Henrique Dubugras and Anu Hariharan Discuss Brex's Corporate Card For Startups

by Y Combinator6/27/2018

Henrique Dubugras is the cofounder of Brex, which provides corporate cards for startups.

Anu Hariharan is a Partner at YC.

Brex went through YC in the Winter 2017 batch and just closed their Series B, which was led by YC Continuity.

In addition to discussing how the Brex team built out their service, Anu and Henrique also cover the specifics of what it takes to build a fintech startup in 2018. And Henrique shares advice for young founders, as he started his first company at 16.


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Craig Cannon [00:00:00] Hey how’s it going? This is Craig Cannon and you’re listening to Y Combinator’s Podcast. Today’s episode is with Henrique Dubugras and Anu Hariharan. Anu is a partner here at YC and Henrique is the co-founder of Brex. Brex provides corporate cards for startups and they went through YC in the Winter 2017 batch and just closed their Series B, which was led by YC Continuity. In addition to discussing how the Brex team built out their service, Anu and Henrique also cover the specifics of what it takes to build a FinTech startup in 2018. Henrique shares advice for young founders because he started his first company at 16. All right, here we go.

Anu Hariharan [00:00:41] Hi everyone, I’m Anu, a partner at YC Continuity. We have Henrique here, who is the founder of Brex, which was a YC Winter ’17 company. The exciting news about Brex is they’re actually launching soon and they offer corporate credit cards. They’re basically redefining how credit cards work for startups. We’re really excited to have Henrique here. Henrique, let’s talk a little bit about your background. We obviously, at YC, have known you for a very long time, both you and Pedro. You guys started your first FinTech startup when you were at the ages of 15 and 16, which is not something we see everyday. Can you tell us a little bit about what was the first company you founded and then how did you find your path to Y Combinator?

Henrique Dubugras [00:01:29] Yeah, for sure. First thanks for having me here. Pedro and I, we both started coding pretty early. That was super helpful. That was a little bit lucky.

Anu Hariharan [00:01:44] How early was that?

Henrique Dubugras [00:01:45] I started when I was 12, because there was this game I wanted to play. It was like a paid game and my parents didn’t want to pay for me and I figured out if I learned how to code, I could play it for free. Pedro, nobody knows how he started coding but he started coding when he was like nine years old. Then during our teenage years, we did a lot of interesting things. I participated in building this emulator for this game and I learned a lot how to code because of that and I’d built a version of that game. Pedro, on the other hand, when he was 12 he found the first jailbreak for the iPhone 3G, which got like a lot of attention. We had, during our teenage years, a bunch of experiences already in tech that led us to believe it’s possible to start a company. For me, it was that I working at this startup and the founder, I thought was a really cool guy and my thought was like, “If he can do it, I can do it too.” Then I tried to start an education company and that didn’t work out. Then I met Pedro at the end of 2012, basically fighting on Twitter, programming text editors, Vim versus Emacs. I was Vim, he was Emacs and I won.

Anu Hariharan [00:03:06] Got it.

Henrique Dubugras [00:03:08] We basically became super friends and decided to start a company together, which was Pagar.me. Pagar.me was like a payment processor, online payment processor down in Brazil. The comparables here would be something like Stripe, or Braintree, or WePay or like those kind of companies. We grew that company from, to a pretty reasonable size. It was like a really good experience.

Anu Hariharan [00:03:35] And you raised only $300,000.

Henrique Dubugras [00:03:37] Yeah, it wasn’t by option, that much at that point. We were 15 and 16 when we started a company. It’s not like a lot of people in Brazil were willing to give us much more than that. Then after we raised the money, we were like “Oh, this is so much money, we can do whatever we want with this.” We were lucky that payments in Brazil, it’s, in terms of margin, a better business than most of the world. We were able to have a profitable company since the end of the first year.

Anu Hariharan [00:04:10] Okay, that’s great.

Henrique Dubugras [00:04:11] That was super helpful because then we just grew with our own profits. We didn’t have the need to fundraise and profits solve a lot of problems, if you can have them.

Anu Hariharan [00:04:20] That’s true and you sold the company four years later, when your team size was around a hundred, is that right?

Henrique Dubugras [00:04:26] Yeah, so we grew the company, I feel the stats were at the time we sold it, were doing a little bit over 1.5 billion in transaction volume. We had a little bit over a hundred people, I think 110, 115, something like that. We sold it September ’16, so that was probably, three years and a half, almost four years.

Anu Hariharan [00:04:48] Not a lot of people have built a hundred people team, when they’re less than 20. Why did you sell it?

