Or you were working on the Bex idea, hadn't launched yet. Can you talk a little bit about how that transition happened? You coming from AR as an idea and then saying, no, we are going to work on the corporate redefining the corporate credit card experience. Yeah, for sure.

Second YC attempt (Augmented Reality, Winter 2017, Then Credit Card or Payment) (06:05)

So after we got to Stanford, we were like, we're not going to do payments anymore. FinTech to complicate seeing if there's old banks, we're not going to do that anymore. We've been through that. We're going to do something new, something easier. And then we thought AR was easier. Definitely not. And then we started thinking about these ideas, etc. And then it was actually three months into Stanford that we decided that we wanted to apply it to YC. And we applied. And we got into YC of this AR idea. And then a few weeks in, they were like, okay, this is complicated. Like we don't know anything about hardware. We don't know anything about optics. Like we could only build the software. But like if Apple killed an API or Google killed an API, like then the business would be ruined, you know, like this. All these things that we started to think about it. And then we're like, okay, that's not what we want to do. So then we were like in this limbo and we're super worried as, oh, show we took YC money, show we give it back. Like is that something that we should do? And we talked to partners like, no, no, no, go figure out something. And like, okay. And then we started thinking about things we wanted to do. We went through like a bunch of ideas. And then we went back for an idea we thought for a long time. And we're like in Pargarmi, we were a payment system, right? So we received the money and then we paid out the, um, the, the, the merchants. And we're like, well, why do I need to pay out the merchants? Why can't I just pay out the suppliers directly, right? Or the employees, why can I be like, and we started grasping this idea of, oh, what are the B2B financial services that we can generate value, right? And we actually thought about creating a bank, but creating a bank is very complicated as we went to find out in the US. And then we were like, okay. Especially in the US. Especially in the US. Yeah. So we went and said, okay, let's do a product of a bank. Then all these products are super, super good, right? And then we looked at credit cards that seemed like a one on a product, but we didn't actually go too deep into it. And then, um, but we kind of had this landscape of like B2B financial products. We were kind of looking. And then we wanted to get a corporate credit card like ourselves. And that was kind of it. And then we were talking to one YC partner, Dalton, who also said, hey, all these startups, they have a lot of trouble getting corporate credit cards. They're like, okay, let's investigate that. And they figured out that one, we couldn't get one.

How Brexit got started (08:35)

Why? Because, well, because like the one in us, we went there and they're like, well, you don't have any financial history. It was like, but I have $120,000. Like that's a lot of money. Some YC. Yeah, from YC. Yeah, from YC. Like you can just give me $5,000 in limit. I'll be fine. And it's like, no, we won't give you it unless you personally guarantee. But we didn't have FICO score because we'd had just moved to the US. So we couldn't personally guarantee the card. And then we went to talk to a lot of our batch mates and a few of them were like, oh, yeah, I can't get a card. No, none of the international ones could get a card. And the other ones, a lot of people chose not to get a card because they didn't want to personally guarantee the card. Because as I agree with them, the whole point of building a corporation is not having personal liability attached to it. Right? So there was all these people who were just using debit cards and just walking around of debit cards of $120,000 in the bank or just using their personal cards and all these things. It's like, OK, that has to be inefficient. Like there has to be a better way to do this. And then that's kind of like how Brexit came to be. Like by seeing that problem of our batch mates and ourselves, not being able to get a corporate credit card or having to personally guarantee it, we had the idea of building something better. So let's talk about the team. Right? One of you guys launched recently, but you've been there for 18 months or now. And so how when you launched Brexit during YC and right after the day, how big was the team? And can you also talk about your first 10 employees? Like how did you hire them and how did you decide who they would be? Yeah, for sure. I think that one thing that we really believe and I know everybody says that is that the employees, the 10 first employees are going to set a foundation for later. And I think that we really took that to heart when we got our first 10. So in procurement, we didn't have a lot of options in the first 10. So we just got the smartest people. There was even this guy who didn't know how to code at all, but he was like a physics Olympics champion. Like well, physics seems pretty hard coding. I think it's easier than physics. So we might as well just hire him and teach him how to code, right? So I hired like a people that we knew that were the smartest and we just like made it work. And Brett, I think we were a little bit more targeted. We were like, okay, those people were really good and they're doing really well now. But like if I could do it the right way from the beginning, what would I do? And our first two hires were actually like a CFO and a general general counsel. Oh, wow. That's quite I would have never, I mean, I know that now because we know you guys, but like I know most startups are not hiring a CFO and a GC. Yeah, exactly. Because going with that, the thing about getting a really good partner and being able to rebuild everything from scratch and having like the good flow and all of that, having a staff that like, well, we're still young, we're 22 and 21. So it's not like we're older, but like not that old. So when we go to a bank, having people who are more experienced than you are and having them be the people that actually help you like do the plan and describe everything is really, really valuable. And we were very generous of the off-redgers and the packages for these people because we really believe it could like change the way the business went. So we got and what I'm saying. Still, let me ask you this.

