240. Blazing Fast Path to $B+; Binary Outcomes; The Fintech Revolution; and A New Approach to Employee Comp (Henrique Dubugras)

240. Blazing Fast Path to $B+; Binary Outcomes; The Fintech Revolution; and A New Approach to Employee Comp (Henrique Dubugras)
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Henrique Dubugras of Brex joins Nick to discuss the Blazing Fast Path to $B+; Binary Outcomes; The Fintech Revolution; and A New Approach to Employee Comp. In this episode, we cover:

  • Background — path that led to Brex?
  • Origin story for Brex Tag-line / One sentence overview
  • What’s so different about Brex?
  • Why is more than just a credit card?
  • How has the pandemic affected the business thus far?
  • What do you offer that no one else does?
  • Who do you consider to be competition?
  • What is the moat here – why can’t another well funded startup replicate your offering?
  • A criticism I’ve heard is that, when businesses need credit most, when bank balance/working capital is low, is when Brex cuts off access to credit. What’s your response?
  • How would you describe your leadership philosophy?
  • Are you recruiting/hiring? Is the approach different while 100% remote?
  • What’s the compensation structure at Brex?
  • One of the fastest companies to multi-billion+ valuation — more pressure w/ all that capital?
  • With the raise and expectations some suggest that the outcome is binary — is it?
  • What advice do you have for early-stage, pre-A, founders trying to build a venture scale business?

Guest Links:

Transcribed with AI

Intro 0:02
welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran. And this is the full ratchet.

Nick Moran 0:19
Henrique Dubugras joins us today from San Francisco. Enrique is founder and CO CEO of brex, the fast growing tech company offering a new type of corporate credit card that has raised over 700 million. Enrique is a serial entrepreneur. And prior to brex, he was founder of pegar.me, a payments platform dubbed the stripe of Latin America. Enrique Welcome to the show.

Henrique Dubugras 0:41
Thanks so much for having me.

Nick Moran 0:43
Yeah, tell us the quick background, the path to brex

Henrique Dubugras 0:48
Yeah, so um, I guess, as you, you know, you’re saying originally born and raised in Brazil. And I was pretty lucky that I started coding when I was 12. Because there was a scheme I wanted to play. And it was a paid game, I found out that if I learn how to code I can play for free. So to kind of build a pirate version of that game that got super popular in Brazil, until I got some legal notification signals breaking some sort of pattern switch. I didn’t really know what those were. But my mom got super upset, and told me to shut everything off. And that’s kind of how I got into tech. And then from that point, I started watching TV shows, and I saw this TV show called chalk that was like a really good, you know, Spy hacker programmer that had gone to Stanford and I decided I wanted to be like, Chuck. So I decided I needed to go to Stanford. And I got into startups that way, because I found a Brazilian guy that was graduating from Stanford. And he was starting a ticketing company in Brazil, and we made his deal on which I would code for him for free. In exchange, he would teach me to Stanford application process, because for Brazilian is a whole, you know, application process for US universities is quite complicated. So I worked for him for like a year. And that’s kind of I got into tech startups, and then, you know, try to start start with my own and then eventually met my co founder, Pedro. And we decided to start Garmin, which is, as you said, kind of payment processing in Brazil, you know, three and a half years, and the company was doing super well, it was growing, it was you know, doing roughly a billion and a half in transaction volume. It’s pretty profitable, 100 Something employees. And, you know, we had to decide Stanford basically said that you do come you don’t so we had to decide to become to sell the company, or to stay and kind of keep building this, we just had to sell it moved to the US. Wednesday number for a few months. wasn’t as fun as we were expecting, but quite interesting. And, but decided to start Brax maybe in March 2017.

Nick Moran 2:48
Got it. So you dropped out at Stanford when you guys were admitted to yc? Is that right?

Henrique Dubugras 2:53
So we got admitted to yc. And then we did YC While at Stanford and then dropped out by the end of the batch. What

Nick Moran 2:59
was disappointing to you about the college experience.