Henrique Dubugras [00:04:54] A couple reasons. We always thought that Pagar.me could be a big business, but it couldn’t be something as big as our ambition. Because I don’t think we had a lot of edge internationally, so Brazil’s a pretty big market for payments. You can see like, PagSeguro just IPO’d for nine billion dollars, right? But I didn’t think we had enough edge to go international, we wanted to build a global company and we got it in into Stanford also. We were kind of curious to see how that went.

Anu Hariharan [00:05:26] Stanford always gets you.

Henrique Dubugras [00:05:27] Yeah, exactly. Like, for international, it was dream since I was 14 to go to Stanford. It was kind of like that.

Anu Hariharan [00:05:33] I remember, right from your application days, one, you’re into Stanford, you guys had applied to YC, with actually an augmented reality startup– By the time you graduated from YC, that’s how you launched Brex, or you were working on the Brex idea, hadn’t launched yet. Can you talk a little bit about like, how that transition happened? You coming from AR as an idea and then saying, no, we are going to work on the corporate, redefining the corporate credit card experience.

Henrique Dubugras [00:06:05] Yeah, for sure. After we got out of Stanford, we were like, we’re not going to do payments anymore. FinTech, too complicated, team of these like old banks, you know? We’re not going to do that anymore, we’ve been through that. We’re going to do something new, something easier. Then we though AR was easier. Definitely not. Then we started thinking about these ideas, et cetera, and then it was actually three months into Stanford that we decided that we wanted to apply to YC. We applied and we got into YC and they see our idea and then a few weeks in, we were like, “Okay, this is complicated.” We don’t know anything about hardware, we don’t know anything about optics, like we could only build a software but like if Apple killed an API or Google killed an API then the business would be ruined. There’s all these things that we started to think about. Then we’re like, okay, that’s not what we want to do. Then we were like in this limbo and we’re super worried because “Oh shit, we took YC money, should we give it back? Is that something that we should do?” We talked to… he’s like “No, no, no…go figure out something.” We’re like, “Okay.” Then we started thinking about things we wanted to do. We went through like, a bunch of ideas. Then we went back for an idea we thought for a long time. We were like, in Pagar.me, we were a payment system, right? We receive the money and then we pay it out, the merchants. We’re like, why do I need to pay out the merchants?

Henrique Dubugras [00:07:37] Why can’t they just pay out the suppliers directly? Or the employees, why can’t I be like, and we started grasping this idea of, “Oh, what are the B2B financial services that we can generate value?” We actually thought about creating a bank. But creating a bank is very complicated, as we went to find out in the U.S. And then we were like okay–

Anu Hariharan [00:07:56] Especially in the U.S.

Henrique Dubugras [00:07:56] Especially in the U.S., yeah. We went, into, okay, let’s do a product of a bank then. All these products are super good, right? Then we looked at credit cards, that seemed like a wanted product, but we didn’t actually go too deep into it. Then, we kind of had this landscape of like, B2B financial products, we were kind of looking and then we wanted to get a corporate credit card, like ourselves. That was kind of it. Then we were talking to one YC partner, Dalton, who also said, “Hey, all these startups, they have a lot of trouble getting corporate credit cards.” We’re like, okay, let’s investigate that and then figured out that one, we couldn’t get one.

Anu Hariharan [00:08:35] Why?

Henrique Dubugras [00:08:37] Because they wanted us, we went there and they’re like, “Well you don’t have any financial history.” I was like, “But I have $120,000, that’s a lot of money.”

Anu Hariharan [00:08:45] From YC.

Henrique Dubugras [00:08:45] Yeah, from YC. You can just give me $5,000 in limit, I’ll be fine. It was like, “No, we won’t give you it, unless you personally guarantee.” But we didn’t have a FICO score, because we had just moved to the U.S., so we couldn’t personally guarantee the card. Then we went to talk to a lot of our batchmates, and a few of them were like, “Oh yeah, I can’t get a card.” No, none of the international ones could get a card. The other ones, a lot of people chose not to get a card because they didn’t want to personally guarantee the card. Because, as I agree with them, the whole point of building a corporation is not having personal liability attached to it. There was all these people just using debit cards and like walking around with debit cards of $120,000 in the bank or just using their personal cards and all these things. We thought, “Okay, that has to be inefficient. There has to be a better way to do this.” Then that’s kind of how Brex came to be. By seeing that problem of our batchmates and ourselves, not being able to get a corporate credit card or having to personally guarantee it, we had the idea of building something better.

Anu Hariharan [00:09:46] Let’s talk about the team. One of you guys launched recently but you’ve been there for 18 months now. When you launched Brex, during YC, and right after Demo Day, how big was the team? Can you also talk about your first 10 employees? How did you hire them and how did you decide who they would be?