Hiring a CFO and GC as co-founders (11:59)

It is very hard for a founder this early to be able to hire a really credible GC and a CFO, right? No matter even if the offer or the package is attractive because they probably have multiple options. So how did you get them over the line to believe in your mission and join Bregs? So I think this is a little bit of the advantage of being a second-time founder is that I think people who are experienced, they want to work with other people who are experienced. So that helps, I think. But you guys came from Brazil. Yeah. They probably didn't know you. That was the negative part of it too. So I think that basically, so usually founders, they have this, right? Like they have this first product and that may or may not have product market fit, but they have this thing. And then they have this like long-term vision. And that's like very, very far away. And they usually don't have the plan in between that much. I think these like more executive level hires, they want to understand better the plan in between. I think that's something we had really well defined since early on is like okay, we're starting with like this credit card for startups, which I think is a great market. But like, and then we have this big long-term vision. How do we get from here to there? I think making that very clear and like how they could, like how they would be the difference between getting there and not getting there also, like they could add a lot of value there, was something that I think got them across the line. So I remember specifically of RGC, we were talking about how in order to be able to scale a lot, we would do a lot of the regulatory things he didn't do in his last company. He would do it right this time here and how that would change like this, this part of the plan to actually work versus other companies that failed. Like that got him really excited because okay, I learned so much from experience. Now I wanted the opportunity to make it right, to do it right. So I think that's how I got across the line.

Hiring the next 6 team members (14:02)

But also having a really strong set of investors helps a lot, being able to get where they need on cash. Like a lot of times people want people to take huge pay cuts, we were never that type. We always was pretty generous on cash, like those kind of things. Got it. And then so David, you're third and fourth hire. Talk about the next six. So who are they and where did they come from? So we didn't have an easy time recruiting after that. Most companies don't. Yeah, because we were from Brazil. So it's not like we knew a bunch of people. People say, oh, what about your Stanford Network? I was there for two months and my network is all freshmen. So at least it's not like I knew a ton of people. Yeah, you were going to be class of 2020, I don't remember. Exactly. That was going to be class of 2020. So maybe in 2020 I have a bunch of people I can hire. But it was really tough for us. We basically started skewing towards people that were similar to us in some sense, because it's what we could. So we got a bunch of international folks. So I think our first engineer was Udawian and then we got a French dude and we imported someone from Brazil. I think we just did whatever we needed to do for our first 10. But we didn't lower our, we didn't have a quality bar that was lower because of that. We still had like, okay, these two are really strong. They came from really good companies. So fine stripe. And okay, how do we keep that bar up? Maybe, and we didn't hire a lot waiting to find the right people and that paid off. And like, we were. So you were slow at building the team versus trying to get the first 10 quickly. Yeah, and we're just like working a lot in ourselves. Yeah. And how was your interview process, especially when you were trying to hire someone from Brazil a lot of why or in these different locations? Like, how did you actually test for that quality bar?

