Brex Co-Founder & CEO Henrique Dubugras speaks on stage during the TechCrunch Disrupt San Francisco 2019 event at the Moscone Convention Center on October 2, 2019 in San Francisco, California.
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BrexHenrique Dubugras, co-founder of Henrique Dubugras, a Silicon Valley lender, is shedding tens of thousands of small business customers to focus on larger clients backed by ventures.
The company started Notice to customers This week, they have until August 15 to withdraw funds from online accounts and find new providers, Dubugras told CNBC on Friday in an interview with Zoom. Axios reported the change Thursday.
This move is the latest sign of a sea change occurs among startups when abrupt change in market conditions is forcing a new discipline on companies that previously focused exclusively on growth. The change began late last year, when shares of publicly traded fintech players were as high as PayPal started to collapse.
Dubugras said he and co-founder Pedro Franceschi made the decision in December as their newfound clients grew increasingly demanding. Valuations of public companies quickly spilled over into the private sector, accelerating pre-IPO valuations and forcing companies to focus on profits.
That means some of Brex’s biggest customers are starting to demand solutions that help them control costs and hire international workers cheaper, Dubugras said.
At the same time, traditional small businesses, including retailers and restaurants, which Brex started adding in 2019 have flooded support lines, resulting in poorer service for startups. which they appreciate more, he said.
“We got to a situation where we realized that if we didn’t choose either, we would be doing a bad job for both groups of customers,” he said. “So we decided to focus on our core customers, which are growing startups.”
Initial news of the announcement caused mass confusion among Brex customers, prompting Franceschi to tweet about the move, Dubugras said.
Brex is holding institutional-backed clients of any kind, including from accelerators, angel investors or Web 3.0 tokens, he said. They’re also holding on to traditional companies that Brex considers mid-sized, with “more financial history so we can underwrite them on our credit cards,” Dubugras said.
Change is the latest learning time for the two young cofounders, Stanford University dropouts, who took Silicon Valley by storm when they created Brex in 2017. The company was one of those to achieve. fastest unicorn position and was last valued at $12.3 billion.
The pair mistakenly thought that expanding the service to more traditional small businesses would be a simple move. Instead, the needs of the two groups are different, requiring a different set of products, he said.
“We built Brex with 20 people, so we thought, why can’t we build another Brex with 20 other people?” Dubugras said. “I learned that focus is incredibly important; that’s definitely a lesson I will carry with me forever.”
While business leaders have warning of an impending recession in recent weeks, the decision was not based on concerns that small businesses would default on corporate cards, the co-founder said. That’s because most small businesses have to return their cards on a daily basis, there’s very little risk Brex won’t be refunded, he said.
“It was terrible. It was also the worst outcome for us,” said Dubugras. “We’ve invested a lot of money to get these customers, serve them, build the brand, all of these things.”
