By Sami Yaghma, Updated: Nov 29, 2023
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Startups are headed in 2023 from a challenging position as the macroeconomic landscaped has shifted downward, and the global economy braces for a retraction. With the Federal Reserve moving to raise interest rates by a cumulative 4.50% since March 2022, sectors sensitive to interest rates face a particularly fierce uphill battle.
According to Forbes, there are currently 72,560 active startups in the U.S. As these new companies work constantly to expand their employment bases, take on new business, and expand their global reach, the need for a sufficient expense management tool becomes an undeniable priority.
But in today’s rapidly evolving global market, startups need more than just a traditional expense management provider, this is where Brex comes into play.
Brex goes beyond the arch of a typical expense management company. In fact, non-traditional credit underwriting could be considered Brex’s business focus. Due to its digital approach, Brex is able to instantly onboard customers with 10-20x higher credit limits than their competitors. Brex’s credit losses have been lower than those of Amex and Silicon Valley Bank, even after considering the impact of the Covid-19 pandemic.
The company’s underwriting capabilities provide two significant benefits to its customers: first, Brex allows companies to hold more cash on hand, allowing for their businesses to grow faster, and second, Brex’s offerings allow for customers to acquire more capital without having to sell equity in their business.
Brex provides a modern, seamless service meant building a risk assessment system that was fundamentally different from traditional credit card underwriting. By eliminating paper-based KYC processes, they’re able to collect and verify critical business information (like beneficial ownership) within seconds. Using real-time cash, operating, and transaction data, they established credit limits with multiple levels of authorization.
The company’s unique business approach to credit underwriting and expense management has attracted some of the world’s top private investors. Brex has already reached a $12 billion valuation, with backers including Kleiner Perkins, DST Global, Government of Singapore Investment Corp (GIC), Baillie Gifford, Peter Thiel, and John Elkann (CEO of Ferrari).
The San Francisco-based firm also provides deep institutional research on market trends for startup companies. With the company stating in a recent research report that startups are facing a steep uphill battle to show their route towards profitability, especially during their early stages of growth.
Brex recommends that startups aim to have at least six months of runway in the current macroeconomic environment, to both give employees confidence in their jobs and broadly be prepared for other unforeseen circumstances that may come their way.
In its report, Brex details the decrease in spending by startups across advertising, marketing, electronics, and business expenses for the better part of a year, as startups aim to adjust and lower their budgets.
The firm has also seen companies begin to shift a portion of their marketing budgets from traditional platforms such as Facebook and Pinterest to competitors including Google and Amazon. Brex has also seen a large migration of advertisements to TikTok, a social media and video platform that has carved out a significant chunk of ad sales over the past year, especially among late-stage customers.
For example, when comparing Q1 of 2022 to Q4, Brex observed an increase in advertising spend on TikTok ads for all three funding round segments (seed, early-stage, and later-stage).
Brex has also seen its global customer base rapidly expand over the last year, with the company seeing a steady upward trend in the percentage of customers receiving expense management cards outside of the U.S. According to company metrics, the share of spending per customer outside of the country has also rapidly grown, up 13% for seed companies, 23% for early-stage companies, and 11% for later-stage companies.
Brex’s customers are spending more of their budgets on travel & expenses, with T&E spending measures for all three funding segments nearly returning to pre-pandemic levels.
The expense management industry has attracted droves of venture capital backers in recent years, as investors seek out financial services companies that are easily understandable and aim to modernize outdated corporate finance and credit card management, serving as disruptors to the traditional financial model, in turn adding bottom-line value to both startup and enterprise customers.
Since 2022, there have been nearly 120 funding rounds for expense management startups, according to PitchBook.
Here’s a look at the top 10 funding events in the sector since 2022:
Sami Yaghma
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