Henrique Dubugras [00:10:08] Yeah, for sure. One thing that we really believe and I know that everybody says that, is that the employees, the 10 first employees, are going to set a foundation for later. We really took that to heart, when we found, we got our first 10. In Pagar.me, we didn’t have a lot options in the first 10. We just got the smartest people in there. There was even this guy who didn’t know how to code at all, but he was like a Physics Olympics champion. We’re like, well, physics seems pretty hard. Coding is easier than physics, so we might as well just hire him and teach him how to code. We hired people that we knew that were the smartest and we just made it work. On Brex, we were a little bit more targeted. We were like, “Okay, those people were really good and they’re doing really well now, but if I could do it the right way from the beginning, what would I do?” Our first two hires were actually like a CFO and a General Counsel.

Anu Hariharan [00:11:06] Oh wow, that’s quite, I would have never expected, I mean no, I know that now because we know you guys. But like, I know most startups are not hiring a CFO and GC, so how–

Henrique Dubugras [00:11:15] Yeah, exactly, because going with that, the thing about getting a really good partner and being able to rebuild everything from scratch and having the good flow and all of that, having a staff thatwe’re still young, right? We’re 22 and we’re 21, so it’s not like we’re older, but not that old. When we go to bank, having people who are more experienced than you are and having them be the people that actually help you do the plan and describe everything is really, really valuable. We were very generous of the offers that was in the packages for these people because we really believe it could change the way the business went. We got, and what I’m saying–

Anu Hariharan [00:11:59] Still, let me ask you this. It is very hard, for a founder this early, to be able to hire a really credible GC and a CFO, right? No matter even if the offer or the package is attractive because they probably have multiple options. How did you get them over the line to believe in your mission and join Brex?

Henrique Dubugras [00:12:21] I feel that this is a little bit of the advantage of being a second-time founder, is that people who are experienced, they want to work with other people who are experienced. So that helped.

Anu Hariharan [00:12:35] But you guys came from Brazil, they probably didn’t know you.

Henrique Dubugras [00:12:38] Yeah so that was the negative part of it too. Usually founders they have this first product and that may or may not have product/market fit. But they have this thing. Then they have this long term vision that’s very, very far away. They usually don’t have the plan in-between, that much. These more executive-level hires, they want to understand better the plan in-between. Yhat’s just something we had really well-defined, since early on, is like, okay, we’re starting with this credit card for startups, which I think is a great market. But like, and then we have this big, long term vision. How do we get from here to there? Then making that very clear and like how they would be the difference between getting there and not getting there, also, like they could add a lot of value there, was something that got them across the line. I remember specifically, for our GC, we were talking about how, in order to be able to scale a lot, we would do a lot of the regulatory things he didn’t do at his last company, he would do it right this time, here, and how that would change this part of the plan to actually work versus other companies that failed. That got him really excited because “Okay, I learned so much from the experience, now I want to be part of the opportunity to make it right, to do it right.” That’s how I got across the line? But also, having a really strong set of investors helps a lot, being able to get where they need on cash, like a lot of times, people will want people

Henrique Dubugras [00:14:13] to take huge pay cuts, we were never that type. We always were pretty generous on cash, like those kind of things.

Anu Hariharan [00:14:18] Got it, and then, so they were your third and fourth hire, talk about this next six, so who were they? Where did they come from?

Henrique Dubugras [00:14:27] We didn’t have an easy time recruiting after that.

Anu Hariharan [00:14:31] Most companies don’t.

Henrique Dubugras [00:14:32] Yeah, because we were from Brazil. It’s not like we knew a bunch of people. People say, “Oh, what about your Stanford network?” It’s like, I was there for three months and my network’s all freshmen. It’s not like I knew a ton of people I’d hire.

Anu Hariharan [00:14:43] You were going to be class of 2020, I remember.

Henrique Dubugras [00:14:45] Exactly, I was going to be class of 2020. Maybe in 2020 I have a bunch of people I can hire. But, it was really tough for us. We basically started skewing towards people that were similar to us in some sense, because it’s what we could. We got a bunch of international folks. Our first engineer was from Uruguay and then we got a French dude and we imported someone from Brazil. We just did whatever we needed to do for the first 10, but we didn’t lower our, we didn’t have a quality bar that was lower because of that. We still had like, okay, these two are really strong, they came from really good companies, SoFi and Stripe and how do we keep that bar up? Maybe we didn’t hire a lot waiting to find the right people, and that paid off, in my opinion.

Anu Hariharan [00:15:42] You were slow at building the team, versus trying to get the first ten quickly?

Henrique Dubugras [00:15:46] Yeah, and we’re just working a lot ourselves.

Anu Hariharan [00:15:50] How was your interview process, especially when you were trying to hire someone from Brazil or Uruguay or these different locations. How did you actually test for that quality bar?