What do we look for in our interview process? (15:58)

So we actually brought them here. Okay. So it's not, we did an interview with them remotely. So we had like technical interview, we had our, a little bit debatable, but like we believed that technical interview should be most similar to what the person will do in the day to day. And should test the knowledge that they would most have to do most decisions with. So we built like this interview that actually they had to build like a small credit card authorizer, which like a part of it. And we could, it was the same interview for someone junior and someone senior. The only difference was how well they did the architecture and like the edge cases based on how junior year on the senior year, like if they were senior, they knew like everything that would go wrong and they would build it or point it out if they didn't have time. And if they were junior, they would build a simple version of it. And we could tell based on that. But then I think the hard part was the selling, right? Like how do you sell and get these people across the line? And I think that for the first 10, it was really hard. And we just like people joined who believed in the team and believed in the mission. And we never made compensation a problem. We were always very generous of the initial packages. So we were like, so we have this really different offer mechanism that, and this is until today, everyone that joined the company went through this. Can you talk about that a little bit? It is different and it's very intriguing. Yeah. We call it a pre-offer, not an offer, which we say, hey, if compensation wasn't an issue, you have all these companies that could join, would this be the company that would join? And let's discuss that. Until you tell me that this is the company would join if comprehension was solved, like I'm not going to show you an offer. And that made the person get over the mental decision of like, this is the company I want to join. This is why it's better. And then we always gave a super generous offer. It's not like we've been lowballed them. We always gave them a great offer. And there were always like very few times we hadn't negotiated. Usually it was like above their expectations. And then they joined. But we never had someone that after they accepted a pre-offer, they didn't come because of compensation. We could always find a middle ground in compensation. I think there are a couple of other YC startups that actually use a similar approach, but the large majority doesn't. Yeah. It's definitely sometimes humbling because people sometimes say no to you before even seeing the offer. I'm glad that that happened. Because they should go to the company that they believe more. And then we were evaluating to see what was our problem. Maybe they weren't interested in the domain. Maybe they didn't believe us as much. Like whatever it is, we tried to learn from it. But we know that it was about the company, not about a comp.

Why we spend 35-40% of our time recruiting (18:54)

You know, like all those things. Imagine if they had come just to be a comp. What problem would that be? Yeah. One of the other things I've noticed, especially working with you guys closely, is both you and Pedro do spend a lot of time on recruiting. And first-time founders have seen generally, don't do that, especially in the early days, and then wait too long before they actually refocus their attention on recruiting. Can you talk a little bit about why you guys do that? And you guys do it pretty well, which is like you spend a lot of time recruiting. And also talk about how much time you spend recruiting. Yeah. So we spend probably 35 to 40% of our time recruiting. And that doesn't mean sourcing, by the way. We think, I think our, well, we haven't hired a recruiter until now, but we had recruiters, outsourced working for us. I think since we were like four people. And we don't mind paying refugees, if it's success based only. We don't like paying fees that we have to pay before, but like if it's success based, we think it's worth it. And we think that, we read this in that Google book, I think that Irish Schmidt wrote it. Like don't let the urgency of the hire, like reduce the bar of the people. And we've done that so many times back in the day, because like you always say, hey, I'm just going to hire someone later. I don't need that person now. What this person, like they're going to come and they're going to do what? Like there's all these arguments. And the end of the day, we just believe that to find the best people just have to interview more people. Like that's just what you have to do. And if you really need them in like a month or two, you'll just won't interview that many people because you'll just like, okay, I kind of need this person because that's going to make it. And I think it's like a lot of times, if you do need that person that month and it can make or break the business, you should hire them. But we just don't want to be in that position. So that's why we spend a ton of our time meeting a lot of people and recruiting and all that. So can you talk about after you went through YC in winter 17, what was sort of your fundraising history, both Angels, your series A and series B? Yeah. So we had a series A kind of together a seed round in March last year. And that was a, I think, seven and a half million dollar round led by a fund called RIBIT. That was after YC, right? And I remember we closed that round the morning of demo day. So it was very timely. And that was when Peter and Max came in and like a lot of other investors. And then we did in fund raise. I have a little bit of different opinion fundraising than a lot of people. I think you should build relationship of VCs over time instead of just doing a fundraising process and then like stopping. Because I think that if you're going to add someone to your life for like 10, 20 years, like you might as well know them outside of fundraising process. So we did actively meet a bunch of people and like started having even a week after finished fundraising, we kept taking the meetings and like, say, hey, we're not friends, but I would love to like get into know the partners. I would love to get to know you. And like, we met them every three months or so. And when the the the the bee came around that we went with you guys, we already knew like everyone we wanted to talk to because we already knew people we liked and that treated super well and people that we didn't like that didn't treat us super well. And then it was like a really fast process and because of that. Yeah. And I think one thing I would add there, this is where I think it's different for fintech and maybe certain select startups. Because you know, even though you guys are not launching publicly until now, I think the key difference is, you know, you were working on building the tech stack, the fintech stack and also you had at least more than 100 pilot customers. Right. So it was already being used by quite a few startups. And you know, it's very similar to if you look at the stripe of the gusto story as well. You know, you can't there's no room for errors in a payroll product. You know, it has your paycheck has to come. And so, you know, gusto sort of did the same thing, which is like almost for the first 15 months, they didn't publicly launch, but that doesn't mean they weren't testing the product. Exactly. With customers. Right. And so that's sort of what you guys were focusing during those 12, 15 months is what it takes to launch at scale by working with a few select startups. Exactly. And I'm not saying we're not going to have bugs, but we spend a lot of time trying to reduce the possibility of having them because you're okay if like your restaurant app doesn't work, right? But you're not okay if like you're buying a dinner for a client, your car doesn't go true. Like how pissed it could be, right? Yeah, that's true. And also like if the payments don't happen on time. Exactly. Yeah. Yeah. So I think that's an important distinction for anybody who is working in fintech or a product where you know, you don't have as much room for error. And so, you know, it comes down really to found a market fit and then product market fit and then seeing how to scale. Exactly. And the other thing that's also true is for both gusto, stripe and us, which is different from a lot of companies is that everyone needs a version of you. Everyone needs a version of payroll. Everyone needs a version of payment processing and everyone needs a version of corporate credit cards. You use has to be better than the other guys, which is a very different than like, I don't know if I need this product to optimize my lead or whatever. You know, there's like, it's a little bit different concept when you're rebuilding something that already exists in a better way that everybody has to get one and or when you're creating a new market or when you're like just building something better of something that already exists. Yeah. It's different set of challenges and different set of. Yeah. And the stack is pretty complex, right? If you want to have to build it from scratch. Exactly. So you've, this is your second fintech startup, pretty much. Right. So, and there are lots of, you know, founders trying to build something new in the fintech space, especially these days.

