How Brex signed a $5.15B Deal in ~40 Days

Before we start, I just want you to sign something really quick.

All right.

Now that you've signed the official document, you are now legally required to share everything about this M&A transaction.

It happened incredibly fast. The whole thing from first serious meeting to signed definitive agreement was a little bit over 40 days. Rich started the company 30 years ago with that thesis. Time after time after time, Capital One has been very aggressive on investing in technology ahead of like a lot of their peers. And, you know, only bank, if you look at a massive scale that doesn't run on mainframes, it's actually on cloud. They've spent a lot of time sort of positioning themselves in that direction. We had always sort of assumed that it would be going public because that is what a lot of companies do. I started to go deep into what could this actually look like? It was so unique that it was impossible to unsee it, which is like, look, we can accelerate 5, 7, 10 years of growth. And then 3 is we sort of jumpstart this entire industry by saying, you know, not only we're going to do this across card banking, expense management, bill pay, accounting AI, but at the same time we're going to do this as a bank at a country-level scale. Nothing's happening to startups. We're just doubling down, accelerating growth by 50% next year on the team. A lot more dollars go into product development and we're accelerating our roadmap by 2 to 3 years compared to what we would do as a standalone company.

Sponsored by Brex.

It doesn't feel like an exit. I think that's the thing that is so different for me.

So you're doubling down on warmode?

100% doubling down. We never thought of selling the company and we did it because we thought it was fundamentally different than any other combination. I'm not going to lie, the last 2 and a half were really hard. This allows me to go back and say all of this really hard work was worth it.

This is the most difficult question I'm going to ask you today.

Are you happy?

Pedro Franceschi, welcome to Sorcery!

Thanks for having me.

This is very dramatic, but I love the long table. Okay, so Before we get in, I just want to— before we start, I just want you to sign something really quick.

What is that? Don't worry about it, just sign it. All right, there you go.

Okay.

It is signed.

Now that you've signed the official document, you are now legally required to share everything about this M&A transaction. How did this happen?

Oh God. Okay. So, uh, let maybe, maybe let's sort of recap. So, um, so it happened very fast. That's the first thing. And then maybe sort of to recap, I think it's good to start on why Capital One did what they did, then why we did what we did, and then what we think this means for customers in the industry more broadly. So, so maybe starting with Capital One, I mean, um, they— a lot of folks that understand a lot about financial services have a lot of respect and admiration for them, but the reason is because they're really the first fintech. They sort of invented this idea of fintech. And what they did in the '90s, they realized that, you know, consumer card underwriting was like dramatically inefficient. And when you brought in data and technology into the process, you could dramatically expand the number of customers you served and the customer experience and the amount of credit you could give to them. And Rich started the company, you know, 30 years ago with that thesis. Over time after time after time, Capital One has been very aggressive on investing technology ahead of a lot of their peers. And it's the only bank, if you look at a massive scale, that doesn't run on mainframes, it's actually on cloud. So they've spent a lot of time positioning themselves in that direction. And when they looked into this market, what they realized is that customers' expectations have completely changed. And in the past, you used to have financial services on one side, software companies on the other side. And these two worlds were totally separate. And what we created at Brex is a new category of company where you bring these two worlds into one. And, and they realized how much this changes the way a company manages their money because you can just move so much faster, you can make better decisions, and a company becomes what you spend on. So there's a very important role that a tool like Brex plays into a company. And when they saw that and they realized the technology that we built and you know, the fact that we're the leaders in the market, we created the market, uh, and especially in segments that are the hardest and most complex, like the enterprise. Um, and then they looked into how we build it, which was from the model of the stack up all of our financial infrastructure from scratch. Um, they, they realized that there was a 1 1 5 scenario, right? Uh, and then when you combine as if the, the scale, the balance sheet, the brand distribution of Capital One, that would be a pretty special combination for them. Then when you look into our side, like the really the reason we did it was very similar was, you know, at Brex, we always had a very large ambition to build something at, you know, country level and sort of global scale. You know, I moved to the US from Brazil to build something really big. And then once, you know, spending time with Rich and the team, and I realized that the magnitude of what could be built, it was impossible to unsee it. Um, so, you know, Capital One has millions of businesses today that they serve. Um, they have, you know, a $6 billion marketing budget, a $6 billion R&D budget, uh, and those are, you know, 50, 150 times bigger than, than ours today. And, and, and that was extremely compelling from a just scale, what we get to build together. And then, and then I think on our side, you know, I thought a lot about, you know, what does this mean for the company and for me and for the team? And really the, the clear thing that was, as we spend time together is I don't think we would ever do this if a company that wasn't founder-led as well, because the reason it was such a good fit with me and with the company and the team was because there was a very sort of clear founder obsession and actually becoming the winners in this space, in this industry. And then when you look into sort of the last point, which is customers and all that, I think the really interesting thing is, I spent time over the past 5 or 6 days talking to a lot of our CFOs, a lot of our customers in the enterprise and startups and sort of all over the range. And the reaction was sort of overwhelmingly positive. Um, because, you know, customers are saying, well, you know, before, you know, I was, you know, CEO of Fortune 50 or Fortune 500 or Fortune 100 company making this decision to bet on a company like Brex that was like much smaller than Amex or much smaller than JP Morgan. Um, and, uh, and now not only, you know, they, you know, are sort of, you know, made into the winners of the space, but now they get to operate with 100 times bigger budget on R&D and build product much faster. But you know, second, this bank understands why they are, they're gonna be the winners and why I made that decision. So it legitimizes them in many ways. And then I think the third thing is I'm not going anywhere, so I'm gonna continue being the CEO and founder. Uh, and, and I think to me something that was very important was actually doing it in a way that, um, that I continue to have a lot of autonomy to build things in a way I believe. And that was a very important point for me and Rich. As we started to discuss it, like how do we continue, you know, the insane momentum that Brex has now and accelerate that versus, you know, bogging, bogging ourselves down with, you know, a lot of integration costs and things that wouldn't necessarily add value for, for customers. Um, but going back to timeline, I mean, as I said, it happened incredibly fast. Um, so the whole thing from first, uh, sort of serious meeting to signed definitive agreement was a little bit over 40 days.

