Henrique Dubugras and Anu Hariharan Discuss Brex's Corporate Card For Startups | Summary and Q&A

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June 27, 2018
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Y Combinator Podcast
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Henrique Dubugras and Anu Hariharan Discuss Brex's Corporate Card For Startups

TL;DR

Henry Cooper Gross, co-founder of Brex, shares his journey from starting his first FinTech company at 16 to launching Brex, a corporate credit card provider for startups, providing advice for young founders along the way.

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Questions & Answers

Q: How did Henry K's previous experience with Pagar.me influence the development of Brex?

Henry K's previous experience with Pagar.me provided valuable knowledge and insights into building financial systems and understanding the complexities of the industry. This influenced the decision to build Brex's financial system from scratch, allowing for greater control and customization of their offerings.

Q: Why did Brex focus on providing corporate credit cards specifically for startups?

Brex identified a problem faced by many startups - the difficulty in obtaining corporate credit cards without personal guarantees or large security deposits. By focusing on startups and offering credit cards without these requirements, Brex is able to provide a valuable solution to an underserved market.

Q: How does Brex streamline the expense management process for startups?

Brex automates expense management by providing features such as automatic categorization of expenses, receipt matching, and integration with accounting systems. This eliminates the need for manual tracking and can save startups valuable time and resources.

Q: What sets Brex apart from traditional banks and other corporate credit card providers?

Brex differentiates itself by offering a seamless and efficient experience for startups, with quick approval and issuance of cards, higher credit limits, and innovative expense management features. Additionally, their focus on building their own financial system allows for greater control and customization of their offerings, providing a unique value proposition in the market.

Summary

In this podcast episode, Henry Cooper Gross and Anu Hariharan from Y Combinator's YC Continuity team interview Enrique Dubois, co-founder of Brex. Brex offers corporate credit cards for startups and aims to redefine the corporate credit card experience. The discussion covers Henry K's background in starting his first company at a young age, the journey to Y Combinator, and the process of building a fintech startup in 2018. They also delve into the challenges of fundraising, the importance of team building and recruitment, and the unique features of the Brex product.

Questions & Answers

Q: Can you give us some background on your first company and how you found your path to Y Combinator?

Enrique and his co-founder Pedro both started coding at a young age. They had various experiences in tech during their teenage years, which led them to believe it was possible to start their own company. Enrique attempted to start an education company before meeting Pedro and starting Pagar.me, an online payment processor in Brazil. They grew the company to a significant size before selling it after four years. They decided to apply to Y Combinator with an augmented reality startup idea, but later pivoted to the corporate credit card concept that became Brex.

Q: How did you recruit your first 10 employees and what factors did you consider when hiring?

In their first company, they hired the smartest people they knew, regardless of their coding abilities. In Brex, they were more targeted and focused on finding the right people. Their first two hires were a CFO and a General Counsel, which was unconventional for a startup at their stage. They aimed to have experienced individuals on their team from the beginning to help build the foundations of the company. They emphasized the importance of finding people who believed in the team and the mission, and were generous with compensation packages to attract top talent.

Q: How did you convince experienced hires to join your company, especially given the challenge of finding a credible GC and CFO at an early stage?

They believe that experienced hires want to work with other experienced people, so their background in starting a fintech company at a young age helped. They also had a well-defined plan for the company's growth, which demonstrated their ambition and ability to execute. Offering a clear plan and a chance to make a significant impact were key factors in attracting experienced professionals. Having strong investors and being able to offer attractive compensation packages also played a role in convincing them to join.

Q: How did you approach recruiting in the early stages and what challenges did you face as a second-time fintech founder?

Recruiting was challenging, especially as they were from Brazil and didn't have a strong network in the US. They targeted people who were similar to them and focused on hiring the best talent they could find. They took their time to find the right people rather than making quick hires, which ultimately paid off. One of their unique approaches was using a "pre-offer" mechanism instead of a typical offer, where they asked candidates if they would join the company if compensation was not an issue. They were always generous with compensation and could usually find a middle ground that satisfied both parties.

Q: What was your fundraising history after Y Combinator and what advice do you have for founders trying to start a fintech startup?

They raised a seed round of $7.5 million led by Ribbit Capital right after Y Combinator, followed by a series A round. Henry K advises founders to build relationships with VCs over time, rather than just going through a fundraising process. Having a network of potential investors who you already know and trust can make fundraising easier and more successful. He also highlights the importance of having a clear plan for growth and being able to articulate how you will go from your current stage to your long-term vision.

