How Brex Hit $100B+ in TPV | M&A & Road to IPO

Art Levy https://x.com/Alevy1511⁠, Chief Business Officer at Brex https://brex.com/sourcery⁠, the $12.3 billion modern finance behemoth, breaks down why we’re seeing a Golden Age of M&A, with mega-acquisitions, reverse acqui-hires, and aggressive consolidation across the AI landscape. From Meta’s $14B 49% stake in Scale AI, to Google’s $32B Wiz deal, & Stripe’s aggressive crypto rail strategy, Art offers a sharp view into the strategies behind the biggest moves in tech & finance. We go deep on: • The rise of “tuck-in” M&A (Scale AI) + strategic AI consolidation • Best & worst practices for M&A • Brex’s growth: 80% YoY enterprise revenue growth, 140% NRR, $100B+ in TPV run rate • Their structural advantage vs. Ramp, Amex, & legacy banks • The rise of crypto rails (Stripe’s acq of Bridge & Privy) • Raising $1.5B & the road to IPO Brex has evolved far beyond its startup roots, now powering financial operations for over 200 public companies, including leading global players like Arm, Anthropic, eToro, Neuralink, Scale AI, Wiz, etc. Plus 1 in 3 venture-backed startups in the U. S. use Brex. With multiple $100M+ revenue lines, Brex combines a globally distributed payments platform with spend management software, banking infrastructure, and AI-powered automation. The company is redefining what it means to be mission-critical infrastructure for modern CFOs — with durable revenue streams, strong retention, and a clear path to IPO. Brex Funding Stats: • Last valuation: $12.3B, primary round done in late 2021 • Investors: YC, DST Global, Greenoaks, Tiger Global, Ribbit, TCV, Kleiner Perkins, IVP, Lone Pine, GIC, Baillie Gifford, Madrone Capital Partners • Total funding: $1.5B; did a tender offer in early 2022 for $250M at same $12.3B valuation. Brought to you by: Brex https://brex.com/sourcery⁠—The modern finance platform, combining the world’s smartest corporate card with integrated expense management, banking, bill pay, and travel. As a Sourcery Listener you get: 75,000 points after spending $3,000 on Brex card(s), white-glove onboarding, $5,000 in AWS credits, $2,500 in OpenAI credits, & access to $180k+ in SaaS discounts. On top of $500 toward Brex travel, $300 in cashback, plus exclusive perks (like billboards..) visit → https://brex.com/sourcery Kalshi ⁠https://kalshi.com/sourcery⁠—The largest prediction market and the only legal platform in the US where people can trade directly on the outcomes of future events: https://kalshi.com/sourcery Fourthwall https://fourthwall.com/⁠—The #1 way to sell merch online — Fourthwall is the easiest way to launch a fully branded merch store—used by big brands like MKBHD, Acquired, & even the Smithsonian. 100+ products. No upfront cost. Visit Fourthwall to start today: https://fourthwall.com/ Follow Sourcery for the latest updates! https://www.sourcery.vc/ Chapters: (01:13) Massive AI Consolidation (04:41) Art Levy's Journey to CBO at Brex (08:28) Brex's $12.3B Evolution & Path to IPO (14:18) Current State of M&A (Meta, Stripe, OpenAI) (24:00) Meta's Strategic Moves in AI (37:32) Best & Worst Practices for M&A (50:00) 3 Types of M&A (52:22) Brex's M&A & Partnership Approach (53:35) Brex's Modular Product Strategy (54:43) Strategic Partnerships (Zip, Coupa, Navan, Warp) (01:05:05) Exploring Stablecoins, Crypto Rails, & Global Finance Infrastructure (01:08:26) Dethroning Amex: Brex's Market Position & Competitive Edge (01:25:04) Rise of AI & AI Agents in Finance (01:27:14) Brex's Massive Growth & Market Strategy (01:31:23) Future Predictions: AI, Finance, Waymo, Happy Gilmore Connect with us: 1. Art Levy: https://x.com/Alevy1511 2. Molly O’Shea: https://x.com/MollySOShea 3. Sourcery: https://x.com/sourceryvc

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  I think we're entering an age of massive consolidation where the bigger players are just getting bigger. Google buy Wiz 32 billion, OpenAI buy allegedly Wincor. That's 3 billion off of 300 billion. They bought John Ive startup 6.5 billion, again on 300 billion is 2.5%. And in the end, that's good for the ecosystem because everyone tries to do that. And if few survive and everything continues.