Henrique Dubugras 3:04
You know, I think maybe we got there a little bit older, so we got there were like 20, and everyone else was like younger, and you know, we were kind of running a company before, which is like a super dynamic thing, right? Where it just like everything is happening all the time. And then college, you know, quite even though quite interesting is felt like things move a lot slower. And versus kind of studying the past instead of, you know, building the future. So we kind of just had this itch to kind of, you know, you know, more dynamic environment.

Nick Moran 3:35
Good. And so what was the real origin story of Brexit? And you know, what, what was the sort of insight that you guys have that led to the founding?

Henrique Dubugras 3:44
Yeah, so you know, there’s Brexit was like, the interesting finding an idea, you know, was pretty interesting. So we had this like, kind of like b2b financial services company in Brazil. And we understood a lot about kind of how credit card works. After that, you know, we were basically doing a lot of payment processing. And we were regulated by the Central Bank of Brazil. And it was a pretty financially intensive business because of the way her present payments are structured. Here in the US is a lot more software like but in Brazil, like, we had to factor but merchant receivables, so it’s a pretty financial intensive business. And then the next step for us there was always like, well, we’re already processing the payments, and we’re settling to all the bank accounts, why can’t we be the bank accounts that we’re settling to, you know, and that was kind of like our idea back then. But we sold the company before we got to execute on it. And then we got to the US and we were like, well, we’re in Silicon Valley. So we’re wanting to do something in the bleeding edge of technology. You know, like because FinTech like that’s it cool, but like how do we do the next Apple or Microsoft so we decided to try to start a VR company. That was pretty a hard problem is like, I think a second time founders, you know, you’re, you have this thing that, hey, I created a startup that was somewhat successful in the past without knowing anything about payment. Therefore, I can create any successful startup in any area without knowing anything about it. So I think that’s what the mindset we went into. And I think it was less true than we expected. So we got into ICU as your idea. And we had no clue what we were doing. And, you know, it was a little bit it was quite humbling, because we had, okay, now we have to pivot, we have no idea we’re in the middle of yc. And YC, kind of like, you know, guided us through this process of basically going back and say, Okay, what do you actually want to build and b2b Financial Services. So, you know, helping businesses was something that we actually were quite passionate about. And we understood a lot about FinTech and I got this pretty good device that there’s obviously like, a lot of first time founders that succeed. But you know, if you have a advantage as a founder to try to start a company should definitely use it. And for us, like knowing FinTech was that magic, right, knowing about credit cards was that advantage. So we kind of went back to where we are roots and decided to start Brax. Picking a credit card as the first place to start was, you know, it wasn’t necessarily random, but it was, it could have been something else. But I think that the vision is we always wanted to serve businesses with multiple kinds of like b2b financial products. So today, we have RX card and RX cash. You know, and we want to keep building more, but we we started them.

Nick Moran 6:36
Got it. So you know, I’m a, I’m a happy customer have been for some time, but for the audience, can you give us the sort of one sentence overview, overview of Brexit?

Henrique Dubugras 6:46
Yeah, of course. So brex, we do corporate cards and corporate cash management for businesses. So you know, we can replace your traditional corporate credit card and your traditional corporate bank accounts, with one single system to make all your payments on the card side, we can give you a card of no personal guarantee higher limits, and you know, the best rewards programs for for tech companies. And on the cash management side, you can sign up super easily online, no wires for no fees, or wires, ACH or any kind of payment you want to make. And it kind of feels like a tech product instead of, you know, a clunky bank.

Nick Moran 7:23
What’s so different about Brexton, you know, other corporate cars that have high limits and really attractive rewards programs.

