I will say, for what it’s worth, that the customer experience of using Brex is really quite outstanding (my current startup is a customer.)
They’ve figured out things that in hindsight just seem so obvious to a good UX, and yet we’ve all been so trained to have low expectations from the mediocre service traditional banks/corporate card providers offer that it seems outstanding.
From limited experience - the fact that virtual cards are first-party citizens, the helpful text messages you get (which include a warning the first time you use a card physically, instant text records when you use a card physically, the ability to photograph receipts and send them back to that same text phone #, and and and.)
American Express (my only other corporate card comparison) of course _could_ offer this stuff, but it’s just not in their DNA because, well, they haven’t had to innovate because they had what amounts to a monopoly on corporate spending cards. And I should note - Amex ties the credit on those cards to the founder (requiring a personal guarantee until the company reaches a certain - large - size.)
Anyway, this is all to say I’m a fan and it doesn’t surprise me they’ve having the success they are so far. Let’s hope they can do it profitably and keep it up!
I have a visa card. They introduced a verification check for online use a few years ago. This involved giving the answer to a question or typing in a passphrase or something (can't remember, I almost never use it).
When setting it up on the web I had to type in the answer/passphrase/whatever. It was rejected. I read the form again, looked at the error msg, no indication why, typed it in again, again rejected.
I called the bank, "oh, it's got to have a digit in it". It did not say on the form a digit was needed, nor did the error message.
They could not even manage to tell the users the most trivial requirements either directly or in the error message. It's beyond pathetic. It's literally incomprehensibly incompetent to fail at such a low level.
I remember "Verified By Visa" which would send you to a site that looked like it was drawn by a crayon. It shocks me how financial institutions often make web sites that look like a parody of a phishing site. For instance, my credit union had an online banking service which used the name "myvaultsentry.com" which just seemed liked something a high school hacker would think up.
It is strange because operationally Visa is good at what they do, and they put a huge amount of effort and expense into developing a brand, but for legacy organizations (academia too) the web seems to be made of kryptonite.
Amex could do it but it’d take a whole lot more money than it would with a greenfield tech landscape (like Brex has). I agree that it’s not in their DNA to be innovative but I also think that it doesn’t make as much since from an ROI perspective as it seems.
Brex using the company’s credit instead of the founder’s makes it a leveraged but diversified bet on the startup ecosystem as a whole. From a financial engineering perspective it occupies a plum position because diversification in the startup ecosystem is traditionally very hard to achieve for investors who are bullish on tech but don’t want to take a position on whether AR or VR is better.
I think you could easily buy an hq (or any other relatively liquid asset that would also help the business in other ways) outright with that kind of money and use that to collateralize a much larger credit limit
Indeed, Tesla or Uber have revenues. But their bonds are still lower rated than Argentinian bonds. Can't expect creditors to like you if you're not showing excess cash flow.
Shareholders, on the other side, well. Let's just say that in the 60's or even 80's issuing IPOs was not something a professional investment bank would do. It was considered an undignified exploitation of the naive investor (from "The Intelligent Investor").
There must be something more to the story. I have several chase business cards that I use solely for points. I use "self employed" and 10k annual revenue from contracting as my business income. I don't have a limit below 15k.
It sounds like you had low (or likely negative) cashflow and no liquid assets. That's a very high-risk loan, and it's good that banks are averse to those.
It sounds like you were in a perfect position to raise a round without losing your control of the company. If you want a risky loan, you go to investors.
What did you ultimately end up doing for a line of credit for the business? That's obviously a very tight threshold of max credit to run a $1.8m sales business on. At the time did you consider trying to get a private line of credit (private as in from an individual)?
This Pedro Franceschi is the same kid that created iUsers to allow multi-users in iPad and hacked Siri to understand portuguese years before Apple. I’m really happy that their startup has a big potential and I hope it succeeds, I’m a real fan
As this is Hacker News, Paul Graham's comments on Yahoo during the .com bubble are particularly relevant:
By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
That's how every boom phase in the credit cycle worked for the past few centuries, including housing in 2008 (assets go up -> more confidence -> more borrowing -> more spending -> assets go up). Not specific to tech by any measure.
Here's Ray Dalio explaining it (founder Bridgewater, the largest hedge fund; apparently Dalio is busy building his legacy now that he's a billionaire):
You can make more money during a gold rush by selling tools and equipment to the 99% of people who will fail than by deluding yourself into thinking you'll be the 1% who strikes gold.
Currently they're unprofitable and their target market is other, unprofitable companies (e.g. turning away Fortune 500s, from the article). If that changes then it looks more sustainable.
Brex's PR firm certainly seems to be earning their keep. This is the third or fourth article about Brex that 'wasn't about Brex' I've seen on HN in the last couple of months.