• 0:21Molly O'Shea?

  Zuck is going full force on AI, just like he did with Metaverse. Now he's going after every big name in AI.

• 0:29Speaker 00

  I think that Mark Zuckerberg is the best public market CEO at M&A in tech. Whenever Meta is about to lose a step, he just acquires to solve the problem.

• 0:39Molly O'Shea?

  Most recently, you guys crossed over 100 billion in total payment volume.

• 0:44Speaker 00

  Customers are spending 60% more on their Brex cards than they were on Amex in the last month that they were on Amex.

• 0:52Molly O'Shea?

  What?

• 0:53Speaker 00

  60% more.

• 0:54Molly O'Shea?

  This is a big moment.

• 0:55Speaker 00

  Big moment.

• 0:56Molly O'Shea?

  We have a $12.3 billion company in sorcery right now.

• 1:01Speaker 00

  In the house.

• 1:01Molly O'Shea?

  That's Brex, by the way.

• 1:14Molly O'Shea?

  Art Levy, welcome to Sorcery.

• 1:16Speaker 00

  Happy to be here.

• 1:18Molly O'Shea?

  Thrilled to have you on. This is a big moment.

• 1:20Speaker 00

  Big moment.

• 1:21Molly O'Shea?

  We have a $12.3 billion company in sorcery right now.

• 1:26Speaker 00

  In the house.

• 1:27Molly O'Shea?

  That's Brex, by the way.

• 1:30Molly O'Shea?

  Huge accomplishments. Most recently, you guys crossed over 100 billion in total payment volume. This is amazing. What are you most excited about right now?

• 1:39Speaker 00

  Look, I think business is now seven and a half years old. I think that what I'm most excited about is I see the company maturing in all the ways that a generational company should. So that means consistent revenue growth, operating with people at all levels that can do great. You have a suite of products that aren't just a corporate card, which we'll get into later. And just the ability to compete and excel past just serving our first and our most, one of our most important segments, the Silicon Valley startups.

• 2:11Molly O'Shea?

  It's huge. And so to break down the $12.3 billion valuation, this was actually back in 2021.

• 2:18Speaker 00

  Yes.

• 2:19Molly O'Shea?

  So could you share some of your investors?

• 2:21Speaker 00

  Yeah, so some of our investors include Green Oaks, DST, Tiger Global, TCV, Lone Pine, Ribbit, Y Combinator, SV Angel. Those are the ones I can call.

• 2:35Molly O'Shea?

  A lot of investors, big investors. How much have you guys raised in total?

• 2:39Speaker 00

  So we've raised about 1.5 billion in total.

• 2:42Molly O'Shea?

  Wow, all primary or?

• 2:44Speaker 00

  We've done some secondaries along the way, but that is the primary number, yes.

• 2:49Molly O'Shea?

  It's pretty big. Okay, so we're here to talk about many things.

• 2:52Speaker 00

  Yes.

• 2:53Molly O'Shea?

  We're going to talk about Brex's road to IPO. We're going to talk about your background, the business strategy. You are Chief Business Officer of Brex, and I'm a huge fan, if you guys didn't know that.

• 3:04Speaker 00

  We appreciate your support, always.

• 3:07Molly O'Shea?

  My support, Cluley's support, everyone.

• 3:09Speaker 00

  30,000 customers and counting.

• 3:11Molly O'Shea?

  That too.

• 3:14Molly O'Shea?

  Okay, cool. So we'll go over all of that. And I'm just really excited to also have you here because you watch the M&A market very closely. The M&A markets are picking up a lot. And we'll just, we'll get into like a bunch of the recent deals, how you're seeing the market and that sort of thing. But to start, you joined Brex at a pivotal moment. I'd love to learn more about your background and how you got into Brex.