Henrique Dubugras 7:34
Yeah, the main kind of like more fundamental difference, which is has to do with what we’re building and Brexit, as we basically rebuilt 100% of the tech stack from scratch. So everything that we’ve done, you know, traditionally banks, they have these third party legacy software systems that they hire, and then you always ask when you call a bank, like, Hey, why do I have to get redirected to this credit card, you know, department and like, the systems seem to not talk to each other. And like, everything is very complicated. And because we rebuild everything from scratch, and Brax, you know, and 100% of tech is, is ours, we basically get to make credit cards as they should be, right. So I can list a lot of the value props around how we can make you manage your receipts more easily. You can create virtual cards super easy. You can add users remove users, change limits, all that really works. But I think the more fundamental point about why breakfast special was like we’re not bound by the same bound. The banks are in terms of technology, like we rebuilt our tax tech stack from scratch. And you know, and that allows us to have 100% flexibility, and what about what

Nick Moran 8:42
is it about the model that you think resonated most with VCs? You know, you’ve had a super fast ascent to multi billion dollars valuation. You know, it’s been a really quick, quick growth story. And there’s been a lot of capital, chasing the business, you know, what, what do you think at sort of the venture capitalist, so excited?

Henrique Dubugras 9:04
Honestly, I think there’s a few things right. So the, the first thing is just like it’s a just a very big space, and all our competitors are, you know, most of our competitors are incumbents or studies, most of the markets taking by JP Morgan and Wells Fargo and Bank of America. So nice traditional banks. So it’s, it’s not like a situation in which there’s like, all the startups are going towards it. Now, there’s a little bit more, but when we started, it was pretty clean and really, really big space. I think that there’s a lot of talk around, you know, this right now, but I think that Pedro and I, as founders would kind of fit the VC model a lot. You know, we kind of both of us are engineers. We went to Stanford for a little bit, you know, for good or for the bad. I think we kind of fit the VC model, which makes it easier for us. And I think we had a, you know, previous FinTech exit. I think all of that when you’re trying to pattern match, you know, for our benefit, I think we got some some credit from VCs. And I think last is we got into basically like, a very profitable product from day zero. So it’s like, it’s not like we have to build a lot of a big user base or anything, you know, the business model was like, very, very clear from the beginning. So I think it’s easier to underwrite.

Nick Moran 10:34
Yeah, how do you make money on the business model today. So

Henrique Dubugras 10:38
every car, every time someone swipes, you mate, we make interchange fees, which is, you know, mid two percents. And that’s basically

Nick Moran 10:47
good. So I mean, is the card sort of, is that a Trojan horse or the leading edge of becoming sort of a total banking solution and financial solution for small businesses and medium and large?

Henrique Dubugras 11:02
Yeah, so we basically want to be we say, the financial operating system for businesses. And what that means is we want to have, we want to power all their finance departments, you know, either through the best integrations with current and future software’s, or by building it, ourselves. We separate our kind of developments and partnerships into two categories. One we call financial services, when we call financial products, Scott, what Prudential tools, financial services is what you see the current like corporate card, a corporate cash management that can replace your bank account, I would say lending is probably into that category. And this is, you know, replacing kind of your bank. And then the second set of tools, or, as a financial tools is like expense management and AP and AR management, accounting, bookkeeping, all these other things that need to interact, you know, for each manager, financial department. And, you know, if we find an amazing partner, that we can deeply integrate, we rather do that, but you know, but if we don’t, we kind of will build it ourselves into kind of like this vertically integrated system. And what happened after, you know, we launched RX card, is that we looked at the kind of like bank account perspectives. And, you know, there wasn’t, because of the technology, the legacy technology systems, there wasn’t a lot of banks that could do some of the features we were wanting to do. So we decided to kind of like build our own. And we’re kind of going through that process and other areas as well, in which we’re keep, we’re gonna keep building tools and services for to serve the financial department of our businesses.

Nick Moran 12:50
Got it? Yeah, you know, I’ve noticed as a customer, so we add new stack, we keep our investment capital in one business account, and then we keep sort of our management fees than the other. So on the management fee side, it’s kind of lumpy, because we do the management fee, called downs by quarter. So I’ve noticed my brex limit sort of wildly fluctuate fluctuating quarter to quarter, as you know, that amount goes down. And in some cases, it’s gotten down so low that I get an email from you guys saying, oh, you know, you don’t have or you’re getting really low, you know, you should attend to your account. Right. And so then you have to wait a couple of weeks until the the new distribution has made, you know, have you had issues with that with other customers? Because the credit limit pivots with the cash in the bank account? And is that leading to churn?