40 days?

Which was wild.

When did you first meet?

Someone on our board knew their corp dev team for a while and we met, you know, probably right after Thanksgiving. That was the first time we actually started seriously spending time and they had a strong admiration for the business over the years. And I think we had a lot of mutual respect. Um, but we, we started, you know, we shared very basic materials, um, and, uh, and, and momentum just picked up. Um, we, we got a term sheet on December 22nd, right before the holidays. Uh, so I was in, uh, I was in Miami with, uh, my wife's family and my in-laws, uh, for Christmas. And, uh, you know, suffice to say I spent a lot of my Christmas, uh, negotiating terms and, uh, discussing things with lawyers and bankers and all that. But we did a board meeting, folks were excited about where things could land. And then we signed a term sheet first week of January, January 2nd or 3rd. And then we had a very sort of fast timeline. I spent 9 hours with Rich, the CEO, on, I think it was January 2nd or 3rd. We were supposed to be at lunch, was supposed to be a 1-hour lunch. And we ended up having lunch and then we continued chatting, then we had tea, then we had dinner, then we had maybe another water or something. And the conversation just kept going. And I think it really clicked the potential of what we could build together. And then a lot of diligence, a lot of work from the teams. And I think, I think two things to me that really stood out in the process. One is you gotta respect the conviction, uh, of, uh, and the speed in which a $150 billion company moves to make a bet of this size in like 30 days effectively from maybe 3 weeks from a term sheet to actual docs. Uh, that's, that was really remarkable. And the second thing was just the level of rigor that they went in. Like they understood everything about the business, everything about the way we run risk, the way we build product, the way we think about go-to-market, the way we think about unit economics, the way we think about credit, like everything. Like they went into an insane level of detail. And that was really, really cool to just see the, you know, the thousands of decisions you make in the course of building a company, you know, at the end of the day, being sort of appreciated by someone that deeply understands the industry and deeply understands many decisions that we made that were misunderstood for, for, for honestly the last 8, 9 years, like building our own financial infrastructure, going upmarket, you know, having this obsession over building from the bottom of the stack up on everything we've done. So a lot of that was really exciting and we were super impressed with their team as we, as we spent a lot of time together.

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So this is the largest, one of the largest bank fintech deals of all time.

In history.

Mm-hmm.

A lot of uproar and I guess energy on the internet is all around valuation. Mm-hmm. I'd love to understand how you got to the $5.15 billion valuation and how valuation for Brex has evolved over time.

So, um, so, so couple of things. The, the first one is there was a very good, uh, post from, from Jason from Saastr on, you know, Bryce valuations and, you know, fundraising implications when you raise really high prices and all that. And I think the thing that most startup founders, in my opinion, miss when they think about fundraising and private companies is that at the end of the day, everything converges to public markets. And the problem is that is a very hard thing to realize when you are kind of where we were in 2021. Where, you know, the company was growing like a hockey stick. Every single investor wants to invest. There's a tremendous amount of appetite to just pour in more money in the business. And at the end of the day, you know, sure, there are the fundamentals of the business, but a lot of like private raising is a supply and demand thing. And if you're the hottest thing in town, your valuation goes really high and, and that creates a set of circumstances that locks in the company. In a set of expectations and trajectory and growth that if you deviate from that to, to the smallest degree, uh, that creates, you know, sort of unintended consequences in the near term. And, and I think what happened to Brex is, you know, like the company was dramatically smaller in '21 compared to today, right? And so which I think sort of signals how much the $12 billion was a stretch back then. So then what we realized at the end of 2023 is we said, look, there's a lot of like ZIRP era companies that had this unrealistic expectations about where the valuation is. And valuations dictate a lot of things, including employee sentiment, employee morale. And one of the things that I believed in when we did this big reset at Brex, at Brex 3.0, is we said, look, employees need to fundamentally believe in the value of the equity. And so we did this very painful thing of saying, look, the teams that see reality the best wins. So let's reprice the employee equity back to $4 billion. And we did this early 2024. It was extremely dilutive. I think it took, it wasn't very popular with our board and investors, but at the end of the day, it was a matter of where is reality if this was a public company today? And, and, and, and, you know, it, it was very hard to, to price the company exactly given where the company was and the growth rates and all that. But that was a really critical thing to say, look, at the end of the day, you know, employees, employees will have upside and, and, and, and, and, you know, a, a chance to build wealth from this point onwards. And we spent a lot of time locking that in when, when we did the, the whole reset was one of the biggest points for me. Was resetting the valuation. We reset a lot of things about how we operate and how we build product and how we do go-to-market and the leadership team, but the valuation was a really critical thing. And then when you fast forward to today, right, like back then the company was burning hundreds of millions of dollars. It was growing to single digit, high single digit percent. And you look at where the company is today, the company's growing 40 to 50%, borderline cash flow positive. It's a very different story. In the last 24 months, I think were really transformational and just like understanding what are the things that made the business successful and tripling down on them and sort of, you know, reestablishing what, what matters and what doesn't matter. And then when you look into the Capital One, you know, acquisition and the price and the way we got to it, you know, I think the first thing is, you know, at the end of the day, everything converges to public markets. So let's look at who are the benchmarks in public market fintech that, you know, that exist for us to sort of compare ourselves with. And when you look into the market, right, the reality is you have, you know, the sort of the average multiple is a 7x gross profit, forward gross profit multiple. So when you look into, you know, companies like Chime, companies like Navane, right, that's between 5 to 7x. And then when you look into like, let's look at the very sort of the, the top quartile companies, right? Or the top, you know, decile maybe. Then you have, you know, the companies that I think everybody has a lot of respect and scale and appreciation. Companies like Toast, companies like Affirm, companies like Block, right? And then when you look into, and those trade at like somewhere between 10 to 12 times gross profit, you know, Affirm trades at, 12, uh, you know, uh, Toast trades at close to 11. And then when you look into who is the best public fintech company in the world, uh, and it's Adyen, and Adyen trades at just below 14 times gross profit. This deal is at 13.4. So, so when you just compare to where all the multiples exist in the range of outcomes of being a public company, this is the very, very top of the range. And, and then, and then You know, the thing that made me really happy about it is, look, let's ground ourselves into the range of outcomes that exist for a company like Brex, uh, where this thing could trade in public markets, uh, given, given the growth rates, given the constraints, given everything, right? And then, and then most importantly, when you add in what could this thing become inside a platform like Capital One, I think we said first the price here has enough value for everybody to be really excited about the outcome. But then I think the thing for me is like, I really care about Brex outliving and becoming much bigger than me or anyone that exists in the business today. And, and we thought a lot about like, you know, should we, should we just like, like how big can this thing get independently? And, and when I look into my life and I'm like, what are the things that I'm the most proud of? Uh, one of the things I'm the most proud is my first company in Brazil grew 10x since we left. and it's, you know, now it's, you know, over $500 million in revenue. It's like hundreds of millions of EBITDA a year. Um, and, and that just happened because the business continued going, uh, much beyond myself. And, and when I looked at Brax, I was like, how can we make Brax a platform that I can continue to scale? Because I love the job and I love like being in the weeds, but with a potential that's much bigger than any independent path could potentially get us to. And then you look on this on day one after closing. Brex will be the third largest corporate card in the country. Um, you know, which is really exciting and with a very clear path, you know, over the next few years to be in a position to really rival Amex and JP Morgan. And I think that's a really exciting thing to be a part of and build. Um, and, and, and really to me, the part that folks don't appreciate about it is that yes, it's a great financial outcome. It's a massive fintech exit, you know, biggest bank acquisition in history. All that is true. But at the same time, the degree to which everybody in the company and everybody at Capital One is doubling down on this is very underappreciated. So you look at, you know, the filings together of the acquisition, the public filings from Capital One, you know, there's $950 million of integration costs and retention and all that. And really what that means is they're adding, you know, a lot of water to this plant that is Brex. Because the trajectory is that exciting. And when you pay this high of a price, the only way the math works, adds up, is if you have this very visceral belief that this thing can be much bigger than what it could ever be as a standalone basis. Um, so, you know, this is maybe a long way of saying we, we, we fundamentally think that this trajectory puts Brex on the path to being the most important financial platform for companies in the US. and it would be really exciting to build this thing at this massive scale.

