Chasing the American Dream - Pedro Franceschi

First, thanks so much for the opportunity of being here and speaking with you all. We really appreciate connecting with the startup community every time we can because we are the corporate card for startups. But just going into a little bit about— I mean, chasing the American dream, I think, is kind of the latest years of what I've been doing. But I think my background, we have to trace back on kind of like how I started coding, which I think happened quite a while ago. So, just some context on me. I'm from Brazil originally. I was born in Rio, which is a very nice city. And I actually started coding when I was 8 or 9 years old. Not really sure why, but just I wanted to control the computer somehow. And then I started like, I figured out that I had to learn this language called C++, which was not the best language to start coding with. But I started like Googling how to code. I read some books that I found. And then when I was 12, it's kind of how I got a little bit more serious into coding. So that was around the same time that Apple launched the iPhone in the US. And if you remember back then, in 2009, the iPhone was sold with AT&T. So if you flew back to Brazil or any other country, you couldn't use the phone down there. So there was this thing called jailbreaking the iPhone to get it working down in Brazil. And all my friends that came to the US to buy phones, they flew back to Brazil and the phones didn't work down there because they were locked. And there was this huge thing of like jailbreaking the phones to get them working in Brazil. And I was like basically known in Rio as the kid that was jailbreaking iPhones. Everyone that came back from the US came to my house and was like, "Hey, like jailbreak this for me." And I was like, "Okay." But then 6 months later, Apple launched the new iPhone, the iPhone 3G, and they fixed the exploit that people were using to jailbreak it. So there was no way to unlock it anymore. So you bought an iPhone, like a brand new iPhone in the US, You came back to Brazil and it didn't work. So I started playing with it for 2 or 3 months and ended up finding a new exploit back then. And it was the first jailbreak for the iPhone 3G in 2009. And I got pretty involved in this iPhone hacking community since then. Because no one, everyone was using my tool to jailbreak the iPhone. Kind of on the same sequence, like a few years later, I also got in trouble with Apple for translating Siri from English to Portuguese. And breaking some patents in the process. They were not super happy about it. Turns out they had this patent that was registered in 150 countries. They sent me legal notices in a bunch of languages, like, to make sure I really got the message right. My parents were not happy about it. And then it was just like a lot of fun working this jailbreak community in the very early days. I also built like an app for the iPad that was kind of a window manager that ended up making $300K in revenue. And then I had to explain to my mom what that money was about, because she thought I was doing something illegal online. I was just like, no, this is a software. This is safe. Like, this is fine. And funnily enough, like, all these things that I was doing on the iPhone community is kind of how I got into payments, which brought me here a few years later. So I went to work for this company in Brazil that was basically building a version of Square, but down there. They had basically a bunch of security issues in their iOS app that were obviously serious because they were doing payments. So they were doing like basically mobile payments for merchants. And I went to work for this company and I stayed there basically 2 years learning how payments worked. And I was actually pretty scared by how bad it was. It was this pretty like old system that people were just like using and no one really try to fix it or make it better. And then after 2 years there, I ended up meeting Enrique, my co-founder, in the end of 2012. We actually met through Twitter, which is a very funny story. We were discussing programming text editors, Vim versus Emacs. We bonded over that and became friends. But anyway, Enrique back then, he was also building a startup that was basically a version of Tinder, but before Tinder, and he had to accept payments. And he was having issues implementing with like everything that was out there. There was nothing like Stripe in 2012 in Brazil. And we decided to just build kind of like something better than what was out there. So our idea was let's just build developer-friendly payments APIs. We didn't even know about Stripe back then, but it sounded like a good idea and that's all we knew. So we were 16 back then when we started the company. We didn't know anything about payments, anything about fintech, anything about finance. But we found these two crazy investors that decided to give us $300K. And that was like really kind of like the only money we could raise because we were building this crazy business in Brazil. Brazil was in a pretty bad situation from an economical standpoint, so no one from the US was investing there. So we raised all that money and started a company called PagAme in the beginning of 2013. And we basically built that company for 3.5 years. It was like a super fun journey. We learned how to do everything about building a company. Like first, like we were 16, so we had to hire people that knew what they were doing. The only thing we knew was like, how do we code the APIs? We didn't know how any of the actual like payments backend things in the fintech worked. But it was like a super fun journey because we built a company to like 150 people and we became the third biggest player in Brazil in payments in a little bit over 3 years. We were probably doing like a billion and a half in GMV when we sold the company. And it was just kind of our