Henrique Dubugras 13:43
Yeah, no. So definitely, that’s probably if you got our NPS, probably 80 or 90%. And negative comments are about fluctuating limits. And, you know, there’s we’re definitely working on a bunch of stuff to address it. So but the way the Rex was originally conceived, right was, hey, the innovation, the underwriting model was, hey, you have a bunch of cash, you have like $2 million, let’s say in your bank, county or startup because raise a seed round, we’re gonna give you between 10 and 20%. Of that. So let’s say 200 to $400,000 is the credit limit. And you didn’t care too much about fluctuation because basically, you know, no one was spending two to $400,000 a month on a card if they had $2 million dollars in their bank account, or a startup. And then what happen is as kind of like, you know, smaller startups started signing up. And you know, we were going more and more downmarket those things started mattering more so we’re making a bunch of updates to try to make it and fluctuate less. But the advantage around it is, you know, because of this model, we can give no personal guarantees, right and and when people receive a larger pool of funding, we can give higher limits than everyone else. So it’s kind of a little bit of a trade offs. Have the model. But yeah, we do see some, some complaints on the volatility and you know, we’re working on some stuff to reduce that volatility a lot. But it’s kind of like inherent part of the model that we, we know, kind of like when cash balances are going low, and then your credit limit goes down with it. And maybe that’s when you would need the credit the most right? But just kind of one of the key questions you ask ask ourselves is like, you know, well, if their cash balances, though, is when you know, he, he the most need us. But the reality about Brexit is we’re not a credit provider for businesses, right, the intent to which people sign up for Brexit, most of our customers, not because they need the credit, they usually are pretty well funded by venture capitalists or other lines of funding, they come to Brax, because we’re, you know, pretty good payment methods for them to go when expenses. And that has a big implication, our business model in our losses and our funding. And in also, you know, that’s, but it generates some confusion among our customers. Yeah, is

Nick Moran 16:07
it? You know, we run into this. So we’re, we’re an investor, and we, we speak with a lot of companies out there, and sometimes companies will be targeting this startup segment, right? Their customer beachhead is in the startup space. And that can be tricky because the majority of startups fail, right? Even the well funded ones, the follow on rates are quite low and have been declining, according to PitchBook. So is it is it tricky operating in a space where you could win and succeed and excel yet still, your customer base is gonna, you’re gonna experience attrition, because it’s, it’s going to turn over.

Henrique Dubugras 16:46
Yeah, so I think it’s a model that you’ve seen, you know, kind of the basis of VC right, in which some of them, most businesses, they go out of business. Most startups are well funded, or not well funded, but there’s a few that don’t. And if you can make build a product that sticks with them, right? Then you’ll, you’ll, you’ll ride of them. And you know, it will become a really, really good customer base over time. So that’s our model. So we do a lot of work to have customers not sure. And as they grow, that would be the bigger problem. So a lot of people ask, Oh, what if, you know, what happens when people graduate out of Brax, and now they can get an American Express and like, that’s something that we, you know, doesn’t happen? Almost ever. People that start with us, they stay with us for a long, long time. And, you know, whatever money we make on those that grow, basically pay the tax for all the ones that ended up going out of business.

Nick Moran 17:41
Got it? Got it. Yeah, I was connecting with a mutual friend Subash dash over at IVP. And we were talking about the pandemic. And, you know, he had suggested I should ask you about, you know, how you guys are adjusting and how you’re positioning in the downturn? You know, the model for Brax. And in the risk in the financial planning side as well.