What are core skills that one can learn from early stage fintech startups (24:58)

I mean, we can see that even in the volume of applications that YC is getting. What advice do you have for someone who is a new founder trying to build a fintech startup? So, being super transparent on it is I don't think we could have built bricks if you were, have not built a fintech startup before. Or at least worked at an earlier stage fintech startup before. Because a big part of it is that when you get to a, like a meeting of a bank, like you know what you're talking about, like you know how things work. You have credibility. We want to be able to raise the size rounds we raised without like having that. So I would either work in a, in a company in an early stage fintech company that you think is successful or I would like, yeah well I started to attend a company that were, but it Brazil is like a way less competitive market. Right. Like, so if maybe you're international, try to start something in your country and then after move to the US. I think in here in the US, it's really, really hard to do. And I really admire people that had done it from the first time. And got it right. Like Patrick and John. Yeah, like Patrick and John. But I don't think I, I personally could have done it without it. So I think like maybe joining would be a good idea. And for example, like people who joined Pargarmi, like two of them started fintech companies are doing really well in Brazil. Right. Because they were able to get. And I'm pretty sure there's probably some stripe alums that are starting fintech companies that are going to do phenomenally well. What is difficult you think because of which having working at a early stage fintech startup or things that you learn from Pargal. Like what are, what are, what are things that you think you will get core skills by working at a fintech early startup that you don't have when you're starting new? I think that there is a few things. One, understanding how financial systems work. So if you're an engineer understanding how to build financial systems is different than building like a regular like app or database. There's a lot of extra constraints, etc. Second, there's just like knowledge about the market, how it works. And that you can learn. But it becomes really like the innovation within payments is a deep understanding of the constraints and a deep understanding of how to like go around those constraints. Can you give an example? So someone coming into the fintech market for example, starting to build bricks, what people would say would be, hey, what do you do is you go and you hire this like company called a processor. In this processor, they take care of like all these things for you. And they're really good. And you go to talk to the processor and you're really good. They sell it that they do all these things like perfect. Like everyone does this. This seems to be a really good system. Just going to be an app, a mobile app on top of this. And it's going to be great. Right. And that's the common sense. If you tell someone, hey, I'm going to build my own processing stack from scratch, people will laugh at you. They're going to be like, no, man, you're crazy. If you're asking anyone from any bank, they're going to know that's impossible. That's like super hard. Like you won't be able to do that. And the thing is, is that it is really hard, but it's doable. You know, and if you don't do it, you're going to be have a lot of constraints.

