Brex Co-Founder and CEO Henrik Dubgrass speaks on stage during TechCrunch Disrupt San Francisco 2019 at the Moscone Convention Center on October 02, 2019 in San Francisco, California.
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brakesThe Silicon Valley lender to start-ups is dropping thousands of small business customers to focus on larger venture-backed clients, according to co-founder Henrik Dubgrass.
company started inform customers This week they have until August 15 to withdraw funds from online accounts and find new providers, Dubgrass told CNBC in a Zoom interview on Friday. Axios reported the change on Thursday.
move a. is the latest sign of sea change A sudden change in market conditions as it happens among start-ups is bringing a new discipline to companies that previously focused purely on growth. This change began late last year, when shares of publicly traded fintech companies such as paypal Started to fall
Dubugras said he and his co-founder Pedro Franceschi made the decision in December because their start-up customers were increasingly demanding. Falling valuations for public companies soon moved to the private sector, declining valuations for pre-IPO companies and forcing firms to focus on profitability.
That means some of Brex’s biggest customers started requesting solutions to help them control expenses and hire cheap international employees, Dubgrass said.
At the same time, traditional brick-and-mortar small businesses, including retailers and restaurants, which Brex began adding to support lines in its 2019 expansion, resulted in worse service for the start-ups they valued more. Told.
“We reached a point where we realized that if we didn’t choose one, we would do bad things for both” groups of customers, he said. “So we decided to focus on our core customer which are start-ups that are growing.”
Dubgrass said that the initial news of the announcement caused widespread confusion among Brex customers, prompting Franceschi to tweet about the move.
He added that Brex is holding on to clients who have secured any form of institutional backing, including accelerator programs, angel investors, or Web 3.0 tokens. They’re also keeping traditional companies that Brex considers midmarket in size, which “have more financial history, so we can underwrite them for our credit cards,” Dubgrass said.
shift is latest learning moment For the two young co-founders, the Stanford University dropouts who took Silicon Valley by storm when they created Brex in 2017. The company was the fastest to reach unicorn status and was last valued at $12.3 billion.
The pair mistakenly thought that expanding the services to more traditional small businesses would be an easy move. Instead, the needs of the two groups were different, requiring a different set of products, he said.
“We built Brex with 20 people, so we thought, why can’t we build a different Brex with another 20 people?” Dubugras said. “I’ve learned that focus is of the utmost importance; it’s definitely a lesson I’ll carry with me forever.”
While business leaders have been warning of impending recession In recent weeks, the decision was not based on concern that small businesses would default on corporate cards, the co-founder said. That’s because most small businesses have to repay their cards on a daily basis, posing a slight risk that the breaks won’t be repaid, he said.
“It’s terrible. It’s also the worst outcome for us,” Dubgrass said. “We put so much money into acquiring these customers, serving them, building a brand, all these things.”