Brex rejects small business customers as Silicon Valley adjusts to the new reality

Brex co-founder and CEO Enrique Dabugras spoke on stage during the TechCrunch Disrupt San Francisco 2019 at the Moscone Convention Center on October 2, 2019 in San Francisco, California.

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BrexSilicon Valley’s start-up lender is turning down tens of thousands of small business customers to focus on larger, risk-averse customers, according to co-founder Enrique Dubugras.

The campaign started informing customers this week, which they have until August. 15 to withdraw funds from online accounts and find new providers, Dubugras told CNBC in an interview with Zoom on Friday. Axios announced the change on Thursday.

This move is the last sign of a maritime change emerging among start-ups, as the sharp change in market conditions imposes new discipline on companies that previously focused only on growth. The change began late last year when shares of high-ranking publicly traded fintech players such as PayPal began to collapse.

Dubugras said he and his co-founder Pedro Francesco made the decision in December as their start-ups became increasingly demanding. The deepening of public company valuations soon shifted to the private sector, hitting company ratings before the IPO and forcing companies to focus on profitability.

This meant that some of Brex’s largest customers began to want solutions that would help them control costs and hire cheaper international workers, Dubugras said.

At the same time, traditional ordinary small businesses, including retailers and restaurants, which Brex began adding to its expansion in 2019, flooded support lines, leading to poorer service for startups that value more, he said.

“We came to a situation where we realized that if we didn’t choose one, we would do a bad job for both groups of clients,” he said. “So we decided to focus on our main customers, which are start-ups that are growing.”

Initial news of the announcement caused widespread confusion among Brex’s customers, prompting Franceschi to tweet about the move, Dubugrass said.

Brex holds clients who have provided institutional support of all kinds, including acceleration programs, angel investors or Web 3.0 tokens, he said. They also keep the traditional companies that Brex considers medium-sized, which have “more financial history so we can take them on our credit card,” Dubugras said.

The change is the latest learning moment for the two young co-founders who dropped out of Stanford University who stormed Silicon Valley when they created Brex in 2017. The company was one of the fastest to reach unicorn status and was last valued at $ 12.3 billion.

The couple mistakenly thought that expanding services to more traditional small businesses would be an easy move. Instead, the needs of the two cohorts were different and required a different set of products, he said.

“We built Brex with 20 people, so we thought, why can’t we just build a different Brex with 20 more people?” Dubugras said. “I’ve learned that focus is extremely important; it’s definitely a lesson I’ll take with me forever.”

While business leaders were warning of impending recession in recent weeks, the decision is not based on fears that small businesses will not pay corporate cards, the co-founder said. This is because most small businesses had to pay for their cards on a daily basis, leaving little risk of not paying Brex, he said.

“It’s awful. It’s the worst result for us,” Dubugras said. “We’ve invested so much money in acquiring these customers, servicing them, building the brand, all these things.”

Brex ranked № 2 in this year’s CNBC Disruptor 50 list. register for our weekly original newsletter, which goes beyond the annual Disruptor 50 list, offering a closer look at the list companies and their innovative founders.

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