I don't think I've heard any interview where someone has really broken down an M&A process in detail. So I'd love to hear from you what it was like getting that term sheet, what was on the term sheet, and then the filing itself. Also why you decided on a 50/50 split.

Yeah.

Cash equity.

So the way, the way it started was, you know, we, they, they tend to be very rigorous on understanding the deal model and where the value ultimately lies and how big can this thing get. Right. And I think one of the learnings for us was, you know, at the end of the day, if you look at every, every single large-scale player that does like M&A, you say, well, like all banks are doing M&A all the time, but, but the first thing is not all M&A is created equal, right? So the first thing is if you look into, for example, the top 5 banks in the US and you see who does, uh, growth M&A versus distressed asset M&A, there's a massive difference. So for example, you look at, you, you can say, well, JP Morgan does M&A, but if you look over the past 10 years, you know, 95% of the JP Morgan deals have been distressed assets or, or like a very high number. Right? Like for example, First Republic. First Republic wasn't a growth deal. It was like, this is a distressed asset that could be, you know, you could buy it for cheap and integrate it into JP Morgan and make it into a thing. And then when you look into, into the thing that I think has been really special about Capital One is the fact that they've done time after time deals that were very accretive to growth, right? So the Discover deal, ING Direct, like Hibernia, like there's been a lot of deals that were, were pretty big for the scale that they were. Um, and then when you look into any other sort of large-scale bank, the appetite for where the kinds of M&As that they will go in is just different. So this is maybe the first thing, which is understanding why this specific party was very excited about this deal. Uh, and I think this has a lot to do with Rich and, and the way he sees the world and, you know, being a founder, right? Like having, very strong ambitions and very high levels of energy and, and sort of appetite for investing. Um, then I think the second thing is, is understanding, um, what, what are the ways in which you can make this into a growth platform to a degree that I think is very, uh, hard as an independent company, right? So we spend a lot of time understanding, look, here, here's the lever that the business has to, to grow materially faster. So for example, One, which is just math, right, is you say, look, you know, companies constrain how much they invest in growth based on unit economics. So, and then, and then one of the conversations we had at Capital One that was really interesting is we said, well, we run our business on CAC paybacks, and yet we look at LTV to CACs. But the reality is like, given, you know, not only the cost of capital, but given, um, just historically the way the business performed, we think this is a good enough model for the way we invest in growth in the near term. And they said, well, for us, our cost of capital is so much lower than Brex that we actually look at NPV. So we discount these cohorts to present value and we look at whether, what's the LTV to CAC on each cohort. And Capital One spent a lot of time doing this at a very high level of rigor in a very large scale. And when you look at these two different ways of running the business, this way that they do warrants a dramatically higher investment on the exact same business just because the cost of capital is different and the way you constrain and look at the horizons of growth are different. Right? So this is just one example of something that we're, we're looking and saying, oh wow, we can invest, you know, a lot more here just by changing a little bit the framing of where, where and how this decision gets made. And, and then I think maybe the last thing that was really interesting as you went through You know, the steps, and I, I can give you some, some, some more context there, is there was this very strong, uh, interest in understanding the way we segmented our, our customer base and especially what we did on the startup side. And, and, and one of the things that was really interesting to us is we said, well, you know, Capital One has millions of businesses, like why would they care about startup customers? And Brex today serves 1 in 3 startups in the US. It's a very strong source of, investment and pride and honestly just like from a strategy perspective, we always believe that startups will always be the bleeding edge. So what we do for those customers eventually will be what we do for the rest of the market. And I think the thing that was the most striking to me is how much they understood the value of that because, you know, most big companies would say, well, you know, a startup customer is like an SMB. And Capital One had this foresight that I think was really interesting of saying this will be the tip of your spear because that's the way you build the product. That's the way you build your brand. That's the way you get the— we went from 0 to 300 public companies on Brex and all the major AI labs are on Brex today because there's been so much momentum and inertia in the startup side. So that was super interesting to see a big bank operating with a startup mindset. And thinking about these different segments in very different ways. And then from a timing perspective, I think the thing that was really interesting to me is just how quickly they moved. So, you know, they, they, they were really focused on getting it done very fast and, you know, announcing on their earnings, which was January 22nd. And, you know, we just, they just, we just came in, spent 2 weeks in person with their team. You know, first week was, you know, going in every single area of the business, every function, every department, and going super deep. And, and, you know, of course, I spent a lot of time with Rich understanding how would we operate, what would be the things that would be, you know, priorities on day one, what would be the things that would be priorities later. And one of the things that was really interesting is, you know, when we thought about what are ways in which this can go right and things can go wrong, a very big thing is, is this idea of how do we make sure that this become an accelerant for the company and accelerant for what we're doing. And, you know, Capital One doesn't crush the butterfly, which is Brex. And one of the things that we spend a lot of time is creating this idea, which is, you know, ultimately, of course, there's going to be some things that we have to integrate, like financial reporting, right? But ultimately, it's more exciting to integrate things into Brex than Brex into things. And when you see this mindset of saying, look, yeah, traditional M&A and integrations are done in this very specific way, but were willing to do something different in service of growth, in service of this being accretive to the trajectory of the company. That was really inspiring. And it's something you notice on every conversation. We met like, you know, I don't know, 30, 40, 50 people on their side over the course of the month we spent together. And it was remarkable just to see the degree to which that culture permeated all the way down to every level of the organization.