first version of how to build a company. And I think there was a couple of like lessons that we got from that. I think the first one is that like we didn't have access to venture capital. So our only option was to be cashflow positive since day one, actually since probably day, I don't know, 90. So we were, since the beginning, we were very kind of like, ruthless about like, how do we build things to generate value to people? Because like, not because like, that's like kind of what you should do, but because we didn't have any other option. If we were not cashflow positive by the end of the month, like we wouldn't be able to pay people's salaries and we would have to go bankrupt. And that kind of discipline, even like forced, was really good for us because it made us really like understand what customers cared. And I think we ended up building some pretty interesting products down there that were super interesting. Meanwhile, in that story, while we were working and building the company, Henrique decided to apply to Stanford. Henrique always wanted to study abroad and he convinced me to apply basically 2 months before the deadline. So, there was this year in 2013 where I was basically trying to bootstrap the company, living in Rio, the company was in São Paulo, which is like 500 miles away, in high school, in applying to college in the US. It was not a super fun year, but I ended up deciding to apply. We both got in and then we started to defer our admission as much as we could because we're building the company. Then in 2016, Stanford called and said, "Hey, like it's been 2 years, you have to decide if you're gonna come now." And then we were like, "Well, we always wanted to come here and build something bigger." And that with a bunch of other factors made us decide to sell the company and come here. I think for a couple of reasons, like the first one was we saw that like our previous company in Brazil, like if in the best case scenario, it would be worth like, I don't know, maybe $1 billion, but it wouldn't go anywhere beyond that because no one ever built like a tech business beyond that size in Brazil. I think basically for two reasons, first one is access to capital. Like you just don't have like enough, and you didn't have back then at least, that much people investing in venture in Brazil. And second, just access to talent. Like something that I think people like underestimate is like being here in the Valley where we have like all these amazing people that have done a lot of the stuff that you have to do before is incredibly valuable and we didn't have that back then. So our decision was like, let's just like sell this company that was working, like the company was super profitable and come to the US for college. And when we came to Stanford, like the initial idea was let's just go for college, like stay for a year, chill, like we've been working for 3.5 years nonstop, and then we figure out what's next, but it didn't work. After 6 months in, we dropped out of Stanford and got into YC. And on YC, we actually got in with a pretty crazy idea, this augmented reality stuff that we were thinking about, like we did payments and then like, we were like, yeah, like payments is too complicated, like let's just do something simpler that is actually cool. We went to this Microsoft store, like in Palo Alto Mall, and we tested like Oculus and we were like, that's amazing, let's just do that. And we got into YC with that idea. And it turned out that VR is a hardware problem. We didn't know anything about hardware. But on YC, we saw that 80% of the companies couldn't get a corporate card. Like all of our friends, they literally went to the bank, they tried to get a credit card and they were rejected. But, and it was kind of weird, right? Because those companies, they had money in the bank. Is not that they wouldn't be able to pay their statements. So, we wanted to understand kind of like a little bit what was going on. And the banks were basically going to the startups and saying, "Hey, like you have to be in business for a year. You need to have like all this revenue history and all of that." But like it didn't really matter because they had the cash. So, we were like, that's kind of broken, right? And then basically the initial idea of Brax was let's just build a corporate card that you sign up, we see how much money you have in your bank, and we give you a card. That was kind of like plain simple. And then we started like figuring out what was going on and how to actually build this. And we saw it was a little bit more complicated than it sounded. Like the reason no one ever built that before is not because no one thought of it. Like building corporate cards is pretty, like I think simple idea. The execution was really challenging. And I think what we realized, which I think is kind of interesting on our background is like, a lot of the stuff that we needed to start this company were basically possible because we built a very similar company before. So I think something that we learned that I think was super relevant for us is make sure you build something that leverages your previous experience. So I think I started thinking about payments in 2011 and just seeing that for a while, we just build a mental model of how these things should work. which is super helpful. So our previous company, different than Stripe, in Brazil you have this very unique thing called prepayments. So you basically have a credit side of payments that is super relevant. And the company at the end was regulated by the central bank like a bank. And when we came to the US at Brex, the 3 biggest challenges we had was first, we had to build the tech. Second, we needed to understand a lot about the regulatory environment. And third, we needed to understand a lot about finance because we're giving credit, right? And all these things, in one way or the other, we had kind