Henrique Dubugras 18:02
Yeah, totally. So, you know, obviously, with the pandemic, right, COVID was like a huge topic for us. And I think the first thing that came into our mind was the, you know, how do you transform a crisis into an opportunity? And for us, we saw a few places, right, so the first thing we did have to do is get our horses in order, right? So we had to, you know, we ran a bunch of scenario testing, what happens if, you know, unemployment goes to this, and businesses default to this, and, you know, our funding, we can’t raise any more money. And like, we just did a lot of like stress scenarios with different types of models around what would happen if, right, and we created a plan for each of those scenarios. So you know, Doomsday one plan, this is what we would do doomsday do plan, this will be a doomsday three. And we share all that with our got some inputs, we had like probably like bi weekly board meetings for the mento the month of March and in April. And that’s for Brax. And, you know, now things are picking back up. And we have a lot of data into this because we see right, so few of the interesting data points that we see in a pandemic is the PitchBook data around funding has been decreasing a lot but we’ve see actually a lot of just an announcement they happening. So from our data funding is just down 8% from this quarter, you know, the same period last year versus I think PitchBook data and others like down 30 Or something percent there’s just a lot of people are just raising money and like not announcing maybe because of terms maybe because it’s a bridge round whatever it is. There’s still plenty of liquidity going into the startup market. At least we see in our data. The second thing that was quite interesting is that we see is that since you know the last couple of months I think March and April were definitely you know, almost zero kind of T and D spend but if we look at May and June, actually T and E’s been starting to pick up which was not what we expected. But people are like traveling more and still dying out, like, you know, in the places that are possibly reopening, we’re seeing more of that happening than we were expecting before. So that’s obviously like Brexit plus, like macro trends in terms of our own credit behavior. I think this is where our credit model proved out, right? Because the biggest thing is one of the biggest criticisms we had since Brexit, the beginning, it was like, oh, what happens with Brexit and recession? So I think we, you know, we got there. So what happened, and the reality was, you know, our model work, right, so we detected that this was going to happen, pretty early on, we started kind of controlling limits, in reducing limits, probably in January, February, because a lot of you have a big ecommerce business, and a lot of our E commerce, they weren’t getting an inventory from China. And so we saw the first signs of COVID, hitting the businesses around them, and, you know, and then because he didn’t have an inventory, the revenue started going down. And then as their revenues goes, that went down or are kind of like limits went down. And then similar thing of cat tech, like we’ve seen a little bit less funding, and then people burning less, and then you’re just a little bit our limits. And, and you know, and we kind of went through much, much, much better than I think all the other banks and financial services companies around the country because of our model adjusting. And I think that our a lot of our customers were pretty happy that, you know, even through this crisis, they can still trust that we’re safe and sound had a lot of cash, you know, and did a lot of the right things for not from any individual business. But for all the business, the collective businesses that we serve, and we’re gonna serve.

Nick Moran 22:00
Enrique, can you give us a sense for what T and he looked like this month versus year over year? You know, last year? In June?

Henrique Dubugras 22:08
Yeah, this is rough numbers. So please, the order of magnitude is correct. But, you know, maybe I missed the sale of this. So it was down probably like 95 97% in March and April, and now it’s probably down like 7% since last year. So 70

Nick Moran 22:25
Yeah, yeah. Okay. So, you know, that’s, that’s coming back more than I would have expected.

Henrique Dubugras 22:33
I know, me too.

Nick Moran 22:34
Interesting. How, you know, how would you describe your moat? I mean, as I think about your model, the tech stack is probably quite complex. And, and the FinTech sort of domain expertise that you guys have built up is, is probably a huge edge that you have. But, you know, why can’t some of these I mean, we hear about a lot of these other funded credit card companies that maybe have similar models, maybe not quite the same as Brexit. But, you know, what is the moat? And what is your sustainable long term differentiation?

