Can Brex’s New CEO Pedro Franceschi Revive The Struggling Fintech?

Pedro Franceschi starts his day not with coffee, but with vedic meditation, chanting mantras to awaken his mind. He tracks his sleep, steps, sugar intake, and workouts religiously–it’s a disciplined mentality he’s trying to instill in his employees as the new sole CEO of the fintech startup Brex.

Last valued at $12.3 billion in 2022, the company provides corporate credit cards, expense management software, online bill pay, and other financial services in a platform they say is easier to use and has higher credit limits, particularly for high-growth, venture-backed companies whose spending appears outsized compared with cash flow.

The company’s youthful cofounders, Franceschi, 27, and Henrique Dubugras, 28, have until this point served as co-CEOs, Dubugras playing the public-facing role of a visionary hype man and Franceschi managing operations internally and solidifying the details. But last month Brex made a surprising announcement, saying Franceschi would become its sole CEO while Dubugras would become chairman of the board. Dubugras will stay on at Brex full time, with the cofounders managing many of the same responsibilities as before—Dubugras handling relationships with board investors, Franceschi overseeing Brex’s technology, operations and people. But as the company’s is under pressure to turn a profit and its private market valuation, according to Caplight, has plummeted more than 65% to $4 billion, Franceschi’s talk of an initial public offering seems wishful.

“The limiting factor is whether you’re really aligned on the direction in which you’re going, so we’ve tried to make it clear from the very top,” says Franceschi, referring to the problems Brex encountered when the company had two CEOs.

Brex started with corporate credit cards, pitching them to fellow Silicon Valley startups in 2018 as an option that could provide high credit limits underwritten by startup-specific financials like venture funding. In other words, Brex was willing to give credit cards to startups without requiring guarantees from founders. After 2019 it began expanding into areas like bill pay, corporate spend management, travel management, and, most recently, checking accounts, in an attempt to effectively be the sole company for managing a CFO’s
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workflow.

Along the way, Brex has had trouble defining its target customer. In 2022, it jettisoned tens of thousands of small and midsize businesses like hair salons, coffee shops, and mid-size ecommerce businesses because they didn’t have institutional backing. Ramp, another corporate spend management fintech that entered the market after Brex and is widely considered its closest competitor, took advantage of this by onboarding many of those same customers, having been consistent in serving US-registered businesses in any segment with a minimum checking balance.

Zeroing in on a target market has been costly. According to The Information, Brex burned $200 million in 2022, the same year the company raised $300 million. Back then, startup funding was lush and their customers were using their Brex cards, spending freely. Brex reduced its losses to some $17 million in the fourth quarter of 2023. According to Victor Lazarte, a general partner at Benchmark Capital who first invested in Brex as a personal investor in 2017 and joined its board in 2018, Brex over-invested in products related to credit risk for smaller companies. The company laid off 20% of its workforce in January 2024 and has no plans to increase headcount for the foreseeable future. “You just hire a lot of people and you start working towards a lot of different things because you have a lot of resources,” Franceschi explains.

Now Franceschi says Brex has learned from its mistakes and is determined to spend its remaining funds more carefully. Franceschi says its cash burn is down to around $10 million per month and it has enough funding to last four more years.

Brex says it’s targeting enterprise customers and small firms with institutional backing (“from two employees to 20,000 employees”). Franceschi is eager to note that it serves over 130 public companies including Robinhood, Doordash, and Warby Parker. Since credit card specialist Brex is not a bank and does not profit from the interest margins credit card companies typically benefit from, its biggest source of revenue are so-called interchange fees, which amount to 2.7% on each transaction, Brex says.

Franceschi is calling his new plan “Brex 3.0,” an operating model he says has reduced management layers and has adopted a singular roadmap for the entire company, with four large software releases per year. Its summer release introduced accounting automation tools, customizable credit card spending limits for different expense categories and line itemization in bill pay. It’s also tweaking its sales strategy from trying to sell companies its entire suite of products to selling products one at a time—a technique that may be more convincing to enterprise customers, who have more difficulty changing services because of their complexity and size.

Franceschi describes Brex 3.0’s new north-star goal as one to help their customers “make every dollar count”—a promise which sounds very familiar. Ramp has long benchmarked its growth according to the percentage of money it saves its customers, currently standing at 5%.

The people close to Franceschi, however, say he is more process-oriented, efficient, and precise than outgoing founder Dubugras, described as more of a visionary. “I remember very vividly that first lunch, sitting with these two sixteen-year-olds,” recalls Benchmark’s Lazarte. “Henrique was like ‘Hey, let’s meet again’—but Pedro? Everything I said, it was like Pedro was dissecting me. He was very interested in the details.”

In company meetings, Franceschi has always taken the lead, setting deadlines and action items, while Dubugras stays mostly quiet but to strategize and draw attention to the big picture, people who have worked at Brex say. With the title change, reports no longer have to seek approval from both cofounders to move projects forward—Franceschi, day to day, will have the final say.

Brex chief financial officer Ben Grammell says the prospect of going public is still several years off, explaining that both macroeconomic conditions and Brex’s own financials must first improve. Though the company says revenue increased 35% in 2023 and gross profit increased 75%, the company has yet to produce a net profit.

Says Grammell, “A change of leadership like we’ve had recently probably isn’t something you would like right before going public—you want there to be a period of transition and stabilization ahead of the process.”