of done that before. And so we were in kind of this unique position of just kind of like doing the same thing on the other side of the payment chain, on the issuing side and not on the merchant side. And that for us was kind of super unique. So I think what we did that was very different was just doing the same thing for a long time and just kind of executing on it and just exploring the different flavors of what you can do with what you've done before. And then I think on Brex, like we got a few things kind of right. We got a lot of things wrong also, but on what we got right, I think first thing is we were very kind of clear on the value prop and we decided to do one thing really well. So like, I think when we started Brex, we were just like, the only thing that matters on the card in the first like year was making sure it worked 100% of the time. Nothing else mattered, like the dashboard didn't matter, the user management didn't matter, the onboarding flow didn't matter, we were onboarding everyone by hand. But we were just focusing on how to do this very simple thing that is very complicated to work, work 100% of the time. And then I think the other thing that we noticed that was right before we launched is like, okay, given that we have a card that works 100% of the time, how do we go and make more people use it, right? And then that's kind of when we got into how do we do our instant onboarding and how do we make sure the onboarding flow looks good and all that. And again, like this built on top of like we had this first thing working out there and then people were just like, how do we scale this to more companies and all that? But we were always very like laser focused on doing very few things well and making sure we were leveraging what we've done before. And I think the third thing we kind of did right, which I think was interesting is just like when we were hiring in the beginning, we were just very clear about like, hey, like people that had our same values and at the same time people that cared about building things correctly since the beginning. Because something that we've seen that a lot of companies do kind of wrong in the fintech space is they start building this MVP. They don't really think about like how the backend actually works. So you build on top of something that is already out there, which might make sense for you to launch, but then later on you cannot go and actually build and fix it, the things that you have, because you depend on all these things in the backend that you never really considered. Considered. So something that we got right, I think, is just hiring people that have done a lot of that stuff before and just basically leveraging their experience to avoid a lot of the common mistakes. So I think a lot of the thing that when people talk about what's different between US and Brazil, I think obviously access to capital, as I mentioned, but this thing of having people that have done that stuff before is incredibly valuable because a lot of our time in Brazil and a lot of the difference between building something here and down there was just like we avoided a lot of the mistakes because people have made them before and we can just get them here, like get them to believe in what you're building and the vision and all that, and then just avoid the mistakes together. So that for us was super valuable. And I think more broadly on Brex, like I think what we realized, like I think more in the longer term is like we always had this idea of like, how do we like expand this like beyond? And we saw that like credit cards for startups is just like the place to start, obviously. Getting corporate cards is not a problem unique to startups. And when you look at a company like Amex and what they've been doing for literally 150 years, actually Amex was a railroad company before, which is super interesting. It's just fascinating kind of the amount of opportunity that you have. And I think the reason we came to the US initially was kind of like that first thing of like our company was capped in the best case scenario to be worth like a billion dollars. And not really being like something massive that could take over everything. And I think Brex's vision is really to do that and like figure out how do we like leverage the fact that we are in this country, that we have like all this great market, these great people, this great access to funding. We're super fortunate to be here to do something that is impactful and that just changes the space and no one tackled for the last literally 40 years. And yeah, that's pretty much what we're doing at Brex. And yeah, I'll just, take over some questions. So thank you. First one is, how do you launch a product quickly in a heavily regulated industry? So that's a great question. I think there's a couple of things. Like, first thing is just being very disciplined about understanding what lawyers actually mean. So like, When we went to launch, one of the features that we have on Brex is instant onboarding. So you go to our website, you sign up and you get a card right away. And that when we went to talk to lawyers the first time about this, they said like, "Oh, that's impossible," or like, "That's illegal." But like, how illegal? How impossible? Where exactly on the law does it say that it's illegal to have an onboarding process done automatically? And it turns out there's no place that that's written because it would be stupid. So when you go actually, going really deeply and understanding exactly where are the constraints and where exactly are concerns, I think really matters. So something that we've always done is like we read ourselves like the Visa, MasterCard manuals and go really deeply understanding exactly where are the blockers. I think doing that really helps. The other thing, which I think is more on like how to deal with entities that are regulated like banks and all