Henrique Dubugras 23:05
Yeah. So you know, I think the first interesting thing about our industry and banking, right is that it is not a kind of like winner takes all market, right. So one stat that I love is that there’s 44 banks in the United States whose market capitalization is pre COVID. So I don’t know the currents, that’s, everything’s been up. So I think this is still true, are over $10 billion in market cap, right. So if you think about it, there’s like 44 companies that do kind of roughly the same thing, you know, segments in different markets, and they’re still worth more than $10 billion each. And there’s a bunch of reasons why this is true. But I think that the difference of within Fintech is, you know, you, you have the obviously the competition if you’re other fintechs, but most of your competition of just the traditional legacy banks that are all over the country, right? Yeah. And a lot of regional settings, and obviously, the big national ones. But that said, I think that our competitive differentiation comes in kind of like long term and three things. So one is the tech stack, for sure. Which is rebuilding this from scratch takes a long time, a long amount of investing. And but it allows you to create capabilities, that’s not super easy for other people to replicate, right? So it’s not anyone and you can see for the rise of all these other corporate cards, at least our knowledge, not a lot of them are getting traction, because it’s like, you know, you just don’t spin up a card and you can replace all the other ones, right? It’s there’s a lot that goes into it. So we having this technology stack built from scratch and highly tuned, we think it’s kind of similar to what Apple did, right. And with software and hardware. They’re pretty good at software. They’re really good at hardware, but they’re the best at integrating those things into like one single product. We think that in our version of the world, you know, you kind of have like regulatory or finance, you have tech, you know, and we’re really good at integrating those things into creating products. So that’s number one. Number two is up, you know, there’s this kind of line, that someone in the UK said that it’s true for us was more true in the UK that people switch bank accounts less often than they switch their wives in the UK. Cheese. And, you know, and it’s a, it’s a kind of funny expression. But it’s pretty true that after you have someone’s kind of like core operating count, it’s pretty hard to switch, you know, if they scale up for a long time. So our view is, hey, there’s these new wave of companies that are internet companies and accelerating doing COVID. So startups, and E commerce is another company being created, if we can win a big share of these companies being started, they will stick with us for a long time. Right. And it’s gonna be really, because your financial services is kind of so entrenched in you. So those are, are probably like, the two biggest things we see is kind of like our technology stack. And, you know, the fact that, you know, as we win market share of companies earlier, like, you know, it’s really hard to switch that over time.

Nick Moran 26:28
Is, do you feel like there’s added pressure with taking, taking on a lot of venture capital quickly, you know, it typically takes companies, you know, many years to kind of find initial product market fit, and make sure they build out a robust product, and then start expanding and moving into other markets with additional products and access some Tam, you know, with, with the speed at which Brexit has moved, I imagine, you’ve had to scale up the team quickly, you’ve had to hire a lot, you probably have to do a lot more quicker. I mean, is that? How do you manage that? And is that ever a risk and a concern that you’re doing too much too quickly? And, you know, things aren’t aren’t gonna work?

Henrique Dubugras 27:15
No, that’s also, that’s always something we kind of keep checking ourselves, you know, are we doing too much right? Are we trying to do take every single thing and if you have a lot of money, right, you raise money deposit, you kind of you kind of kid yourself that you can do that. And the reality is you can to the big constraint is never money is like managerial capability, right? Like, there’s just how much can your leaders take in just doing multiple things at once. And I think we’ve done a good job, you know, hiring leaders that can do a lot more than normal at once because they’ve themselves came from a lot of them FinTech, but you know, other kind of like very high growth tech companies, right. So a lot of our team came from like square and Stripe, and so phi, kind of these, you know, high growth fintechs. So, because we get to learn from their, their experiences and skip a lot of mistakes, I think we can do more than a lot of startups, especially outside, like, coming from Brazil, right? I remember, in Brazil, we couldn’t do a lot more, because there just wasn’t enough people who knew how to do a lot more, so we had to train everyone. And then it was hard to run things in parallel. And here, we definitely get a lot more. But I think still, it’s easy to go over the edge and do more than you’re thinking and I think we definitely went and and then try to come back and then once again and try to come back and you’re always kind of checking yourself on. Am I going too far? Am I doing too much and you have to cook products? I think COVID is definitely helping us plus a lot of other companies do focus on like, what’s the absolute priority? You know, and what’s absolutely essential?