Henrique Dubugras [00:16:02] We actually brought them here. We didn’t interview them remotely. We had a technical interview, it’s a little bit debatable but we believe that technical interviews should be most similar to what the person will do in the day to day and should test the knowledge that they would most have to do most decisions with. We built this interview that actually, they had to build a small credit card authorize, very much a part of it, and we could, it was the same interview for someone junior and someone senior, the only difference was how well they did the architecture and the edge cases, based on how junior they are and how senior they are. If they were a senior, they knew like everything that would go wrong and they would build it or point it out if they didn’t have time. If they were a junior, they would build a simple version of it. We could tell based on that. But then, then the hard part was the selling, right? How do you sell and get these people across the line? For the first 10 it was really hard.

Henrique Dubugras [00:17:09] We just like, people joined who believed in the team and believed in the mission and we never made compensation a problem, we were always very generous with the initial packages. We have this really different offer mechanism that, and this isn’t until today, everyone that joined the company went through this.

Anu Hariharan [00:17:29] Yeah, can you talk about that a little bit? It is different and it’s very intriguing.

Henrique Dubugras [00:17:33] Yeah, we call it a pre-offer, not an offer. Which we say, “Hey, if compensation wasn’t an issue, you have all these companies you could join, would this be the company you’d join?” Until you tell me that this is the company you would join, if compensation was solved I’m not going to show you an offer. That made the person get over the mental decision of like, “This is the company I want to join. “This is why it’s better.” Then we always gave a super generous offer. It’s not like we then low-balled them, you know? We always gave them a great offer, and there were always like very few times we’d have them negotiate it. Usually it was above their expectations and then they’d join. But we’ve never had someone that, after they accepted a pre-offer, they didn’t come because of compensation. We could always find a middle ground in compensation.

Anu Hariharan [00:18:24] There are a couple of other YC startups that actually use a similar approach, but the large majority do not.

Henrique Dubugras [00:18:30] Yeah, it’s definitely sometimes humbling because people sometimes say no to you before even seeing the offer. I’m glad that that happened because they should go to the company that they believe more. Then we were evaluating to see what was our problem, maybe they weren’t interested in the domain, maybe they didn’t believe us as much, like whatever it is we try to learn from it. But, we know that it was about the company, not about a comp. Imagine if they had come to visit a comp, what problem would that be, you know?

Anu Hariharan [00:19:00] One of the other things I’ve noticed, especially working with you guys closely, is both you and Pedro do spend a lot of time on recruiting. First time founders I’ve seen, generally, don’t do that, especially in the early days and then wait too long before they actually refocus their attention on recruiting. Can you talk a little bit about why you guys do that? You guys do it pretty well, which is you spend a lot of time recruiting. Also talk about how much time you spend recruiting.

Henrique Dubugras [00:19:27] Yeah, so we spend probably 35 to 40% of our time, recruiting, that doesn’t mean sourcing by the way. We haven’t hired a recruiter until now but we had recruiters outsourced working for us since we were four people. We don’t mind paying recruiting fees if it’s success-based only. We don’t like paying fees that we have to pay before. If it’s success-based we think it’s worth it. And, we think that… We read this in that Google book, I think that Eric Schmidt wrote, that like, don’t let the urgency of the hire reduce the bar of the people. We’ve done that so many times back in the day. Because you always say, “Hey, I’m just going to hire someone later, I don’t need that person now, what is this person, like are they going to come and do what?” There’s all these arguments and at the end of the day, we just believe that to find the best people, you just have to interview more people. That’s just what you have to do. If you really need them for like a month or two, you just won’t interview that many people because you’ll just like, “Okay, I kind of need this person because that’s going to make it.” The thing is, a lot of times, if you do need that person, that month and they can make or break the business, you should hire them. But we just don’t want to be in that position. That’s why spend a ton of our time meeting a lot of people and recruiting and all of that.

Anu Hariharan [00:20:47] Can you talk about after you went through YC in Winter ’17, what was sort of your fundraising history? Both angels, your Series A and Series B.

Henrique Dubugras [00:20:57] We had a Series A kind of together for seed round in March last year, that was a 7.5 million dollar round led by a fund called Ribbit, that was after YC. I remember we closed that round the morning of Demo Day. It was very timely. That was when Peter and Max came in and like, a lot of other investors. Then we did a fundraise. I have a little bit of different opinion fundraising than a lot of people. I think you should build relationships with VCs over time instead of just doing a fundraising process and then stopping. Because if you’re going to add someone to your life for like 10 years, 20 years, you might as well known them outside of fundraising process. We did actively meet a bunch of people and start having, even a week after we finished fundraising, we kept taking them to meetings and like, say, “Hey, we’re not fundraising, but I would love to–“

Anu Hariharan [00:22:04] Getting to know the partners, basically.