Regulations and Ease of Onboarding (28:14)

And if you haven't done it before, if you haven't seen the system that worked from scratch before and how that worked and why it's complicated, it's actually is really hard to build one from scratch. So in terms of, for example, engineering is something like that. Or the other example is, so people tell you, oh, Kate, why see, which is like the way you have to get to your customer, right? For regulation purposes. This is the way you have to do it. You have to collect these documents, et cetera, et cetera. But if you actually go read the law itself, it gives you a lot of flexibility in the way you collect information, the way you validate information. And if you're not aware of like, how can you go read that law, understand how that works, and apply it in that context, and then how do you sell the bank that that is a good thing. Like you won't be able to get away with it, right? It's not like you can create your inform and that's it. So I think just like being able to navigate all those things is not like you have infinite amount of shots. Like you have like one or two shots that have to get this thing right. So you have to have learned it from somewhere before. So it's a combination of knowing the regulatory requirements, understanding the complexity behind the financial systems and the tech stack, and knowing that just plastering something on the top is not going to work. Exactly. And giving and having the credibility for people to believe that you know that because you might know, but if nobody believes that you know, because you've never done it, then it's going to be really hard. That's fair. That's fair. And for you guys in the US for sure, it's definitely harder coming from Brazil. But the fact that you built Paga Rott me helps you. 100% because you actually knew all your stuff. Yeah. And what does Brex exactly do today? Right. You obviously are just going to launch. So what is the value proposition for a startup founder on why they should use Brex over other options? It sounds like getting a card is difficult. But beyond getting a card, like what are the things Brex actually does? Yeah, for sure. So we have basically have two things going very quickly. The first one is you can get a card like from sign up to working virtual credit cards, our credit card number to actually work and you can use online in like four minutes. Four minutes. Yeah. Okay. So from so all the way from putting the entire information to getting a card like literally same day, four minutes. Exactly. Exactly. And so that was one. And today we're the only corporate card that doesn't require any kind of personal guarantee or security deposit or anything like that. Like we underread 100% of the company. And we give you a limit that's many times higher than most of the banks would give. And like you can get in four minutes. So that's like one part of it. And the second part is that we automate a bunch of expense management stuff that you would have to do manually. And we just do all that for you. And a bunch of expense management software can do because they're not a credit card. They have to interact with the credit card. So we just build it all into the credit card. And you don't have to worry about a lot of things later. Later. Let me touch on the first point because I think that is a big value proposition, especially to get the card pretty much in four minutes.

Automating Expense Management (31:13)

And is that something the founders get? The entire company gets? Like how does how does that work? Well, the founder of farm is signed up. Yeah. First one and they can invite anyone in their company. And that's like the time literally to fill in username, password and delivery address. And then they all instantly get a virtual credit card that works. And they can set limits to them. So not everybody has access to all the corporate credit cards. You can give people a card of like $200 limits per person or whatever. Got it. And how are you able to underwrite do the K Y C checks that quickly? Like what is different about the Brex stack that helps you do that? So this is one of the things that we feel very strongly about is when you're rebuilding, like when you want to disrupt like, for example, I don't like disrupts like a fancy word, but redefining the experience. Yeah, when we redefine the experience, like there's no way you can just build an app on top of an existing thing or building like a dashboard on top of an existing financial product. Like we believe you have to actually rebuild the financial product. So that's like one of the things that we feel very strongly about. And when we started Brex, we were like, okay, we're not going to be like some sort of legion for an existing bank and they do everything. We're going to do everything from scratch. So in terms of underwriting, we went and we rebuilt a whole underwriting concept. And instead of looking at financial history, we look at cash, right? Like we look at how much investors actually invested in that company and when they're right based on that and the average burn rates and all of that, which is something that it's specific for startups at this point, but it allows us to do it very quickly. Right. So in terms of KYC, we just use modern methods to evaluate who you are and what you do, right? Like we use modern tools to not have to make you go to a branch and sign something physically. Like we have better technology to have you sign something digitally. So and the reason banks don't do that is because they all rely on these third party, like old vendors that do everything for them and they don't implement this new technology. So basically, it'll just like rebuild the entire system and the entire stack from scratch, which allowed us to do these things. And is that the reason why you waited for launching? Because it's not, you know, most YC startups launch after a demo day, right? And you guys graduated in mid to 17, but you're pretty much launching in mid 2018. Like what was sort of holding you up from launching? It's exactly that.