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What was the diligence process on your side? Did you use your existing team? Who did you— who was the team involved in this?

So we had very few people, uh, we had probably 15, 20 people in total, um, at the end, uh, and— but the majority of it was just leadership team. And one of the things that's interesting is, you know, um, and Capital One had, you know, for their size, they had a sort of a small number of people, more than us, right? Probably like 4 or 5 times more than us. But, but at the same time, what was interesting is, you know, there were a lot of meetings that you went into, into, into meeting and, you know, the level of detail that our team could go in, uh, still like is still remarkable to me. So, uh, you know, I remember, you know, going into a meeting and then someone asking a question about, you know, the way our, our financial infrastructure worked, the way our banking core did something. And then James, our CTO, being like, well, I'm talking about the product strategy and what we're building and the direction and vision, but then this is the way we actually do serialization in the database to make sure money is consistent. And one of the things that we really believe in is we have this principle that we call operate at all levels, which is leaders need to be exceptional individual contributors in whatever they do and never lose connection with the craft. And going through diligence was super interesting just to see in every function, right? I mean, like, you know, Garrett, our CRO, was amazing as well of just like explaining, yeah, this is the strategy, this is the way we build our sales org, this is the way we build our teams, but also here's what exceptional deal execution looks like, right? Here's like the way we actually handle an individual customer relationship and contract and negotiation and pricing and to a level of detail that was really exciting for me to see. So it was very few people going super deep. And, you know, we had a, you know, sort of before diligence, it was basically, you know, me and Ben, our president who runs the company with me. And, you know, and a lot of it honestly was just getting all the people to, you know, of course, understand the importance of, you know, of explaining everything to a great level of detail. But also at the same time, I would say, um, the fact that people just really knew the business well, so they could go to a level of detail. They didn't need to involve that many more people. Uh, but you know, very intense. I would say a lot of people were doing 18-hour days, 20-hour days. So it was definitely, it was definitely very energy, energy consuming. But, uh, you know, we got some great outcomes.

So, so you were aggressively courted and sometimes when someone's you know, a little bit more on the offense for you, it's hard to see the reality of deals, right? Or the reality of how things are operating. So being aggressively courted by Capital One, how did you and your team then have the discipline to look objectively at that business and see if it was the right partner?

Yeah. So, so first is, you know, we didn't have to do this deal. right? And I think that's the thing that is an important reminder, which is, look, we could have raised more private capital, we could have IPO'd the company. Um, and, and, and, and, and looking at the set of options that existed, we still decided to pursue this. So, so, and then second is the company was never for sale, right? So they approached us and said, we wanna take a look right now, uh, because we're really excited about what you're doing, uh, on, on, on the sort of broad US economy, on the, on the sort of the way you're scaling outside of tech, the way you're going to after the enterprise. So, So I would say it was, it was, it was one, not, not, not the only path. And second, it was something that because it wasn't the only path, the alternatives are very credible to not doing the deal. And that puts you in a position to approach it much more rationally and objectively where we said, look, at the end of the day, you know, when we look into who are the range of partners that we would do this with, Um, Capital One has always been, you know, a bank we admire tremendously, uh, largely because they invented fintech and, and because of Rich and being founder-led. Um, and then, and then I would say the second thing is we never thought of selling the company. And, and this may sound weird given we did it, but, but at the end of the day, you know, we always saw Brax as an independent company. And, and I would, I would say the reason is because when you talk to anyone in the company today, there is a very high degree of obsession about winning and becoming really big and just like achieving really large scale. And that has always been like the north, uh, like the, the, for, for us, it was always about like how do we maximize the potential of this product and this idea and this way of running your finances as a company. And, and, and, and it's almost like if you subordinate everything else to your mission, What does that mean about the way you actually choose the right outcome for the company? Right? And, and, and we had always sort of assumed that it would be going public because that is what a lot of companies do. But when we started to go deep, and when I spent time with Rich and I started to go deep into what could this actually look like, um, it was so unique that it was impossible to unsee it, which is like, look, we can accelerate 5, 7, 10 years of growth. We can invest at a level of R&D, especially on AI, that would take us a long time to get to from a standalone basis. And then 3 is we sort of jumpstart this entire industry by saying, you know, not only we're going to do this, you know, across card banking, expense management, bill pay, accounting, AI, but at the same time, we're going to do this as a bank. at a country-level scale, uh, and globally on the enterprise side, when we think about everything we do, you know, with companies that operate across multiple countries. And, and that was really, that was really compelling. And, um, and then maybe the last thing, which is, you know, particularly interesting is like, I wasn't interested in leaving or stopping to work at Brex. So to me it was really important that like this wasn't, and, and I always thought of like an acquisition as like a goodbye. You're saying, oh, the company's going and I'm staying. And the thing is that never felt that way because it was actually about the mission. It was about like, how do we accelerate and fuel this belief that if we subordinate everything to maximizing the scale of what this company can be, uh, we should subordinate that decision as well. And then the more we thought about it and the more we went deep and the more we thought about, okay, like what are all the things that this thing can become, uh, with a partner like Capital One remaining independent with me as the founder and CEO, with all the things that I think we, got to from a structure standpoint, um, that was pretty special. Uh, so it, it, it doesn't feel like an exit. I think that's the thing that is so different for me.