Nick Moran 29:01
Yeah, you mentioned talent. While there is a lot of talent in in the Bay Area that you can access, it’s it’s also quite expensive. You know, what are your thoughts on on hiring talent and and overall, you know, what your compensation structure brex

Henrique Dubugras 29:19
Yeah, so, it’s funny, we changed like our first company in Brazil to now like so much and also in Brazil used to think let’s hire people that are willing to take a pay cut, because if you’re willing to take a pay cut, you know, they’re there. They’re financially committed to us. And, you know, and that’s kind of the we want people that are this motivated this excited, right. And what has happened is, probably did get a lot of people that were motivated and excited and committed, but they’re all young and similar to us, you know, and didn’t have any other expenses. So therefore, they could have words take pay cuts. And then we got here to Silicon Valley, you know, and we talked to a bunch of people had all these things. And I remember one distinct conversation of someone who actually measured for a long time in his company for like 10 years, they always had like a high equity high cap. He’s in who picked high equity versus who picked high cash, right, and see if there’s like any difference in performance. Interesting. And turns out there wasn’t. It was more theoretical than practical. That was the case that people who pick more equity instead of more cash are more committed, therefore going to perform or stay longer. Turns out, the bigger correlation is just access to previous liquidity, you know, how much liquidity that person had in the past. So it’s either they had a successful career, or they were part of a startup in the beginning, or their parents are financially well, the more liquidity that person have, the more equity they took, and the less, you know, they were still trying to pay for an apartment or buy a house or they just had a kid, they wanted more cash. So that kind of gave us an idea to try to do something different of compensation, you know, and kind of break these paradigms that. Compensation is you have, you need to starve people for cash and things like that. So we created this model in which we basically give people a number, it’s a total comp number. And they can pick and choose how much they want to cash how much the quantity of equity. So let’s say you have a $200,000 offer you want 180,000 in cash, do you have 20k in equity, you can do that if you want 60k in cash running the 40 and equity, you can do that. And you have just like total freedom to choose. And I think what we believe in the beginning was true is there’s no correlation between what people pick and their performance, once they join. It’s pretty, it’s like it’s not a factor that correlates a lot with performance. So but it allows us to attract a lot more talent, because people value more what they want more, right? So if they want, if they need more cash, they value more cash, or they don’t need cash, they value more equity. So you end up just people just happier. And because they get what they want.

Nick Moran 32:13
How often can they change their election, they

Henrique Dubugras 32:17
pick it once and then every raise, they can pick it if cash or equity. So you pick let’s say you start at 200k. And someone’s giving you a 50k Raise you perform really well, we can now pick up that sketch record.

Nick Moran 32:27
Very cool. That’s, that’s original. I’ve never heard of that model before, did you sort of co op that from somebody else?

Henrique Dubugras 32:37
So it was kind of like a mix of us hearing a bunch of stuff. I think Netflix in the early days probably had the most similar to this. But it isn’t exactly what I think no one has done exactly what we’re doing. But you know, it’s probably mixed Netflix probably being the biggest endpoints.

Nick Moran 32:57
You know, some, some might suggest that with the raise that you’ve taken on and the expectations that are set, the outcome here is going to be binary. You know, either a massive, massive sort of DECA corn out outcome and IPO or you know, bust. Do you think that’s the case?

Henrique Dubugras 33:20
There’s definitely a lot of middle scenarios. So I think the true answer is no, I don’t think that’s the case. Now, are those middle scenarios gonna be satisfactory to our equity investors? Probably not. So, you know, if you raise money, like $3 billion, you know, most of your investors expect you to become a $10 billion company kind of quickly. Yeah. But, you know, we’ll do you think that, you know, if you think about a Brexit employee, you think there’s like no scenario in which Brexit is a $5 billion company or a $2 billion company in four years? I’d be very sad of that scenario. But that’s, you know, that definitely, that scenario exists, and I think it’s more likely than wrecks go to zero. But, you know, we definitely whenever we make our decisions, Pedro and I, we made this is like, we’re not going to sell this company. We’re gonna work on it for the rest of our lives. So if we’re gonna work on something, we might as well work something to be really big.

Nick Moran 34:22
What advice would you have for early stage tech companies, you know, founders that are pre a, that are trying to build a venture scale business?