• 3:36Speaker 00

  Yeah, so I joined Brex in December 2018 because of my, one of my mentors, a guy named Michael Tannenbaum, who was the first Chief Financial Officer at Brex and also the first employee. He was someone I got to know in San Francisco, where I was living at the time. I got my start in startups at a company called Teespring, which is one of those, honestly, like pretty famous early 2010s companies. I worked there with Jack Altman, who I know is also on the show, big fan of his. And I was there and then I met Michael. We kept in touch. I was working in VC at the time. And one day he called me up, December 2018. I had remembered he'd joined two young Brazilians at a company, hadn't heard much about it.

• 4:20Speaker 00

  And he told me, hey, Art, like, I know you're a partnerships guy. And he was like, we just signed a partnership with First Republic Bank. And I said, okay, interesting, but aren't you guys like a year old startup? And he's like, yeah, they want to compete more with Silicon Valley Bank, who has an all in one suite of banking and corporate card. And First Republic hasn't cracked their corporate card. So they're gonna refer us and we're gonna go to market together. And I was sort of like, hmm, this is a $25 billion public company that is working with a year old startup. Like, there's, maybe there's something here. And he used this as kind of a pitch to get me to talk to the company, meet Enrique and Pedro. And then I met Enrique and Pedro and was really blown away

• 5:03Speaker 00

  by the vision of the business and the early traction with startups. I mean, I was a, you know, I'm always a fan of business, hence my title, the Chief Business Officer. And it was clear to me that startups was just the first lighthouse on our journey. But even then, in 2018, it was just so clear, the product market fit, that it seemed just too exciting not to join.

• 5:26Molly O'Shea?

  So how has your role evolved?

• 5:28Speaker 00

  Yeah, so my first role was essentially to come on and get VCs and accelerators to refer Brex to their portfolio companies, whether or not they had invested in Brex. And so the whole idea there was I studied Bill.com, which was an early, you know, successful B2B channel sales company. And I said, wait a second, like, all these VCs, all these accelerators, they have all startups. Let me just get them excited about Brex. And the way to do that was the following. We would pay the companies an extra bonus. We would give them white glove service. I would have Michael Enrique go out to certain demo days and do workshops on raising money. And so it was a really good way to seed the ecosystem on brand awareness about Brex and quickly getting a lot of companies on Brex.

• 6:13Speaker 00

  I remember one of the first companies I got through a friend, big companies on Brex, was Fubo TV. And everyone was super excited because literally it was just a small media VC just told them, hey, you should use Brex. And then suddenly we had a pre-IPO company on Brex. So my first job was building out that channel sales motion and specifically with VCs. And then over time, we realized, hey, like partnerships is something Brex can do pretty well, we think. And so we... Added a bunch of other channel partnerships around accounting firms and ERPs. Then I took over our rewards partnerships, signed a big deal with AWS, with JetBlue, so you could transfer points for miles.

• 6:54Speaker 00

  And then took over product partnerships and then eventually M&A and corp dev and investor relations. So now I kind of, I like to say that I oversee like the money things at Brex that isn't the, obviously, the chief financial officer's remit. It's more kind of like external money coming in and out and driving revenue growth specifically.

• 7:14Molly O'Shea?

  So what's the long-term vision for Brex and how does your team fit into this?

• 7:19Speaker 00

  When I think about what we've built over the last seven years, I believe we are a generational company that was the category defining company in the space. And we've now evolved to serve not just Silicon Valley companies. So one stat that we're super proud of is now 60% of our companies are outside of what we call like digitally native companies, which I think is a big accomplishment given how old we are. But our goal is to be a fully autonomous finance platform for the CFO, to help them monitor their spend management and their spend workflows. And what Brex was able to do, or is able to do, is really break the trade-off of speed and controls.

• 8:00Speaker 00

  We're basically allowing CFOs and finance teams to put more on their corporate cards, to make them move faster because they have more controls, but they don't have to be slowed down by putting those controls.

• 8:14Molly O'Shea?