Henrique Dubugras [00:22:05] Yeah, “I would love to get to know you.” And we met them every three months or so, and then the B came around that we went with you guys, we already knew everyone we wanted to talk to because we already knew people we liked that treat us super well, and people that we didn’t like that didn’t treat us super well. Then it was like a really fast process and because of that.

Anu Hariharan [00:22:30] One thing I would add there, this is where I think it’s different for FinTech and maybe certain select startups because even though you guys are not launching publicly until now, the key difference is you were working on building the tech stack, the FinTech stack, and also you had at least more than a hundred customers. It was already being used by quite a few startups. It’s very similar to, if you look at the Stripe or the Gusto story as well, you know, you can’t, there’s no room for errors in a payroll product.

Henrique Dubugras [00:23:02] Exactly.

Anu Hariharan [00:23:04] Your paycheck has to come and so, Gusto sort of did the same thing, which is almost for the first 15 months they didn’t publicly launch but that doesn’t mean they weren’t testing the product–

Henrique Dubugras [00:23:13] Exactly

Anu Hariharan [00:23:13] With customers, right? That sort of what you guys were focusing during those 12, 15 months, is what it takes to launch at scale by working with a few select startups.

Henrique Dubugras [00:23:24] Exactly, and I’m not saying we’re not going to have bugs, but we spend a lot of time trying to reduce the possibility of having them because you’re okay if your restaurant app doesn’t work. But you’re not okay if you’re buying a dinner for a client and your card doesn’t go through. How pissed would you be?

Anu Hariharan [00:23:41] Yeah, that’s true. And also, if the payments don’t happen on time.

Henrique Dubugras [00:23:45] Exactly.

Anu Hariharan [00:23:45] That’s an important distinction for anybody who is working in FinTech on a product, you don’t have as much room for error. It comes down really to find the market fit and then product/market fit, and then seeing how they scale.

Henrique Dubugras [00:24:00] Exactly and the other thing that’s also true is for both Gusto, Stripe and us, which is different from a lot of companies is that everyone needs a version of you. Everyone needs a version of payroll. Everyone needs a version of payment processing and everyone needs a version of corporate credit cards. Yours has to be better than the other guy’s which is very different than like, “I don’t know if I need this product to optimize my lead,” or whatever? It’s a little bit different concept when you’re rebuilding something that already exists in a better way that everybody has to get one and when you’re creating a new market or when you’re just like building something better of something that already exists. It’s a different set of challenges in different set ups.

Anu Hariharan [00:24:46] Yeah, and the stack is pretty complex. Right?

Henrique Dubugras [00:24:48] Yeah, exactly.

Anu Hariharan [00:24:49] If you want to have to build it from scratch, so that’s right.

Henrique Dubugras [00:24:51] Yeah, exactly.

Anu Hariharan [00:24:54] This is your second FinTech startup, pretty much. There are lots of founders trying to build something new in the FinTech space, especially these days. We can see that even in the volume of applications that YC’s getting. What advice do you have for someone who is a new founder trying to build a FinTech startup?

Henrique Dubugras [00:25:14] Being super transparent, Anu, is I don’t think we could’ve built Brex if we had not built a FinTech startup before or at least worked at an earlier stage FinTech startup before. Because a big part of it is, that when you get to a, like a meeting of a bank, you know what you’re talking about. You know how things work, you have credibility. You wouldn’t be able to raise the size rounds we raised without having that. I would either work in a company, in a early stage FinTech company that you think is successful, or I would like, well I started a FinTech company that worked but Brazil was like a way less competitive market, right? Maybe you’re international, try to start something in your country and then after, move to the U.S. I think in here in the U.S., it’s really, really hard to do and I really admire people that had done it from the first time and got it right.

Anu Hariharan [00:26:12] Like Patrick and John.

Henrique Dubugras [00:26:14] Yeah, like Patrick and John. But I don’t think I personally could have done it, without it. Maybe joining would be a good idea and for example, like people who joined Pegar.me, two of them started FinTech companies that are doing really well in Brazil. Because they were able to get it. I’m pretty sure there’s probably some Stripe alums that are starting FinTech companies that are going to do phenomenally well.

Anu Hariharan [00:26:37] What is difficult, you think, because of which having, working at a early stage FinTech startup, or things that you learned from Pagar.me, what are things that you think you will get core skills by working at a FinTech early startup that you don’t have when you’re starting new?

Henrique Dubugras [00:26:52] Yhere’s a few things. One, understanding how financial systems work. If you’re an engineer, understanding how to build financial systems is different than building like a regular app or database. There’s a lot of extra constraints, et cetera. Second, there’s just knowledge about the market, how it works, and that you can learn but it becomes really like, the innovation within payments is a deep understanding of the constraints and a deep understanding of how to go around those constraints.