Q: What is the value proposition of Brex for startup founders and how does it differentiate from other options?

Brex offers a streamlined process for obtaining a corporate credit card, with sign-up to a working virtual credit card taking just four minutes. They can underwrite 100% of a company without requiring personal guarantees or security deposits, providing higher credit limits than traditional banks. In addition, Brex automates expense management processes, allowing users to easily track expenses, categorize spending, and submit receipts. They offer features not typically found in other expense management software, such as the ability to match receipts to transactions automatically by leveraging their status as the credit card provider.

Q: How are you able to streamline the process of underwriting and perform KYC checks so quickly?

Brex took the approach of rebuilding the financial product from scratch rather than relying on existing systems. They developed their own underwriting system that looks at cash flow and other factors specific to startups, allowing them to underwrite companies quickly. They leverage modern tools and technology to automate processes that banks often outsource to third-party vendors. By taking control of the entire stack, they were able to create a system that allows for fast and efficient underwriting and KYC checks.

Q: Why did it take longer for Brex to launch compared to other YC startups and how does your product address the pain points in accounting?

Brex wanted to build the entire financial product from scratch rather than just adding an app or dashboard on top of existing systems. This required them to develop a comprehensive tech stack that enabled them to provide a better user experience. They rebuilt their underwriting, financial management, and expense tracking systems to address pain points in accounting. Their system allows startups to easily track spending by vendor, automate receipt matching, and categorize expenses accurately. By focusing on these aspects, they aim to relieve startups of the burden of manual accounting processes.

Q: What lessons did you bring from Pagar.me to Brex, especially in terms of setting up accounting processes and systems?

In their first company, Enrique and Pedro had no knowledge of accounting and had to study it from scratch. They realized the importance of setting up accounting processes properly from day one. At Brex, they made sure to have robust accounting and expense management systems in place early on to avoid future problems. They stressed the importance of tracking spending, knowing your financial performance, and enforcing receipt policies from the beginning. By doing so, they built a solid financial foundation for the company and eliminated potential issues down the line.

Q: Can you explain the second element of the Brex product, which involves automating expense management and categorization?

Brex automates expense management by providing reports that show how much a company spends with each vendor. They eliminate the need to manually consolidate reports from various services by integrating everything into one system. They also simplify receipt tracking by allowing users to text receipts, which are then automatically matched to transactions. Unlike traditional credit cards, Brex uses the MCC (Merchant Category Code) system more accurately, preventing mischaracterization of expenses. The aim is to provide a comprehensive expense management solution that relieves startups of time-consuming manual tasks.

Q: How much time do you spend on recruiting and coding, and what is your philosophy regarding recruitment?

Henry K mentions that they spend around 35-40% of their time on recruiting, prioritizing finding the best talent for their team. They emphasize the importance of recruiting the right people and maintaining a high bar. They also believe in building relationships with investors and potential hires over time, rather than solely during a fundraising process. By doing so, they can make better-informed decisions and find individuals who are aligned with their vision and values. They acknowledge that recruiting can take time, but that it pays off in the long run.

Takeaways

Building a successful fintech startup requires a deep understanding of financial systems and regulations, as well as the ability to navigate the complex fintech stack. Founders should consider gaining experience in the fintech industry before starting their own venture, either by working at an early-stage fintech company or building a fintech startup in their home country. Recruiting experienced professionals can be challenging but is possible with a clear plan, strong investors, and attractive compensation packages. It is important to take the time to find the right people. Setting up proper accounting processes and systems from the beginning is crucial and can save time and effort down the line. Building the entire financial product from scratch allows for greater control and flexibility. Brex differentiates itself by offering a streamlined process for obtaining corporate credit cards, quick underwriting processes, and automated expense management. They aim to relieve startups of accounting burdens, such as tracking spending and managing receipts, to allow founders to focus on growing their businesses. Overall, Brex's focus on building a comprehensive fintech product has positioned them well in the startup ecosystem.

Summary & Key Takeaways

  • Henry K started coding at a young age and went on to co-found Pagar.me, a successful payment processor in Brazil, before launching Brex.

  • Brex offers corporate credit cards for startups and aims to redefine the corporate credit card experience.

  • The team at Brex focused on building their own financial system and tech stack to provide a seamless and efficient experience for customers.

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