  And you're on your way to IPO, or at least an IPO is the goal. Like you, as a company, actually have that as a goal, whereas others really don't.

• 8:23Speaker 00

  Really don't, yeah. I think that we, again, back to, we see ourselves as a mature company that wants to be a public company someday. And the way that Pedro likes to frame it is that we are already and will continue to start operating like a public company in the sense of understanding where our revenue is going to be a quarter in advance, having things feel more pre-baked in terms of the consistency and predictability of the business, while continuing to move extremely fast. I think when we think about- IPO, there's definitely a few milestones that we would have to hit. And some of those are around kind of market understanding and perception about our business model and what we're doing.

• 9:04Speaker 00

  I think that one of the things that I was excited about this year is there is a number of mentions of Brex in public company earnings calls. Oh, wow. Yeah, so American Express's CEO mentioned us and also this company Paylocity, that's a little bit smaller. But to me, that was a big moment because I had, you know, hedge fund friends I haven't talked to in 10 years be like, I think someone mentioned the company you're at on this earnings call, which was pretty cool. And to me, that's back to, hey, like, people outside of just, you know, VCs in San Francisco are understanding and taking note about what we're doing. But I don't think that that's sufficient to IPO. I think you also need the street and investors to understand the business model.

• 9:47Speaker 00

  And a company that we really look up to and we like to think we're somewhat similar in many ways to is Toast. And the CFO there, Alana Gomez, was really able to educate the street ahead of their 2021 IPO. At the time, you might remember, this is right after COVID, so Toast is a restaurant. It's like an operating system for restaurants. They do point of sale, merchant acquiring. They do all of the other software to help restaurants run their business. And essentially, the company was pretty misunderstood. People thought it was really a hardware company. They thought the end market restaurants were, you know, not an attractive market to serve. And she basically did a really good job of helping to frame that, no, no, this is mission critical software

• 10:33Speaker 00

  that uses a point of sale hardware to get the restaurant in and then monetizes through the rest of the software. And she pointed investors to the growth, the software attached, and the total gross profit dollars of the company, rather than the gross profit margin. Because the gross profit margin is lower, even though the dollars are high. And so she was able to educate the market and get them really excited about Toast. And now, obviously, Toast trades very well in the public market. But that's a company that has the Majority of its revenue from payments and only about, I think it's 65% payments, 35% software. And so when you think about Brex and what we're doing, the majority of our revenue is through interchange, even though we have a number of other product lines.

• 11:17Speaker 00

  And the reason folks use our product is because of the software. And so we look at that company as having done a great job of educating its own investors on how that works. And so as I think about what we're trying to do and the milestones we need to reach, that's a key one as well.

• 11:35Molly O'Shea?

  Before we go too deep, I mean, I would assume everybody knows what Brex is because Brex is the best company ever. But they might not, and we will go into a specific like business section for Brex. Could you just share more about Brex for people who don't know what Brex is?

• 11:53Speaker 00

  Yeah, great. So Brex is a spend management system for companies from two-person startups all the way to enterprises that have 500 offices globally. Essentially, what we do is we marry a corporate card with spend management software to allow you to really have a much better understanding of all of the spend going through your business. And we allow you to put a ton of controls on that spend, whether it's through our corporate card product, our bank and bill pay product, our spend software product, or our travel and global products.

• 12:30Molly O'Shea?

  Great. And Sorcery is a happy customer.

• 12:33Speaker 00

  Yeah, you have that gold card.

• 12:35Molly O'Shea?

  I do. I do. Where is it? Oh, it's right here.

• 12:39Speaker 00

  Amazing, amazing. Anyone listening can have one too.

• 12:43Molly O'Shea?

  Here you go.

• 12:44Speaker 00

  Oh, my God. Thank you.

• 12:46Molly O'Shea?

  I'm just giving everyone a metal card on every podcast. I hope you guys don't mind.

• 12:50Speaker 00

  Everyone who is on the Sorcery podcast needs to have a Brex metal card. That should be a prerequisite for getting on the show.

• 12:55Molly O'Shea?