Anu Hariharan [00:27:25] Can you give an example?

Henrique Dubugras [00:27:27] Someone coming into the FinTech market, for example, starting to build Brex, people would say, “Hey, what do you do is, you go and you hire this like, company called a processor.” This processor, they take care of all these things for you. They’re really good. And then you go to talk to the processor, and they’re really good, they tell you they do all these things. You’re like, “Perfect, like everyone does this, this seems to be a really good system, there’s going to be an app or a mobile app on top of this, and it’s going to be great, right?” That’s the common sense. If you tell someone, hey, I’m going to build my own processing stack from scratch, people will laugh at you. They’re going to be like, “No man, you’re crazy.” If you ask anyone from any bank, they’re going to, “No, that’s impossible, that’s like super hard, you won’t be able to do that.” The thing is, is that it is really hard, but it’s doable. If you don’t do it, you’re going to have a lot of constraints. And if you haven’t done it before, if you haven’t seen the system that worked from scratch before and how that worked and why it’s complicated, it actually is really hard to build one from scratch. In terms of, for example, engineering is to something like that, or the other example is, so people tell you, “Oh, KYC,” which is like the way you have to get to know your customer for regulation purposes. This is the way you have to do it. You have to collect these documents, et cetera, et cetera. But if you actually go read the law itself, it gives you a lot of flexibility

Henrique Dubugras [00:28:45] in the way you collect information, the way you validate information. If you’re not aware of like, how can you go read that law, understand how that works and apply it in that context and then how do you sell the bank that that is a good thing, you won’t be able to get away with it, right? It’s not like you can create your own form and that’s it. Being able to navigate all those things, it’s not like you have an infinite amount of shots. You have like one or two shots, you have to get this thing right. You have to have learned it from somewhere before.

Anu Hariharan [00:29:15] It’s a combination of knowing the regulatory requirements, understanding the complexity behind the financial systems and the tech stack and knowing that just plastering something on the top is not going to work.

Henrique Dubugras [00:29:27] Exactly, and having the credibility for people to believe that you know that, because you might know, but if no one believes that you know because you’ve never done it, then it’s going to be really hard.

Anu Hariharan [00:29:39] That’s fair. That’s fair and for you guys in the U.S. for sure, it’s definitely harder coming from Brazil, but the fact that you built Pagar.me helps you–

Henrique Dubugras [00:29:47] Oh, 100%, because we actually knew all of our stuff.

Anu Hariharan [00:29:51] What does Brex exactly do today? You obviously are just going to launch, so what is the value proposition for a startup founder on why they should use Brex over other options? It sounds like getting a card is difficult but beyond getting a card, what are the things Brex actually does?

Henrique Dubugras [00:30:09] Yeah, for sure. We basically have two things going very quickly. The first one is, you can get a card, from sign-up to working virtual credit cards, our credit card numbers actually work and you can use online, in four minutes.

Anu Hariharan [00:30:24] Four minutes? Okay, so all the way from putting the entire information to getting a card, literally same day, four minutes?

Henrique Dubugras [00:30:31] Exactly, exactly and so that was one and today we’re the only corporate card that doesn’t require any kind of personal guarantee or security deposit or anything like that. Like we underwrite 100% of the company and we give you a limit that’s many times higher than most of the banks would give. You can get it in four minutes. That’s one part of it. The second part is that we automate a bunch of expense management stuff that you would have to do manually, we just do all of that for you and a bunch of expense management software can’t do because they’re not a credit card. They have to interact with the credit card, so we just build it all into the credit card and you don’t have to worry about a lot of things later if you use Brex.

Anu Hariharan [00:31:12] Later. Let me touch on the first point because I think that is a big value proposition, especially to get the card pretty much in four minutes. Is that something the founders get, the entire company gets, how does that work?

Henrique Dubugras [00:31:26] Well, the founders that just signed up, gets the first one and they can invite anyone in their company and that’s the time literally to fill in username, password, and delivery address. Then they all instantly get a virtual credit card that works and they can set limits to them, so not everybody has access to all the corporate credit cards, you can give people a card of like $200 limits per person or whatever.

Anu Hariharan [00:31:46] Got it, and how are you able to underwrite, do the KYC checks that quickly? What is different about the Brex stack that helps you do that?

Henrique Dubugras [00:31:56] This is one of the things that we feel very strongly about, is when you’re rebuilding, when you want to disrupt, for example, I feel like disrupt’s a fancy word but–

Anu Hariharan [00:32:10] Redefining the experience.