So you're doubling down on War Mode?

100%. 100% doubling down.

I think it's so funny because there is clearly a very severe competition between Brex and Ramp, and I have to admit it's entirely entertaining on X, and it might only exist on X. By the way, I don't know if anybody else knows about this, but it seems to take the tech world by storm. So how is that going to play into this next chapter and this new story for Brex?

Yeah. So first, we have huge respect for them. They've built an incredible company. And the thing that is remarkable is, you know, yes, both of us are the new players and Brex and Ramp combined probably have 3% of the US markets. So, so at the end of the day, you know, we don't spend a lot of time thinking about them. They probably don't spend a lot of time thinking about us because that is not who we're really competing with. If you go into the deals and you look in, you go on the streets of the sales teams and you see who are we seeing, it's not Ramp, it's not Brex, it's Amex, it's JP Morgan. It's like big national banks. It's Wells Fargo, it's Citi, it's Bank of America. Those are the players that are actually out there. And I would say, look, I think, I think the way we think about it is, you know, just because of the scale of this thing, Brex will be the third largest corporate card in the country after closing. So, so really the question is like, how do we put this on a trajectory to be, you know, more meaningful for customers than Amex and JPMorgan? Right. And that's really who we're ultimately competing with now. So, so for us, it's, you know, sort of graduating a little bit, you know, how we think of the competitive set and and, and the set of outcomes that we can build. Because also the, the set of tools available for us to go build are different, right? From being— having, you know, you know, a $6 billion marketing budget, a $6 billion R&D budget, um, just a very different level of scale, brand, uh, presence, uh, across a variety of products, not just card. Um, and, and, you know, we, we think there's going to be space for many winners. But you know, for us this was a way of just like jumpstarting the competition for the next like 5, 7 years and, and still be really, really proud of what we build that, you know, and Brex being the biggest platform in the country.

On the day of this announcement, there was an onslaught of activity on X and it was a lot of RAMP supporters or investors, that sort of thing that were calling a victory lap. and then we're also kind of saying a lot of distasteful things. I've never seen anything like that before. What was that like for you as a CEO who had just made the biggest fintech bank acquisition of all time and seeing lots of passive-aggressive notes?

Yeah, I think, I think at the end of the day, it was a little bit the way we started this conversation, which is you have to remember that everything converges to public markets eventually. Uh, and, uh, and you know, like you know, the numbers are private, but you know, people, Silicon Valley is a small world. People understand where, where relative value is and where people trade. And, you know, we've seen that movie before. So I think for us, so much of the past 2.5, 3 years was about tuning out of everyone and everything that we hear about, you know, Twitter and, you know, and like, and people talking about things and, You know, what about Brax? Is Brax dead? Is Brax alive? And just saying every ounce of energy we spent on that versus actually fixing the company, improving the quality of the product, improving the way we do go-to-market, increasing the rigor on hiring, making the culture stronger. This bucket was so much more meaningful than by a factor of like 10,000, right? Versus like paying attention to like, you know, where were the vibes on X, right? And I think to me, this was similar, which is like, you know, it was actually really exciting to see that. Because, you know, of course, you know, a lot of the reactions were, you know, I think, I think probably not, not the most constructive. And then our team seeing people's reactions to those reactions was like, oh my god, we actually built something tremendous, right? To a degree that You know, I think if it wasn't that polarizing, you know, maybe the team would have less validation from the outside. So in some ways it was very validating because people were like, this is a big fucking deal. Like $5 billion of liquidity in 100% of the stock, right? Was really compelling because the other thing that people forget, even though it's relatively obvious, is, you know, when someone fundraises a private company, you're selling 1-2% of the company. Right? When you're selling, when you're doing a transaction like this one, you're selling 100% of the company. So there's a very big difference between putting in $100 million, you know, at a very high price and paying, you know, $5.15 billion, uh, of like cash and liquid stock into an actual asset that grows and compounds. Um, but you know, like I, I, I think there's gonna be many winners and, you know, we have huge respect for them. but you know, I, I would say, um, I would say, you know, over the fullness of time we're gonna see how these things play out. Um, but you know, I think, I think we, we get to build with, uh, you know, a much, much bigger war chest and, and pockets now, which will be really fun.

Very fun. It's gonna be a lot of fun. To be direct as possible with this next question, are you ready?

Go for it.

Well, there were clear marketing attacks against Brex in this acquisition, uh, whether it was email marketing or online, of what do you do if your service provider, if your corporate card, if your finance stack, if it gets acquired? And so what does this actually mean for your customers? What does this mean for startups?

So, so here's the thing, um, Brex is only gonna get better for two reasons. Because I remain the founder and CEO and I will continue running the company. For as many years as I can inside Capital One. And the second thing is we now get to invest so much more aggressively than we ever did, uh, in AI, in accelerating the roadmap across so many fronts that we weren't able to invest as a standalone company because we had to make resourcing decisions. Uh, and then the third thing is when you go especially after customers that are outside of the tech bubble, like, like a traditional mainstream business in the US economy. Um, they know what Capital One is. There's like a trust associated with that. And when you go after the enterprise, they say, well, I can make a bet on a random private company, or I can make a bet on a $150 billion public company that I can go in and understand their business and their financials and what they're about. And that is very compelling on the enterprise. And we've seen already in 5 days, very different tone from prospects on the enterprise and like Fortune 100, Fortune 50 companies. That wouldn't take us as seriously as they did after this. So that was really compelling. And I would say the last thing is for startup customers is, you know, next year, for example, we're increasing our startup team by 50%. Sorry, this year. And you don't do these moves. You don't, you don't invest much more aggressively in R&D if you don't fundamentally believe that startups really matter. And it is where we started the company. It is our ethos, it is our DNA. Uh, and for us, it's always been about like setting the stage for what happens in the rest of the market. Everything we build started with startups because they, you know, if you just look at every single technology, adoption starts in early adopters and innovators, and then they grow into early majority, then late majority, right? And, and we're now, you know, at this moment where I think Brax is going into early majority finally, but at the same time, the innovation and all the things we're building, they follow the exact same cycle. When we think, for example, the agents we're building now on AI and we see the reaction of a customer when they see something that took hundreds of hours being done in 10 seconds. Again, this starts on companies that are more tech forward, typically smaller startups, and then eventually permeates into the entire range of customers all the way into, you know, a Fortune 50. So, so that, that is the DNA of how we build product. And changing that is the same as changing the ethos of who the people at Brex are.

