Fintech Brex abandons co-CEO model, talks IPO, cash burn and plans for a secondary sale

Since fintech startup Brex’s inception in 2017, its two co-founders Henrique Dubugras and Pedro Franceschi have run the company as co-CEOs.

But starting today, the pair told TechCrunch in an exclusive interview, the San Francisco-based corporate credit card and expense management company is shifting to a more traditional — and what they say should be a more agile — model of just one CEO at the helm. Franceschi will become the sole CEO while Dubugras will become chairman of Brex’s board.

In an in-depth conversation, the two co-founders gave us a peek into what the new structure will look like, the company’s current state of finances and how it has managed to reduce its cash burn.

The close friends started working together as co-founders of another company, Brazilian payment processing startup Pagar.me, in 2012 at the wee age of 16. (That company ended up getting acquired by Stone Pagamentos for “tens of millions of dollars” — before the two had even gone to college.) While both founders could code, they quickly realized that Franceschi was the “better coder.” Rather than having one person manage a part of the organization like product and engineering and the other one manage sales and marketing, they decided to split their duties as external and internal co-CEOs (a decision they touched on in this episode of the Found podcast last year). 

The model worked so well at that company, they said, that they decided to employ the same strategy when they founded Brex after dropping out of Stanford to participate in the YC Winter 2017 cohort.

“The upside is that we had twice as much time as other CEOs,” said Dubugras.

But now the co-founders believe that having two CEOs could be a bottleneck to the company’s growth by keeping its leadership from making faster decisions. They also feel like when they eventually do go public — something they don’t anticipate doing until 2025 or later — that investors will be more attracted to a traditional model of just one CEO running the company.

“I think we’re at a scale where we’re starting to see some of the cracks in the co-CEO model,” Dubugras told TechCrunch in an exclusive interview. “After talking, we thought this would help the business succeed. We thought this would enable much faster and better decision-making.”

Over the years at Brex, Franceschi led the development of the company’s core financial infrastructure from scratch, which the pair claim allowed Brex “to have great margins and expand faster globally.” He, according to the company, “led the entire organization over the last six years,” helping it grow to more than 30,000 customers (from startups to over 130 publicly traded companies) and a product suite that spans corporate cards, banking, expense management, travel and bill pay. Some of its larger customers include DoorDash, Flexport, Roblox, Compass and Shein, but the bulk of its revenue still comes from startups, the co-founders say.

Meanwhile, Dubugras focused more on tasks such as fundraising — the startup has brought in over $1.5 billion in both primary and secondary transactions; its backers include Greenoaks Capital, TCV, Tiger Global Management, Kleiner Perkins, Y Combinator and Global Founders Capital, among others. He also managed relationships with banking partners and regulators and served as the face of Brex “personally selling” to its largest customer “at any moment in time.”  

He added: “Each of us had our own responsibilities … [and] we made many decisions together. This worked extremely well when we were smaller, but naturally became harder as we grew.”

Dubugras insists he’s still committed to Brex.

“I’ll still be involved to the extent that the team wants and needs me involved. Brex remains my main and only thing,” he said.

Ups and downs

The once high-flying company has been on a roller-coaster ride in recent years. Two years ago, it was valued at $12.3 billion after raising $300 million and had poached former Meta exec Karandeep Anand to serve as its chief product officer after having led Meta’s business products group. (He was then named the first president of the company in November of 2023.)

In January, Brex laid off 282 people, or about 20% of its staff. That was after an October 2022 layoff of 136 people, or 11% of its staff, across all departments as part of a restructuring. Today, it has 1,000 workers.

There’s also been a lot of shuffling among Brex’s management. Sam Blond left his role as chief revenue officer in 2022 to join Founders Fund (a position he departed in March). Earlier this year, Brex announced that its COO, Michael Tannenbaum, was transitioning from his role to become a board member. At that time, Camilla Morais, who was SVP of global operations, was promoted to COO. And it was announced that Cosmin Nicolaescu was transitioning from his role as CTO to an adviser position this summer.

In the note to employees at the time of its layoffs, Franceschi wrote that the company was now “emphasizing long-term thinking and ownership over short-term gains” in its comp structure.

And then there’s the matter of its finances.

The co-founders told TechCrunch that its cash runway is now four years. This counters a January article from The Information around the time of its most recent layoffs wherein Brex reportedly told employees that it burned $17 million a month in the fourth quarter of 2023 and that it only had “enough cash to last through March 2026.” When asked about financials at the time of those layoffs, a company spokesperson told TechCrunch that the data was “inaccurate” and directed me to the note announcing the layoffs and wrote: “The changes today are driven by a desire to make Brex more agile and accelerate our path to profitability, building on the growth we had in 2023. We grew our revenue 35%+ in 2023 while gross profit increased by 75%. This reduction in force puts us on a clear path towards profitability.”

Of course, laying off workers is a tried-and-true way to reduce spending and improve cash runway.

Today, Franceschi told TechCrunch that Brex has cut its cash burn in half over the past year. And while he declined to reveal any revenue figures, he said the company’s goal is to be cash-flow positive by 2025.

When asked how the fintech startup had managed to reduce its cash burn, he said there was a combination of factors. For one, Brex has seen increased revenue growth “without increasing fixed costs,” he said.

The layoffs from earlier this year “contributed to a lot of the savings” (and he says he doesn’t anticipate any more layoffs). And lastly, the company has worked harder to move faster.

“The biggest benefit after the layoff was not just the cost savings. It was the way in which the company operates,” he said.

When it comes to revenue, Franceschi said that it’s mostly from interchange, although its software business is growing as startups grow larger and new mid-market and enterprise companies sign on as customers. And there is also the revenue derived from interest and foreign exchange fees.

Franceschi said that by offering cash back and rewards, more of its customers are using Brex’s card product, which is in turn generating more interchange revenue.

Meanwhile, Brex doesn’t have any plans to do any primary fundraising anytime soon. But it may offer a secondary sale at some point so that before the company goes public, those shareholders who want to cash in can do so without dragging down the stock, Dubugras said.

“We don’t want to be a high-volatility public company … [T]hat really distracts from the execution of the company and the core mission,” he added. “I think that one important piece for having a lower volatility public company is being cash-flow positive and making money, which is something that we historically have planned for 2025. So, if that happens in 2025, [an IPO] will be soon after. But we need to get there first.” 

No doubt that the expense management space in which Brex operates is an increasingly crowded one — in that it competes with startups such as Ramp, Mercury and Airbase, among others. But it also competes with the likes of American Express, Concur and Citi.

Franceschi claims that Brex’s advantage is that it built its tech stack “vertically integrated down to the Mastercard rails and the ACH rails and the money movement rails,” whereas some competitors built their business on top of other platforms such as Stripe or Marqeta.

That works for more simple use cases, he said. But for more complex scenarios such as global coverage, depth of integration helps.

Still, the competitive landscape remains heated. In April, Ramp announced it had raised another $150 million at a post-money valuation of $7.65 billion. And digital banking startup Mercury in May announced it is layering software onto its bank accounts, giving its business customers the ability to pay bills, invoice customers and reimburse employees.

Brex remains undeterred.

“A lot of the momentum that we’re seeing now is net new customers coming in on the enterprise side, versus customers at scale with us naturally,” Franceschi said. 

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