Business Strategy And Accounting

When Launching In-House: Picking Your Battles (33:50)

We didn't go to the strategy of like, Hey, let's do something like just launch it and have like whatever experience the bank gave us, you know, like we want to build something right. And we had to take the time to basically rebuild all these systems from scratch. Like we had to build a general ledger inside the company that controls all the balances so we don't lose money. Those kind of things are really hard to build in the three months of YC. And we believe that why a lot of fintech startups fail is because they don't take control over the full experience. And they're always limited by the bank partner doesn't want to do this or the bank partner doesn't want to do that or this this old system doesn't want to do this. We're like, we're not going to deal with it as we're just going to rebuild everything from scratch and launch about. Yeah. And one other thing I know we've talked about in the past, but I think it'll be helpful for, you know, our founder audiences like there's lots of lessons and learnings you have from Paga.me that you sort of brought in at Brex. Can you talk about especially setting up the process right because I know that's something you felt very strongly about when you're launching Brex and it's sort of how the product has been built to help the customer. Yeah. So the story on this is when we start with Paga.me, we didn't know this thing called accounting existed. Like we didn't know it was a thing. Well, you were 15 and 16. Yeah. And then we're like, oh, yeah. Okay. Give me your your P and L. I was like, what's a P and L? Oh, it's just like how much you're processing from the slides. Like, okay, I just build a spreadsheet. Hey, this how much cash we've had and this how much we burn, right? Yeah. You're like, no, I want to P and L. And you're like, okay.

Taking Control of the Accounting Process (35:32)

And then Pedro and I, we literally went study accounting and literally like did our books from scratch for three entire months because we had absolutely no accounting, right? And that was like, oh, it was a great learning experience, but it took a lot of time and energy. And then when I we got to Brex, we were like, okay, we're not going to have this problem. We're going to have our accounting like really good from the first day. We're going to have like our expense management systems and like all these things like really well set up from the first day. Because if you know what you're doing, it takes a day to set up everything, right? It's like not that big of a deal. And it pays so much dividends later on. Because like one thing that's really important to be able to control your business, like know how much you're spending. And that doesn't mean cash burn. Like yeah, losses and spend cash burn like are very different things. Know how much that you're actually making, right? No one what you're spending is it the categories, the vendors, like all of that. And that's a pain in the ass to do, right? If you're going to do it manually with the existing systems, like, I know it's really annoying. And that's why like a lot of times founders just like don't do it and say, Hey, when I raise my series A, when I raise my series B, I'll just pay someone to do it. But like, it's not a type of thing also that you can throw money in a problem and then it's magically solved. Yeah. Right. Like you're going to have to spend your time on this and you just spend a day in the beginning, setting these things up right. Like you won't have to deal with it in the future. And it's like, pay so much dividends. So I think that's one of the lessons. We just like build the financial part of the company, like right from day one. Day one. So let's talk about the second element of your product, because the first element is the founder signs up, you're making it really easy for them to get access to card, as well as a certain credit limit, because they have some cash in the bank, they've raised from credible investors.