So literally nothing happens to startups.

Nothing happens to startups. Well, actually, more investment, more aggressively, 50% growth in the team. a lot more, a lot more sort of marketing growth dollars. But the biggest thing is the product investments in AI are accelerating at a clip that we think would take us probably 2 to 3 years, uh, and it's gonna happen now. So that'll be really exciting.

Okay. Just say that one more time in the camera, please.

Okay. Nothing's happening to startups. We're just doubling down, accelerating growth by 50% next year on the team. Uh, a lot more dollars going into product development, and we're accelerating our AI roadmap by 2 to 3 years compared to what we would do as a standalone company.

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Since startups are just gonna be thriving and accelerating, what else is gonna happen? So I wanna go a little bit deeper into AI cuz Rex has been on a tear with AI. You had released 6 agents and you had a really big fall release. So for people who don't know, can you lay out how Brex is taking on AI?

Yeah. So, so I, I, phase 1 of Brex was building great financial services like card, bank accounts, et cetera. Phase 2 was saying, let's go and build software that makes those financial services much smarter and, and, and more automated, right? So we build expense management, we build accounts payable, we build accounting with a lot of these automation and sort of software to help customers manage what's happening in their card and bank accounts. And then really the phase 3 of Brex is when you think about the labor, right? When you think about the actual work the finance teams are doing on top of Brex. And the way we characterize this last phase is what we call the inversion of control, where, you know, before you were doing the work as a human, and sort of recording it on Brex and sort of entering the data on Brex. And Brex was a system of record. And really what we see in this phase 3 is, is actually the opposite, is Brex is doing the majority of the work and then you are managing by exception. And what we fundamentally see happening is every single area of a finance team will have a very high degree of automation, done by agents. And then the question becomes, who's going to do that, right? Because you have effectively 3 possibilities. You have existing incumbents in the finance space, like the ERP companies, for example. I don't think they're going to go do that. Um, then you have like new startups, sort of folks out of YC that could be building something new in the space. And that is a possibility. But at the end of the day, we think there's a very unique property in building the money movement, the software, and the automation in one company. So we think there's a structural advantage of doing these things together, especially when you think about doing it at a global scale and doing it at a very large scale. And then I would say when you sort of zoom out and you look into the third possibility is companies like Brex that touch like every single expense in a company, every single dollar of money that goes out of a company. Passes through us in some way. And really the interesting thing is like, for example, like one of the things that we build is we have this audit agent and really what it does is it goes through every single expense in the company against your expense policy and what we call like an audit policy and annotates violations. And it does it in a way that is much more complex than saying, well, is there a memo here or is there a receipt here? What it does is it is interpreting and understanding context that is much broader than one transaction. So it says, well, you know, this person on the sales team is traveling for a customer, you know, trip, and they're going on this dinner with X number of people. Is this expense appropriate or not? And think about the number of variables that you have to compute to determine that, right? It's like, okay, who is this client? Who is the sales rep? Which level are they in? Are they hitting quota or not? You know, are they with their teams or not? Because that changes how we know how much, how much, how many dollars you're paying per person on that meal. What is it? What is the relevance of that customer? And when you start to add in all that context into the Brex platform, you start to get to a really powerful place, which is Brex starts to have much more agency over the entire arc of a financial decision, right? Because back in the day, you know, Brex used to be just the moment you go spend and swipe the card is where Brex was involved. And now, you know, we know so much more about so much more data that exists about an employee, a transaction, an expense. And the benefit of that is you can fundamentally change the way a company makes decisions in a very material way. Because the thing about finance teams is they're responsible for 100% of the spend in the company, right? If you overspend, you go fire your CFO. But then at the same time, they only make 5% of the decisions. So the question becomes 95% of the decisions are made all over the company. It's people just going on trips, signing contracts, paying for vendors, you know, going to marketing events and, and, and, and, you know, hosting customers and all of that. So then the question becomes, how do you bring in effectively a mini CFO and the decision-making that a great finance person would have and that level of judgment and agency into every financial decision. And that is the opportunity with AI. And you see this happening in every facet of finance, right? You see this happening on, of course, all the expense management side. You also see it happening on procurement. You see it happening on accounting. You see it happening on travel, right? So, so really the strategy for us is what, what happens when you change Brex into agentic mode and every surface of the product starts to be an agent? And starts to collaborate in ways to get more complex tasks done across the entire surface of Brex. And, you know, we're now at a phase that, you know, we launched this big fall release 3 or 4 months ago. And I was at a point that, you know, I was talking to CFO of a very big AI lab that is becoming a Brex customer now. And, you know, and this person was telling me that the thing that we build, the degree of automation and the quality of the automation is not only light years away of competitors, but also to a point that they can actually now start to change the way they allocate headcount internally because it's better than what a human was doing. And I think once you cross that threshold of saying, you know, the quality is higher enough that you're displacing labor in a company, that is the bar for us. And that is what we're trying to do. And not just for an SMB customer like some of our competitors do, but for a very large, very complex enterprise use case. And, and, and we think this is gonna accelerate tremendously with AI. Um, so, you know, we think it's a generational opportunity. Um, very critical to be in the position that we're in with the level of scale, uh, the understand— having access to the entire financial infrastructure to actually control the money movement and change where money is going. Uh, and, and, and doing this not just for a startup and, and a small customer, but making sure that that same solution works for a very large enterprise customer because that's the only way of actually displacing labor and automating it to a point that you say you actually don't need to hire that person in the first place. And that's actually how the entire strategy of Brex fits together because we say, look, yes, we're serving the enterprise customers. You understand where ultimately your company will become and get to, but when you start from where you are today, you know, you can point to and say, You know, I can run a business the size of DoorDash or Coinbase or Palantir, uh, or Zoom or Arm or Anthropic or Intel because these companies run on Brex. Uh, and, and when you start the right way and we graduate you into all the levels of automation you need, we can get to this vision that we have, which is like, how do you make a finance team of one person? Uh, and, and we think that's a really compelling thing for the future of business.