Henrique Dubugras [00:32:12] Yeah, when we’re redefining the experience, there’s no way you can just build an app on top of an existing thing. Or building a dashboard on top of the existing financial product. We believe you have to actually rebuild the financial product. That’s one of the things that we feel very strongly about. When we started Brex, we were like “Okay, we’re not going to be some sort of legion “for an existing bank and they do everything, we’re going to do everything from scratch.” In terms of underwriting, we went and we rebuilt the whole underwriting concept and instead of looking at financial history, we look at cash, right? We look at how much investors actually invested in that company and when they write, based on that, and the average and all of that, which is something that, it’s specific for startups at this point, but it allows us to do it very quickly. In terms of KYC, we just used modern methods to evaluate who you are and what you do. We used modern tools to not have to make you go to a branch and sign something physically. We have better technology to have you sign something digitally. The reason banks don’t do that is because they all rely on these third party, old vendors that do everything for them and they don’t implement this new technology. We basically just rebuilt the entire system and the entire stack from scratch, which allowed us to do these things.

Anu Hariharan [00:33:36] Is that the reason why you waited for launching? Because it’s not, you know, most YC startups launch after Demo Day, right? And you guys graduated in Winter ’17 but you’re pretty much launching in mid-2018, like what was sort of holding you up from launching?

Henrique Dubugras [00:33:50] It’s exactly that. We didn’t go through the strategy of like, “Hey, let’s do something like… just launch it and have like whatever experience the bank gave us?” We want to build something right. We had to take the time to basically rebuild all these systems from scratch. We had to build a general ledger inside the company that controls all the balances so we don’t lose money. Those kind of things are really hard to build in the three months of YC, and we believe that why a lot of FinTech startups fail is because they don’t take control over the full experience and they’re always limited by the bank partner doesn’t want to do this, or the bank partner doesn’t want to do that or this old system doesn’t want to do this and we’re like, we’re not going to deal with that. We’re just going to rebuild everything from scratch and launch that.

Anu Hariharan [00:34:46] Yeah, and one other thing I know we talked about in the past, but I think it will be helpful for our founder audiences, like there’s lots of lessons and learnings you have from Pagar.me that you sort of brought in at Brex. Can you talk about especially setting up the process right? Because I know that’s something you felt very strongly about when you’re launching Brex and it’s sort of how the product has been built to help the customer.

Henrique Dubugras [00:35:10] Yeah, so the story on this is, when we started Pagar.me, we didn’t know this thing called accounting existed. We didn’t know it was a thing.

Anu Hariharan [00:35:19] Well, you were 15 and 16.

Henrique Dubugras [00:35:20] Yeah, and then they’re like, “Oh yeah, okay give me your PNL.” I was like, “What’s a PNL?” “Oh it’s just like how much you’re profiting and losses.” Okay, I just built a spreadsheet. “Hey, this is how much cash we had and this is how much we burn, right?” They’re like, “No, I want a PNL.” And you’re like, “Okay.” Then Pedro and I, we literally went to study accounting and literally, like did our books from scratch for three entire months because we had absolutely no accounting. That was like a great learning experience but it took a lot of time and energy. When we got to Brex, we’re like, okay, we’re not going to have this problem, we’re going to have our accounting really good from the first day. We’re going to have our expense management systems and like all these things really well set up from the first day. Because, if you know what you’re doing, it takes a day to set up everything. It’s not that big of a deal. It pays so much dividends later on. Because one thing that’s really important in being able to control your business is know how much you’re spending and that doesn’t mean cash burn. Losses and spend cash burn are very different things. Know how much that you’re actually making. Knowing what your spending is at,

Henrique Dubugras [00:36:23] the categories, the vendors, like all of that. That’s a pain in the ass to do. If you’re going to do it manually, with the existing systems, like I know it’s really annoying and that’s why, like a lot of times, founders just like don’t do it and say, “Hey, when I raise my Series A, when I raise my Series B, I’ll just pay someone to do it.” But it’s not the type of thing also that you can throw money at a problem and then it’s magically solved. You’re going to have to spend your time on this and you just spend a day in the beginning, setting these things up right, you won’t have to deal with it in the future and it pays so much dividends. That’s one of the lessons. We just like, built the financial part of the company right from day one.

Anu Hariharan [00:37:04] Day one.

Henrique Dubugras [00:37:04] Let’s talk about the second element of your product because the first element is the founder signs up, you’re making it really easy for them to get access to a card, as well as a certain credit limit because they have some cash in the bank they’ve raised from credible investors. What exactly does Brex do to help set the process of accounting right for them? Basically a few things. The first one is we think it’s important for our company to know how much they spend on a vendor, on a vendor basis.

