There is a sense of schadenfreude in Silicon Valley when unicorns stumble. So when the WSJ broke in news Thursday evening that Capital One will acquire Brex for $5.15 billion in cash and stock (Capital One issued official release confirm details 30 minutes later), you can hear snickering together from Sand Hill Road to San Francisco’s South Park. That figure represents less than half of Brex’s last private market value $12.3 billion from 2022 Series D-2 act.
Before everyone sharpens their knives, consider that for the VCs who backed Brex in the first place, the sale was a triumph.
Ribbit Capital’s Micky Malka, who led Brex’s $7 million Series A immediately after it was founded in 2017, can be seen in its impressive return. Reached by phone this afternoon, Malka refused to give specifics, but as a member of the board of Brex from the beginning and the largest shareholder of the company, he was not surprised by the deal: “We are very excited for the team, which is one of the youngest YC teams at the time. I have known (the founder) since I was 16 years old.
Indeed, that initial bet – Ribbit was joined by Y Combinator, Kleiner Perkins, DST Global, and individual investors including Peter Thiel and Max Levchin – has multiplied somewhere in the neighborhood of 700-fold. Even accounting for the next round of liquidations, early stakeholders are walking away with the kind of gains that have long made venture capital look like an attractive asset class to outsiders.
Still, the sting of the price haircut is even more apparent when you consider what happened to Brex’s main rival, Ramp, during the same period. Just like Brex lost momentum a few years ago, Ramp is on a tear. The rival expense management fintech has now raised $2.3 billion in total equity financing and has seen its valuation zoom from $13 billion in March last year to $32 billion in November cross consecutively funding act.
You could argue that these types of papers get too many funding events (which is certainly not the case). Still, if Ramp presents the right image to the world, its appeal is undeniable. The company announced last October that it had surpassed $1 billion in annual recurring revenue and secured more than 50,000 customers. The contrast may be even more painful for Brex’s later-stage investors, who have seen competitors circle them several times as they wait to exit.
The Capital One deal comes at an inflection point for Brex. Just five months ago, the company announced that it had obtained a license for operate in the European Union. As CEO Pedro Franceschi wrote in a blog post at the time, the move allows Brex to “immediately issue credit and debit cards and offer spending management products to any business in all 30 EU countries without the need for a solution.” Previously, companies could only work with EU companies that maintained a US presence, a significant limitation for would-be global players.
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For Capital One, the timing is good. Bank, which has swallowed Discover Financial $35 billion deal Last May, it acquired Brex’s technology platform and client list – including, news, TikTok, Robinhood, and Intel – as well as direct access to European corporate banking customers through a new EU license. (TechCrunch has reached out to Brex for more information.)
The $13 billion in deposits that Brex reportedly oversees in partner banks and money market funds may also add to the pot.
The founders, Brazilian entrepreneurs Pedro Franceschi and Henrique Dubugras, dropped out of Stanford as freshmen to launch Brex in 2017 after being accepted into YC’s “winter 2017 gathering”, which initially created the concept of virtual reality. But he had to return to the payment that he had sold – at the age of 16 – the start of a payment processor in Brazil that had raised $ 30 million and then was bought for more than $ 1 billion by one of the strategic investors.
Dubugras stepped down from day-to-day operations in 2024 to become chairman of the board; Franceschi will remain CEO after the acquisition.
Like almost all startups, Brex’s path was not without its stumbles. There is a questionable detour in 2019, when the 23-year-old co-CEO, who had never opened a restaurant, bought the beloved South Park Cafe in San Francisco. The pair envisioned Brex card members dining before heading up to the exclusive lounge, a timing decision that proved to be particularly bad, when COVID-19 shut down most of San Francisco for more than a year.
Then, in 2022, when the macroeconomic picture darkens and VCs start demanding real profits from their portfolio companies, Brex makes a decision that results ill change; it abandons tens of thousands of small and medium-sized business customers, telling them their accounts will be closed unless they have “professional” funding from VCs, angels, or accelerators.
The move, designed to focus resources on higher-margin enterprise clients and nascent SaaS businesses, has left many on deaf ears. Companies that have built a reputation serving underbanked startups and suddenly show the champion of a door (that is how this move is perceived in time).
That strategy could position Brex for this exit. By concentrating on corporate clients with deeper pockets and predictable revenue streams, the company is stabilizing its business model, even as Ramp ramps up fundraising. (Mercury, another competitor, also doubled its value to $3.5 billion with a $300 million raise last March. $650 million in annual recurring revenue.)
Capital One said it expects to close the deal in the second quarter. As for Brex’s next-stage investors, including TCV, GIC, Baillie Gifford, Madrone Capital Partners, Durable Capital Partners, Valiant Capital Management, and Base10, all invested in worth $7.4 billion or rather, the exit may not be quite what they expected, but it is still liquid, which, in today’s climate, counts for something.
Pictured above: Brex Founder and CEO Pedro Franceschi