Spitting fire today.

Exactly. Do you have a steak?

I think we have one coming.

Great.

Do you know that fogo de chão means fire of the ground?

100%. Okay. I'm Brazilian.

I know. I'm just checking your Brazilian Portuguese.

Exactly.

Exactly.

That's how they do steaks there in the south of Brazil, at least.

In the south of Brazil? Yeah. In the ground?

Yeah. They put like these— they do these like basically fire pits and then you just put the steak on the ground. And you rotate it and it cooks beautifully.

Well, we have a surprise for you. We made a pit outside.

Love it. We have steaks. Great.

Cooking in the pit.

I'll help. I'll eat. So, okay.

So one of my favorite questions in every single interview is my Brex question. Could you believe that? So I always frame this because REX is all about performance, spending smarter, moving faster. The intelligent as fuck— I'm sorry, intelligent agentic finance platform. So a core component that I believe with performance is all about who you surround yourself with or who you are, you admire, who you look up to. So who is that for you? Is there anybody, especially as you go through a huge life milestone like this, Yeah, I would say I think there are sort of two buckets, right?

There's the, you know, the sort of aspirational folks that, you know, the more you learn about the way they see the world, the more you can build a little bit of a mental model of who they are. I think for me, the people that I think are pretty tremendous at this, Steve Jobs for me is a very clear one of transcending, you know, where technology ends and where our human connection starts. I think that's a very special combo. I would say the second one is I'm a big fan of Charlie Munger. I think he has this very visceral way of understanding and sort of exploiting reality. And it was very useful, a lot of the mental models that he has over the past 2 and a half years at Brex. And, and you know, I think, I think there's a lot of companies that I admire. I mean, I think, you know, Brian from Airbnb is fantastic. Tony from DoorDash. I learned a lot from a lot of these folks. But, but you know, when, when I think into sort of who are the people that I actually spent a lot of time with day to day that were incredibly inspiring, I would say Victor Lazarte, who was a benchmark and now is running and running and crushing his own fund. He's been on my board since day one. He was our, one of our first early investors. He's Brazilian. Lives here in Silicon Valley and he's phenomenal and incredibly helpful thinking through every single outcome, every single situation. Neomata Green Oaks, fantastic. Sarab from DST, also fantastic. Both incredible at articulating where the company is, where the world is, where we want to go. And Mickey from Ribbit, of course, has been on our board since day one, also tremendous. So I would say I think there's a sort of a range of folks that have just seen the movie a lot and can help you understand with clarity where you're going. And I think the, you know, for example, there's a lot of folks that you spend time, especially folks that are maybe a little bit ahead of you in your journey that are incredibly inspiring. So, you know, Neil invited me to be on the board of Coupang in Korea, which is, you know, basically the Amazon of South Korea. And Bom, the founder, is insanely smart, one of the best operators I've ever met. And when you spend time with someone like that, you realize what does it mean to be an excellent operator? Because one thing is to sort of hear about it and read about it. And the other thing is you see it in front of you, right? And some things you have to feel it to understand what they mean. And spending time with Bom and the coupang team, was a very similar experience for me of just understanding like what, what like true greatness looks like.

Pedro, you're 29, you just had a $5 billion exit. What are you most looking forward to in the next 5 years?

I think to me it's just, I think to me I would say 3 things. Uh, number 1 is, getting Brax to be honestly just the biggest platform it can ever be and sort of living up to the full potential of this idea, which, you know, we created this category 9 years ago. And, and I think, I think we're just barely scratching the surface with, you know, maybe 1, 1.5% of the US market. So that's number 1. Number 2 is I got married, you know, last year, you know, excited about starting a family, you know, which is, you know, coming over the next few years for sure. That's a big goal. And number 3 is, is, you know, I would say, really think about, you know, beyond where Brex is today. What can we actually do inside someone like Capital One? Because I think it's very unique to have this level of access and resources and honestly just trust from such a massive institution, and I'm really excited to learn a lot there. You know, I'm spending a lot of time with Rich and the team, and, you know, every, every minute I can get with them, I just learn more. And, you know, I think it's a pretty fascinating experience to be inside a Fortune 50 company, you know, 6th largest bank in the US, and learn as much as you can and use that to compound Brex and, you know, build more things together. So I think that'll be really exciting.

Is it true that Rich Fairbank is a fair rich banker?

That is technically true, I think. So yeah.

Glad we cleared the record on that. Okay. So as we wrap up, I have a couple of quick questions from X.

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Go for it.

These questions are from Nicole Wishoff. She asks, how long were you building relationship with Cap One?

Um, we folks in our board, uh, someone in our board knew them for probably 2 or 3 years, uh, directly. I would say indirectly, I would say there was mutual appreciation and sort of respect for probably 4 or 5 years. and, and for sure when we understood how we both build things from the bottom of the stack up, there was a huge bonding thing for all of us because it's very different than any other fintech company in the world. And, uh, they've done it a lot. Um, and, but you know, after spending a lot of time with them, probably the last, last couple of months, I would say.

Another question from Nicole Wishoff. What are the trade-offs of M&A now versus IPO later?