  I absolutely agree. So like you're giving me permission to just give them out.

• 12:59Speaker 00

  Twist some arms and be like, hey, like I know you're the CEO of X company, but you need to have Brex.

• 13:03Molly O'Shea?

  Everyone needs Brex. Okay, so I want to go into the M&A market with you. You post a lot about it on Twitter. I love your Twitter. Follow it all the time. Sorry, your ex account.

• 13:13Speaker 00

  My ex account, you know, I have, I think, maybe one twentieth of your followers, but you know, I'm gaining quickly, Molly. I'm coming for you.

• 13:19Molly O'Shea?

  No, you're not. I will win.

• 13:22Speaker 00

  That is true.

• 13:22Molly O'Shea?

  I'm going up and to the right. But I want to talk about the current state of M&A. Activity is picking up again. Even on the IPO standpoint, there's been recent IPOs.

• 13:34Speaker 00

  Yes.

• 13:35Molly O'Shea?

  Like Trime, et cetera, et cetera, in the fintech space. So how do you view the current state of the M&A market?

• 13:42Speaker 00

  Yeah, so, look, I said this a few months ago. I think we're entering the golden age, a golden age of M&A right now. I think there is a bunch of factors that are melding together to make it a point in time where the consolidators are getting bigger. They're taking bets on new high-flying companies that are rapidly gaining traction. And you have an administration that is allowing, or seemingly allowing, a lot of M&A to take place. And so I think all of that together brings you to a point where we've seen some really interesting M&A in the last three months, even in the last month, that I think will just continue.

• 14:20Molly O'Shea?

  Do you have any examples?

• 14:21Speaker 00

  Yeah, absolutely. So if you think about the last 12 months, I was looking at, Carta did some work on this, and essentially, there's 200-plus companies in tech that are like seed all the way to Series B that have been acquired year-to-date, which is up 200% year-over-year. So first of all, that's basically saying, small companies, you know, your Aqua hires, your, you know, tuck-in M&A that we can get into, all of that is happening. But then, as we saw, there was a really fascinating piece on it at the recent COTU conference, billion-dollar-plus tech M&A is up 68% year-to-date.

• 14:59Molly O'Shea?

  It's huge.

• 15:00Speaker 00

  Huge, huge. So it's not just the small companies that are getting picked up, and some examples of that are, in my space, let's say. So there's been a few M&As of kind of legacy players trying to compete with someone like a Brex. So Amex bought a company called Center that had less than 20 million of revenue for 600 million. Kudos to the Center founders.

• 15:22Molly O'Shea?

  Wow.

• 15:23Speaker 00

  Paylocity bought a company called Airbase for 300 million, and they had about, I think it was like 15 million of revenue. And then... Team Pay was another competitor, was bought by a company called Paystand. Travel Perk, which is another competitor, bought a company called Yokoi. All of these are sub 30 million revenue businesses that are being bought for sub $500 million outcomes. And the idea there is what I like to call product M&A. So it's these legacy players saying, hey, like, I'm gonna take a flyer on this business. I don't wanna buy Brex because that's way too expensive. I don't wanna deal with Art Levy and his fancy titles.

• 16:05Speaker 00

  So I'm gonna try to solve my Brex problem by buying one of their small competitors. And the truth is, you know, candidly, that doesn't usually work because it's usually not just a product problem and, you know, I don't, I haven't used any of those other competitors, but I think there's a reason why their products are, you know, potentially, potentially there's a reason why they haven't had the adoption of a Brex, let's say. And then, on the other side, you have some really large M&A that's happening very early in companies' life cycles. So I think we're entering an age of massive consolidation where the bigger players are just getting bigger. And in a world where the regulatory is giving the green light, that can lead to some really fascinating outcomes.

• 16:46Speaker 00

  And so even in the last 12 months, we've seen Google buy Wiz 32 billion, but again, Google's market cap is 2 trillion, so that's 1.5%. You saw OpenAI buy allegedly Windsurf. That's 3 billion off of 300 billion. Again, 1%. Or yes, they bought John Ive startup, 6.5 billion. Again, on 300 billion is 2.5%. You saw Salesforce buy Informatica. That was 8 billion on 250 billion, which is 3%. So in all these cases, it's huge M&A, but because it's being done by the biggest companies in the world, it's not really moving the needle on their, on their cash reserves or their, their, their share price or their stock.

