Brex partners up with former competitor Zip to reduce cash burn and get to an IPO
Brex, a former competitor, has made a surprising but realistic decision to partner up with another company. The CEOs of the two companies exclusively told TechCrunch that this time, Brex was partnering with Zip. In April 2022, Brex, a fintech company focused on startups, announced that it would be making a “big push” in both enterprise and software. It offered corporate cards to startups and small businesses. Brex gradually evolved its model with the aim of serving as a “financial operating system” for companies.
When the company announced that it was branching out into software, its goal was to diversify its revenue streams. Brex wanted to generate revenue that was recurring, not just from interchange fees. According to Art Levy the chief business officer, most of Brex’s revenue comes from interchange fees. (Software is growing steadily, however, he added). Navan, formerly known as TripActions, was a competitor to Brex once it expanded its services beyond travel after the COVID pandemic. The news of the two companies joining forces was met with some surprise. The two companies revealed exclusively to TechCrunch that Brex is partnering up with Zip, a five year-old procurement company which raised $190M at a valuation of $2.2 billion last October. They will offer “Brex For Zip”, a new offering which embeds Brex’s virtual cards directly into Zip’s platform. The new offering embeds Brex’s virtual cards directly into Zip’s platform with the goal of giving enterprises “the ability to streamline procurement and payment workflows, prevent unauthorized spend before it happens and simplify global operations with a single card program.”
Brex co-founder and CEO Pedro Franceschi and Zip CEO and co-founder Rujul Zaparde told TechCrunch that one reason the partnership made sense was that the two companies together serve more than 30,000 businesses, with some overlap. Brex and Zip share customers such as Anthropic Inc., eToro Inc., Carta, Coinbase Inc., Gong, Zapier International, Wiz, NeuroLink etc. In the first quarter of 2010, Brex’s enterprise revenue grew by 70% and its net revenue retention increased by 130%. Zaparde, a TechCrunch reporter, said that Zip had its best quarter ever, with a 155% increase in growth for its strategic enterprise segment. Besides those mentioned above, other companies that Zip counts as customers include OpenAI, Discover, Snowflake, Reddit and Sephora.
In Brex’s case, the startup realized that what Zip had built for procurement was further along than what it could offer when attempting to sell to the enterprise.
“When you’re a startup, but you don’t really have a complicated procurement workflow, then typically a corporate card works. But when you go into a more sophisticated enterprise, something like Zip really comes alive in a differentiated way, because you have a complicated procurement process,” Franceschi told TechCrunch.
Interestingly, Zip touts that it has “never lost a single enterprise customer.”
Brex’s humility is also notable considering that the startup itself admitted to trying to do too much too fast, and thus hitting some road bumps in its growth. Henrique dubugras, the co-founder of Brex, admitted that the company needed to be more strategic in serving its startup customers. Brex’s decision to partner with Zip & Navan means that it is also spending less on developing products. The moves may also be linked to Brex’s efforts to reduce cash burn. Brex announced in January 2024 that it had reduced its workforce by 282 employees or almost 20%. The move came after reports the company burned $17 million in cash each month during the fourth quarter of 2023 and that it was trying to preserve runway.
Efforts to slow cash burn seem to be paying off, according to Franceschi. He said that in the first quarter of 2018, cash burn at Brex had decreased by 90% compared to last year. At its peak, in 2022, it was valued at more than $12 billion. In February, the startup expected its net revenue for this year to be $500 million. In April, Brex saw a 154% rise in revenue realized. Brex has not yet become profitable, but Franceschi believes it will by the end of this year.
Going ‘public’ is also on the agenda. Eventually.
“We want to be a public company, but we want to go public when we are ready to do so,” Franceschi told TechCrunch. There is much to do, but establishing a governance structure is key. While we are closer on the IPO front, there are other considerations as well such as financial profile and market conditions.”
Meanwhile, it seems to be leaning in on this strategy of partnering with other companies. Franceschi explained that Brex partnered with Navan to serve its larger customers, but it also recognized that the company could better meet their needs. TechCrunch reported that he heard the same complaint from customers over and over again: “Disconnected systems are slowing down their performance.”
These types of relationships can be described by the term “coopetition,” which is a combination of competition and cooperation. Many fintech companies have realized that it is more beneficial to invest or partner with other startups who already have products they want to offer or improve upon. For example, equity management startup Carta recently wrote a check into SimpleClosure’s $15 million raise after abandoning its own plans to build a similar product.
For both Brex and Zip, the decision to partner ultimately boiled down to listening to their customers.
“It was just a very natural partnership,” Zaparde told TechCrunch. “And really, the customer base pulled it out of us.”
Franceschi agrees. “We asked ourselves: ‘How can we build a product integration where one + one equals five?'”