God, hot, hot question. I think, I think the biggest trade-off is to understand things over the fullness of time and not as a point in time. So a lot of folks say, well, let's IPO, right? But the reality is like public markets require a story that continues to compound over a very long arc. And you know, our business is compounding at 40, 50%. So, so On one hand, that's a really exciting thing. On the other hand is I think the way to think of public markets is there is like volatility, like that is just beta. It's just like, it's just the markets moving. And, and that there's things that affect the perception of your business and where you trade that are completely outside of your control. So, so I think for us it was, it was a question of like one, first it was a you know, incredible outcome. So, so it was hard to compare to an IPO, uh, in many ways. And the second one was when you look into an IPO, how, how do you factor in the cost of beta, the cost of just volatility in, in, in the stock, in the market that is independent from your execution, right? And, and what does that do to your team? And, you know, we had a lot of friends that, you know, did incredible IPOs, uh, over the past few years, but, you know, The stock's trading 70% down. And I think that is psychologically very different, uh, and very hard for, for the team. So, so that, that's how we, how we thought about it. And, and ultimately, you know, we didn't have to make the decision because this was such a good outcome, but that's how we would probably think about it.

This is a good follow-up question to that. This is from Trace Cohen. He wants to know, how did you do the recap and RSUs to $4 billion years ago? And how did that really help all employees?

Yeah. So, so before we were issuing RSUs at $12 billion in 2021, and then in 2023 we actually said, let's reprice the equity at $4 billion. And we did something that was pretty unusual. We switched from RSUs into options, and the strike price was, was, was low on those options. So that was beneficial for employees because, you know, not only they could exercise it, but it was something that actually made it worth restriking a lot of RSUs into options as part of that. And, and I would say the big thing for us was, again, how do we create the conditions where folks believe in the value of the equity and can have upside from here? And, and I think a lot of the times CEOs and founders forget that the price of your equity means a lot. I, there's a lot of psychology, there's a lot of expectations, there's a lot of things that come with it. And, and we wanted to set it at a price that we felt comfortable that there would be upside from it, which, you know, of course nothing materialized. But I would say it was a hard thing to get, you know, everybody comfortable because it was very dilutive, but ultimately the right thing because got all of our team to be excited about staying and compounding from there.

This question is from Stuart Blitz. Did anyone say what's in your wallet during negotiation?

100%. A very funny story is we, when we're doing, going through diligence, very early, I went online and signed up for a Capital One card. And then I got a Spark card. And I had all my notes of like everything that I would do differently in the flow and all my feedback and all that. And of course they had it on ours. But it was funny, there was like one of their, I think their board decks has like a photo of me of a Capital One card, holding it and being like, you know, I signed up, here's the card and You know, that was a, that was a funny thing on sort of reverse due diligence. But, uh, I absolutely, you know, I have Brex. I use Brex for everything today, but I'll use soon Brex and Capital One for my personal stuff.

Love that. This one's from Alex Cohen.

Did you have any other offers?

No. Company wasn't for sale. I mean, we're, we're just, uh, it was, it was, it was very unique, uh, you know, being a founder of that company. and giving us latitude and autonomy to continue to execute the trajectory that we're in, uh, it's pretty unique, um, and not how most M&A happens. So I would say it was, it was a— we never thought of selling the company, and we, we, we did it because we thought it was fundamentally different than any other combination, um, and also fundamentally different from being independent from a scale perspective. So That was pretty exciting.

Close out. This is the most difficult question I'm gonna ask you today. This question is from Omnicorp.

Are you happy?

Very happy. Very happy. Um, look, I think, I think at the end of the day, like, I'm not gonna lie, the last 2 and a half years were really hard. Uh, there was a lot of, um, a lot of uncertainty, really high attrition. Like, reaccelerating growth is really hard. Most companies can't do it. It's just really hard to reignite the thing that made you great because you're much bigger, there's much more scale, there's scar tissue everywhere. So it took a lot from me and the team on a very personal level, like a lot of stress and anxiety and, you know, keeping my mental health, the team's mental health in a good place took a lot. So, so I think the outcome is, of course, really exciting for everyone. And we're really excited to build this as part of Capital One. But I think to me, the most exciting thing is this allows me to go back and say all of this really fucking hard work was worth it. And there's a thing which is saying, well, the numbers are better, the metrics are better, and the customers are happier, the NPS is higher, and the retention is higher. Like all these things, of course they matter, right? But there's a very big difference between that and saying, here's a crystallized outcome, which is the biggest deal of this size that ever happened in history, and this scale with a bank and a fintech company. And by the way, here's what we're gonna go build now with this new thing. And, and that was really gratifying to be able to say, you know, all this energy, all this intensity was worth it. And I think it just proves that doing hard things is, you know, there's a lot of meaning behind it. And I think, you know, the outcome could have been different, but you know, at the end of the day, it's like 50% of the battle is in your own head. It's just, do you keep going? Do you keep compounding? And I just had a fundamental belief that Brex could be a lot better than what it was 2.5 years ago. And when you look back and you say, Gosh, we're a very different company versus 2 and a half years ago. Um, that is incredibly rewarding.

And you're not even 30.

29. So exactly.

That's great. Any last thoughts? Anything you wanna say to the world?

Um, you know, the world's very complicated and people try to fit things into mental models that previously exist because that gives you a sense of predictability over how things will unfold. Um, and the more time I spent with Rich, the Capital One team, and our team at Brex, the more I see that the mental model of an exit is wrong for this deal. Um, so, you know, time, time will prove the things that we're building and, and the scale that this thing is going to get to, uh, and the quality of the product, the amount of R&D investment we're doing, uh, and go-to-market, of course. Um, But the mental model of an exit is wrong. The right mental model is like, this is a growth, this is a growth deal. And this is a growth, like to some degree combination. This feels much more like a merger than an acquisition, even though the skills are very different. So, you know, world watch out, we're coming and we're just getting started.

Remind me again, how much was that marketing budget?

uh, $6 billion.

Perfect. Amazing. Thank you so much, Pedro. This was so much fun. This was fun. And congratulations.

Thanks for having me. I appreciate it.

Hey, it's Molly. If you enjoy our interviews, check out our newsletter sorcery.vc, where we deliver a once a week top deals and tech headlines email, and also go deeper on our podcast interviews. Subscribe to Sorcery today, and don't forget to subscribe to the podcast on YouTube, Spotify, Apple, or wherever you listen. Link in description to sign up.