that, is just understanding exactly what are their concerns and preempting them. So like when you go talk to a bank or like someone that is regulated for some reason, something that we've always done is like understanding exactly their concerns And just saying, hey, I know you're worried about this, but this is how we're solving for this before even they ask, because it just proves that you understand what are the risks and gets everyone on the same page. Next question is, when did you last use a jailbroken iPhone? It's actually been like 3 or 4 years. It's not a thing anymore, unfortunately. Can you speak a little more on the crazy $1 billion valuation for such an early stage startup? What's the secret sauce? Congrats and great job. Thank you. I think for us it's, I think like when we look at what we wanna do, like we're still very, very early on. I think the reason we were super fortunate to raise this valuation recently was a lot because of like just early traction. Like I think we, in the very beginning, like with the thing that I was talking about, the value prop kind of really makes sense because if you're a startup today, getting a corporate card is, nightmare and we did it easier. And I think it's kind of like this better, faster, cheaper type of thing that when we launched, like we, like in 6 months, like it was just, the growth was just kind of there and people saw it. And I think the other thing that for us was really beneficial is like the startup community is really small as we know. So people, there was just a lot of word of mouth on like, hey, like Brex works, like I got this credit card, which is better than like Amex or whatever, or I was able to get a card besides like getting from Amex. And that was really special and powerful. So I think it was just a lot of this tackling that unique ecosystem and leveraging that as much as we could to grow. What helped you decide which value prop and features to focus on, like instead of dashboard or onboarding? I think this was again on just kind of going back to first principles and understanding exactly what matters, I guess. So when you're building like a corporate card, like a lot of people are like, oh, I want all these features. Like I want to have like 1,000 virtual cards. Like I want to have all these controls. But the only thing that matters in the beginning is just like the card has to work 100% of the time because if it doesn't, you're just going to get your Amex and swipe and then bye-bye Brex. So what we were very ruthless about is just like the only thing that matters is this. The only metric that we were looking was that. And we're not looking at growth. We're not looking at GMV. We're not looking at anything. But only like how many times someone tries to swipe the card and it doesn't work. Um, and I think like, and then what is the next thing that matters after that? Okay, the next thing that matters is like, okay, inviting your team members because you need more people swiping, right? And then after that is like, how do we onboard new companies here? And then just being like very ruthless, like prioritizing one thing at a time and making only this one thing really well, um, I think is kind of what mattered. And I think like when you are in such a kind of complicated space like cards, like I think you have to be very ruthless about prioritization because there's a lot of things that are nice to have and very few things that actually matter to get right. And I think we kind of focus more on the things that would make or break the company in the beginning. How did you navigate the US immigration system when starting the company? That's a great question because that actually was tricky. So we actually figured out Googling that it was this kind of green card process called EB-1. And we found this great lawyer that did it. Like, I'm happy to give recommendations if anyone's interested, but the disclaimer is that that was before Trump. So that was a little bit easier. Unfortunately, now it takes longer, but we were super fortunate to find this person that could help us. And I mean, yeah, we're here now, so it worked. Yeah, I think that's it. Questions? Okay. Why Brex? That's a good question. So we actually started with the name Vyond, and Vyond was the VR company that we got into IC with, which was pretty crazy. And then we were like, oh, we need like a 4-letter domain or a small domain name that is pronounceable that we can buy the.com. So we went to this website, like there was something like, I don't know, small English names pronounceable. .com and we saw Brex and it was like a reasonable price and then we made an offer and then we got it. It was kind of that. And then like people started making all the jokes after, oh, like Brazilian Express, Brexit, like there's like a list, there's like a Slack channel for Brex jokes in our company. But yeah, anyway, it was pretty random just because it's a small name, pronounceable. How did you build the initial industry partnership? How do you initiate industry partnerships? We actually, that's a good question. So it was kind of a long process, but the long story short is we found a bank that never issued cards before and we said, we're going to help you doing the entire thing from scratch. So basically got them licensed on MasterCard, we built all their compliance infrastructure, we helped them with everything. Then we said, these are the things that you should worry about that we could do wrong. We gave them kind of like real-time visibility and we, kind of did all the job for them. And at the same time, we hired a lot of people that have done that stuff before, like our general counsel was the second largest lawyer at Stripe. So he's done that stuff before. So it was a combination of going to someone that had a lot to gain, never did that before, and having people internally that have done this process. Cool. Thank you.