Brex sounds like it’s headed for bankruptcy based on the article. They’re unprofitable now, and have incredibly risky clients sitting in front of what feels like a looming recession.
It seems like it's doing well because things are bad in silicon valley, not in spite of.
It sounds like there are a lot of desperate startups getting loans to 'simulate' growth by having negative profit margins (since they can't get real growth otherwise), then they use that fake growth to get investors' money which they use to service debt, then they keep raising money until they exit or IPO.
It doesn't seem sustainable. All these debts end up the hands of corporate shareholders. There's a point where companies and the public will stop buying useless startups (if that point hasn't already passed).
> there are a lot of desperate startups getting loans to 'simulate' growth by having negative profit margins (since they can't get real growth otherwise)
You're conflating a few things, here. The Amazon strategy of reinvestment works as long as it's genuine growth and not overdone. Uber's more of an open question: they've increased demand through subsidies, the question is what will demand look like when prices reflect the true cost. Postmates is in the same situation as Uber, but much worse because they offer a service people can trivially do themselves.
> All these debts end up the hands of corporate shareholders.
Not usually. And startups don't usually use debt (except in ~2015/2016), they sell equity. VC funds tend to have more pensions and sovereign wealth.
Readit News
They’ve figured out things that in hindsight just seem so obvious to a good UX, and yet we’ve all been so trained to have low expectations from the mediocre service traditional banks/corporate card providers offer that it seems outstanding.
From limited experience - the fact that virtual cards are first-party citizens, the helpful text messages you get (which include a warning the first time you use a card physically, instant text records when you use a card physically, the ability to photograph receipts and send them back to that same text phone #, and and and.)
American Express (my only other corporate card comparison) of course _could_ offer this stuff, but it’s just not in their DNA because, well, they haven’t had to innovate because they had what amounts to a monopoly on corporate spending cards. And I should note - Amex ties the credit on those cards to the founder (requiring a personal guarantee until the company reaches a certain - large - size.)
Anyway, this is all to say I’m a fan and it doesn’t surprise me they’ve having the success they are so far. Let’s hope they can do it profitably and keep it up!
When setting it up on the web I had to type in the answer/passphrase/whatever. It was rejected. I read the form again, looked at the error msg, no indication why, typed it in again, again rejected.
I called the bank, "oh, it's got to have a digit in it". It did not say on the form a digit was needed, nor did the error message.
They could not even manage to tell the users the most trivial requirements either directly or in the error message. It's beyond pathetic. It's literally incomprehensibly incompetent to fail at such a low level.
It is strange because operationally Visa is good at what they do, and they put a huge amount of effort and expense into developing a brand, but for legacy organizations (academia too) the web seems to be made of kryptonite.
Entrusting my finances to another startup like Brex is scary, but damn is the pitch compelling compared to mainstream banks.
Shareholders, on the other side, well. Let's just say that in the 60's or even 80's issuing IPOs was not something a professional investment bank would do. It was considered an undignified exploitation of the naive investor (from "The Intelligent Investor").
It sounds like you were in a perfect position to raise a round without losing your control of the company. If you want a risky loan, you go to investors.
By 1998, Yahoo was the beneficiary of a de facto Ponzi scheme. Investors were excited about the Internet. One reason they were excited was Yahoo's revenue growth. So they invested in new Internet startups. The startups then used the money to buy ads on Yahoo to get traffic. Which caused yet more revenue growth for Yahoo, and further convinced investors the Internet was worth investing in. When I realized this one day, sitting in my cubicle, I jumped up like Archimedes in his bathtub, except instead of "Eureka!" I was shouting "Sell!"
http://www.paulgraham.com/yahoo.html
Here's Ray Dalio explaining it (founder Bridgewater, the largest hedge fund; apparently Dalio is busy building his legacy now that he's a billionaire):
https://www.youtube.com/watch?v=PHe0bXAIuk0
and then missing 2 more sustained years of jaw dropping prices
don't act clairvoyant.
Mainstream companies were not spending marketing money on the internet until much later.
Deleted Comment
Either you mine for gold yourself or you sell shovels to others who want to mine for gold.
Really?
> there are a lot of desperate startups getting loans to 'simulate' growth by having negative profit margins (since they can't get real growth otherwise)
You're conflating a few things, here. The Amazon strategy of reinvestment works as long as it's genuine growth and not overdone. Uber's more of an open question: they've increased demand through subsidies, the question is what will demand look like when prices reflect the true cost. Postmates is in the same situation as Uber, but much worse because they offer a service people can trivially do themselves.
> All these debts end up the hands of corporate shareholders.
Not usually. And startups don't usually use debt (except in ~2015/2016), they sell equity. VC funds tend to have more pensions and sovereign wealth.