Henrique Dubugras 34:35
specific area, there’s like so much stuff that, you know, we can talk about, but any specific area think that you’re interested in?

Nick Moran 34:44
Well, I mean, the show is about venture capital. So typically, it’s about proof points, right? Getting to certain milestones at different phases so that you can raise sufficient capital to get to the next level, right? That’s, that’s usually what we address So it could be, I mean, this is pre a in this instance. So that would usually be pre Product Market Fit would be, you know, my assumption. But it’s, you know, it’s a tricky path. I mean, you could you could address it from a funding standpoint, and working with VCs or just, you know, a leadership and a scaling standpoint. I mean, it’s, it’s not easy. Even with money, it’s not easy putting, putting together the right talent and the right team to execute on the right priorities at the right time. So yeah, it’s, it’s your call.

Henrique Dubugras 35:33
Yeah, I think the the advice that I would give founders that is a little bit contrarian, I mean, not too much, but a little bit. So usually, when I meet founders, they have this like, initial product that is maybe working, maybe not working, they want to build and then they have this, like, super long term vision and what they want to be in the future. So and there’s like, not a lot in the middle. And I think that one of the things that helped us the most of brex, both from a kind of, like raising capital standpoint, but just as a hiring and, you know, there we’re setting the direction of the company was having a very clear what are kind of the middle steps between now and the end, you know, it’s like, Hey, we’re gonna do this, then we’re gonna do this, then we’re gonna do this differently do this. And even if it changes along the way, just having a path that you know, everyone can kind of be aligned to and that you know, VCs and employees and partner can understand how you go from this, like super simple thing into like a massive company. I think that will be probably my my advice. And I think founders probably under spend time there.

Nick Moran 36:46
Enrique, what resources have you found really valuable, you know, in your journey, as a founder that you might recommend to listeners,

Henrique Dubugras 36:54
getting a lot of mentors and advisors was always so helpful to us. So like, I always say, when raising money, someone invest, you know, VC don’t like when I say this, but if someone like angels, like if there’s an angel investor, and he invest like 10k, or like 25k, or 50k, they’ll help you the same amount and won’t change that much, to just try to get more people that you never know how they’re going to be helpful in the future. Yeah. So like, my advice is usually, you know, someone can help you a lot. And it’s great if that’s going to be on their board. But for the rest of the investors, you just use it investing in Angel investing as a way to get more mentors and more advisors and more people helping you and just like keep in close contact with them, because there will come a time like this people who put 10k and Breck series A three years ago that today is helping you have a bunch of stuff. And so we rely very, very heavily in our Angel Network. Well,

Nick Moran 37:48
Enrique, what do you know, you need to get better at,

Henrique Dubugras 37:52
I particularly need to get better at writing. I think as the company grows, writing is probably the main method of communication. That is user Brax. And I think as you know, because I grew up speaking Portuguese, and still writing big, clear thing. And English is not so easy for me. So I’m trying to get better.

Nick Moran 38:14
And finally, what’s the best way for listeners to connect with you and follow along with brex?

Henrique Dubugras 38:20
Probably over Twitter. I’m a big power user. So whoever wants at HD regress?

Nick Moran 38:27
Awesome. Well, this is real pleasure. We don’t have founders on very often, just just on a rare occasion. And your story has been one that’s really unique, really fast growing. Um, as I said, you know, we’re users of the product, and we’re really, really happy customers of the product. So appreciate you taking the time and telling us a bit about the story.

Henrique Dubugras 38:46
Thank you really appreciate it.

Nick Moran 38:52
That will wrap up today’s episode. Thanks for joining us here on the show. And if you’d like to get involved further, you can join our investment group for free on AngelList. Head over to angel.co and search for new stack ventures. There you can back the syndicate to see our deal flow. See how we choose startups to invest in and read our thesis on investment in each startup we choose. As always show notes and links for the interview are at full ratchet.net And until next time, remember to over prepare, choose carefully and invest confidently thanks for joining us