Brex, a fintech startup, has introduced credit cards for venture-backed startups and has raised $57 million in new venture capital.
Spending lots of money to get hyper-growth might get companies funding from venture capitalists however it cannot get them credit cards from banks. Henrique Dubugras and Pedro Franceschi, who had an AR startup at Y Combinator, when saw their colleagues struggling to get basic corporate credit cards, came up with the idea of providing them with credit cards that they could get without any personal guarantee or complex bank processes.
“Traditional banks issue a credit card like issuing a loan,” said Dubugras, Brex co-founder and CEO. “We ingest real-time data and make a decision on the credit limit every day.”
“We want to be the best corporate credit card for startups,” Dubugras said. “We don’t require a personal guarantee or deposit, and we can give people a credit limit that’s as much as ten times higher. We can get you a virtual credit card in literally 5 minutes, versus traditional banks, in which you’d have to personally guarantee the card and get a low limit and it takes weeks to approve.”
The company announced on Tuesday that it has raised $57 million in series B funding round that included Y Combinator Continuity fund, PayPal co-founders Peter Thiel, Max Levchin, VC Rabbit capital, Yuri Milner of DST Global and former Visa CEO Carl Pascarella.
The company’s board of directors will be joined by Y Combinator Continuity fund partner Anu Hariharan and Rabbit Capital managing partner Meyer Malka.
Unlike getting a credit card from a bank, getting a Brex credit card is super easy and convenient. Startup executives just have to sign up to Brex’s website and put in their bank account information. They will then have to underwrite the card using that account info. Once the process is completed, the companies get a virtual card and can then divide virtual cards between their customers but with custom limits.
These cards allow the company to easily assign spending limits to employees. The rolling balance for these cards depends upon the capital a startup has available and he cards have to be paid by the end of each month. The total limit available on the credit card is just a percentage of the total cash balance of the company. So instead of the lengthy approval process, the service can just adjust the spending limit of the cards based on the startup’s bank balance.
Another aspect of the service is automating expenses and auditing process. Rather than using various applications and uploading specifics, Brex users can simply send a text message of a receipt with each transaction. For instance, users will get a text message about a charge and will then reply with the receipt to log the process. Each expense is connected with a vendor so the company can observe the total amount of spending that’s happening at any moment.
The adjusting of spending limit is what makes Brex different and a serious threat to competitors. Rather than just squeezing into the existing system, Brex has taken a different approach which gives it a perfect opportunity to recreate the back-end processes that power the virtual credit cards.
Both the co-founders have an experience in finance as they previously founded and sold a Brazilian payments company called Pagar.me. So they already know how to work with global financial institutions and are well aware of all the holes in the system that they could exploit.
“It’s not like we’re two geniuses that came up with a lot of things that no one came up with,” Dubugras said. “Implementing them with third-party processors is hard, but we didn’t have any of [those integrations], so we can rebuild them from scratch. It’s hard for banks to throw money at a problem and build those tools. We’ve rebuilt the way that these things work internally — they’d have to change fundamentally how the system works.”
While there are a number of other services that are offering credit cards, Brex is working on what’s called a corporate card, a credit card that works just like normal card but is extremely easy to get.