Anu Hariharan [00:37:33] When you say vendors, like eight of you guys–

Henrique Dubugras [00:37:34] Like Uber, AWI’s, Google, et cetera. Today, the status quo is you know how much everything you paid through ACH or wire, you kind of know what you’re spending on, but everything that you spent on card you have no idea, right? You just credit card $100,000, I have no idea what’s in there. Then you have to consolidate all these extra reports from all these different services so you know how much you’re spending, right? We actually give you a report and upload to your accounting system report, how much you’re spending by vendor, which is not possible in the current cards today. The second thing is that, like keeping track of receipts is something that, if you don’t enforce the policy from day one, people just won’t do it in the future. You’re going to have problems with that. You’re going to have to get an audit or people now have all these expenses, et cetera, so we just created a super easy way they can just text the receipt to us and that’s it. We automatically match it to a transaction and no, we don’t have humans go and manually doing it, it’s actually automatic. The reason we could automate this versus other companies couldn’t is because we’re both the credit card and we have a receipt, so matching a receipt to a transaction is a way easier job than reading the receipt and figuring out everything about it. That’s the second thing that we do, that it’s super useful. Then we do all these things, like we categorize everything right, because the automatic categorization, without getting too technical on payments,

Henrique Dubugras [00:38:49] but like the automatic categorization from credit cards they trust this thing called MCC’s, and that’s always wrong. Because, for example, Uber, a lot of times comes as “car rental.” You don’t want Uber as your car rental, you want it as like “taxi.” We re-do that in the right way, there’s a bunch of things we do that you just don’t have to worry about it. We use it for ourselves and we literally have no trouble in accounting, we have our books to every day, it’s beautiful.

Anu Hariharan [00:39:17] That’s pretty awesome, that sounds great. I know even though you’re launching publicly only now, you have been piloting your product for a while. Can you talk a little bit about your customers? What types of customers use your product? Is this really early stage startups, or later stage and how do the different use cases work?

Henrique Dubugras [00:39:35] We have two use cases. We’re usually on the earlier stage, we’re people’s first card. They basically sign up for us or switch to us because we’re super easy to get, we deal with all these accounting things that they don’t want to deal with and they can just not worry about it and not have the hassle of doing it. We have a lot of our YC batch uses it and the following YC batch, a bunch of people use it. We definitely use all the YC strategy of getting a lot of YC companies and we’re very, very happy about that. The other thing is for companies that’s over a certain size, we have another set of functionality that allows them to have better controls and like policies. We got companies like Affirm or SoFi or Color Genomics to use Brex because they, when they get bigger, they start having problems with their current corporate card, so we help them add better controls and better reporting and a lot of larger company, kind of functionality. That allows us to scale with the company. We’re pretty sure if someone starts with Brex, they can scale all the way with us versus having to migrate to a different solution.

Anu Hariharan [00:41:00] One of the things I know when we were working together on talking to some of the growth-stage companies, their bigger pain points was with controls and especially as the employee base expands, how do you know what’s the spend on expenses was this accounts payables and so on.

Henrique Dubugras [00:41:17] Exactly.

Anu Hariharan [00:41:17] That was something that’s still a pain point, that’s not solved.

Henrique Dubugras [00:41:23] Exactly.

Anu Hariharan [00:41:23] Why do you think this is getting solved now? Why didn’t it get solved, was this not a problem 10 years ago?

Henrique Dubugras [00:41:30] Paying B2B with cards has grown a lot over the last five years. If you think about the largest company in the world, their main way to receive money is card, right? Like Microsoft, Google, Facebook, you pay all your Facebook ads with card until you’re really, really big and you could still pay with card but that’s a discussion for another point. Before a card was just for T&E. Card was something that you’d pay, you gave your employees for travel, for paying cabs here and there, but now card is becoming this procurement way of paying. A way to pay your actual big expenses. A lot of offices are starting to take cards like WeWork. You can literally pay with your card. Now it’s getting to a, it was always big, but now it’s growing really, really fast and demanding new technology in the space to be able to scale to the company. It doesn’t happen and then, “Oh, now I grew, now I have to move everything off of card and into invoices.” I think that changed over the last five years.

Anu Hariharan [00:42:36] I also think with the new tech stack and the flexibility, it’s kind of absurd that you have a control or a set limit for the entire year versus there’s something you can do more flexible, at an employee level. For the company to better manage expenses and especially startups where the cash point really fluctuates.

Henrique Dubugras [00:42:55] Exactly.

Anu Hariharan [00:42:55] Month-to-month. Yhank you so much Henrique for joining us today. I’m sure that a lot of people probably really enjoyed the discussion, especially from how to start a FinTech startup.

Henrique Dubugras [00:43:08] Thank you very much.

Craig Cannon [00:43:10] All right, thanks for listening. As always, you can find the transcript and video at blog.ycombinator.com. If you have a second, it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.


  • Y Combinator

    Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200). The startups move to Silicon