Founder (37:08)

So how what exactly does Brex do to help set the process of accounting right for them? So basically a few things. The first one is we think it's important for a company to know how much they spend on a vendor on a vendor base. How many vendors like AWS Google as Google, etc. Yeah. Today, the status quo is you know how much everything you pay to a C.A. for wire, you're kind of know what you're spending on, but everything that you spent on card, you have no idea. Right. Just credit card $100,000. They have no idea what's in there. And then you have to consolidate all these like extra reports from all these different services to know how much you're spending, right? We actually give you a report and upload to your accounting system report on how much you're spending by vendor, which is not possible in the current cars today. The second thing is that like keeping track of receipts is something that if you don't enforce the policy from day one, people just won't do it in the future. And you're going to have problems with that when you have to get an audit or like people are now have like all these expenses, etc. So we just created a super easy way. They can just like text the receipt to us and that's it. We automatically match it to a transaction. And no, we don't have humans going manually doing it. It's actually automatic. And the reason we could automate this versus other companies couldn't is because we're both the credit card and we have to receive. So matching a receipt to a transaction is that ways your job in reading the receipt and figuring out everything about it. Yeah. So that's like the second thing that we do that it's super useful. And then we do all these things like we categorize everything right, like because the automatic categorization, not without getting too technical on payments, but like the automatic categorization for credit cards, they trust this thing called MCCs and that's always wrong. Because so like for example, Uber, a lot of times comes, it's like car rental. And you don't want to Uber as your car rental. You want it as like taxi. So we redo that in the right way. There's like a bunch of things we do that you just don't have to worry about it. And we use it for ourselves. And it's like, we literally have no trouble of accounting. We have our books every day. It's like, that's beautiful. That's pretty awesome. That sounds great. And I know even though you are launching publicly only now, you have been piloting your product for a while. Can you talk a little bit about your customers?

How Brex Solves Accounting (39:25)

What types of customers use your product? Is this really early state startups or a later stage? And how do the different use cases work? So we have two use cases. We're usually on the earlier stage where people are scarred. And they basically sign up for us or switch to us because we're super easy to get. We deal with all these accounting things that they don't want to deal with. And they can just like don't worry about it and like not have the hassle of doing it. And we have like a lot of the RYC batch uses it and the following YC batch of a bunch of people use it. So we definitely use all the YC strategy. We're getting a lot of YC companies. And we're very, very happy about that. And the other thing is like for companies that's over a certain size, we have another set of functionality that allows them to have better controls and like policies and stuff like that. So we got companies like Firm or SoFi or Color Genomics to use Brex because they when they get bigger, they start having problems with their current corporate card. So we help them add better controls and better reporting and like a lot of larger company kind of functionality. And that allows us to scale with the company. So yeah, we're pretty sure if like if someone starts with Brex, they can scale all the way with us versus having to migrate to a different solution. Yeah. Yeah. One of the things I know like when we were working together on like talking to some of the growth stage companies, their bigger pain points was like with controls and especially as the employee base expense, like how do you know what's the spend on expenses was as account spavals and so on.

Foreign Exchange Topics

Foreign Exchange (41:04)

Exactly. Yeah. And so, you know, that was something that's still a pain point that's not solved. Exactly. So why do you think I mean, why do you think this is getting solved now? Why didn't it get solved? Was this not a problem 10 years ago? I think that B2B, paying B2B with cards has grown a lot over the last five years. So if you think about like the largest company in the world, their main way to receive money is card, right? Like Microsoft, Google, Facebook, you pay all your Facebook ads of cards all your really, really bad and you could still pay off card. It's a discussion for another point. And so, I think that before like card was just for teeny, card was something that you paid, you gave your employees for travel, for paying caps here and there. But now card is becoming this like procurement way of paying. So like way to pay like your actual big expenses. Like a lot of offices are starting to take card like we work, right? Like you can literally pay your card. So now it's getting to, it was always big, but now it's growing really, really fast and demanding new technology in the space to be able to scale to the company. So it doesn't happen then, oh, now I agree, and I have to move everything off of card and into invoices, right? So I think that changed like over the last five years. Yeah. And I also think with the new tech stack and the flexibility, like it's kind of absurd that you have a control or a set limit for the entire versus is there something you can do more flexible at an employee level. Yeah. Right. For the company to better manage expenses and especially startups where the cash bond really fluctuates. Exactly. Months to months. So, well, thank you so much, Henry K for joining us today. I'm sure that a lot of people probably really enjoyed the discussion, especially from how to start a fintech startup. Thank you very much. Thank you. a lot. Thank you.

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