• 17:27Speaker 00

  And so in all those cases, these companies are spending 1% to 3% of their market cap on the M&As, which is not like, that's not transformative M&A. It's really like, again, these big consolidators are just taking call options, bets on these... Fast growing new companies. So it's super exciting. And I think it it leads to a really good virtuous cycle of startups being started because suddenly people, you know, there's the survivorship bias where they're like, well, look, you know, I keep reading about these like two year old companies that are being bought for two billion. Like, I gotta go and start my company. And in the end, that's good for the ecosystem because everyone tries to do that. And a few survive and everything continues. But in the past, where we were in it, even with the, you know, Figma M and A that was and Plaid that were both stopped from happening,

• 18:11Speaker 00

  suddenly folks, VCs, everyone in the ecosystem was concerned because if you take out M and A as a viable way for companies to exit, I think that does become a problem because not every market is big enough for a compounder that can be a company for thirty, twenty, thirty, forty years.

• 18:29Molly O'Shea?

  That's a really good point. VC has been in a lockup, dry period for a really long time. There's like, it's been pretty atrocious. A lot of people have been down bad. And that's to say the least. But I want to get into that a little bit more like macro wise, like if we zoom out, of course, there's a lot of built up energy for exits and liquidity. But what other kind of like structural dynamics are happening that's allowing this kind of new phase of M and A to take place? Competition, regulatory, what's going on?

• 19:07Speaker 00

  So I think and a number of your recent guests on the pod have touched on this, actually, I think that in a world of AI and as AI starts to mature, I think a lot of the benefits actually go to what I would call not the incumbents, but like the fast moving larger companies. Like, of course, there will be a few companies that start from zero and explode. But, you know, companies like Salesforce, like Databricks, like Brex, like, you know, everyone, we're all using AI and we're all incorporating it into the internal tools we use, into the products that we sell. And so in that world, I think that there's a desire and ability to move fast, but then look over your shoulder and spend money on someone who's building.

• 19:52Speaker 00

  Quickly because you're the one with the distribution. So this is going back to what people on your pod have cited. I think distribution is more important than ever before. And the fast moving companies that can incorporate some AI but already have distribution. I think are in the in the best position. But they still have to look over their shoulder to make sure, hey, like, what are these next gen companies doing? Maybe I should take them out because the product is really interesting and I can push it through my channels. You know, it's honestly like history doesn't repeat, but it rhymes. It's a little bit like when you look at generational companies like a Microsoft even. They're they were all about partnering and acquiring to then sell a bundle of products.

• 20:33Speaker 00

  And basically, I think that what's happening now is the consolidators, the Googles, the Metas. The you know, OpenAI is rapidly becoming one of these companies is sort of saying, hey, like, I'm already in the lead. Let me just bring these guys under the tent rather than compete. I have the distribution. I should ride my tailwinds. And that's happening in a time where the stock market is doing great. And so a lot of these M and As are being paid for in stock. There's this isn't like your traditional private equity.

• 21:05Speaker 00

  You know, leverage these businesses to the hilt because interest rates continue to be, you know, like, high. So I think what's happening is people see the regulator as friendly. They see a president that they believe is market friendly and doing what he can in their eyes to, in most cases, keep the markets. Doing well. And so that's a time where you want to use your currency and you want to make bets. Because I don't think there's there's they don't believe there's going to be a lot of wasted energy. So with the Figma M and A that didn't go through, there was a billion dollar breakup fee. And so that yeah, not bad, but that was a $20 billion proposed acquisition. So that means that obviously there was some negotiation because the seller paid that 5% chance that that gets blocked.

• 21:50Speaker 00

  It was probably way higher, by the way, because 5% is not that high.

• 21:53Molly O'Shea?

  Yeah.

• 21:54Speaker 00

  Yeah, but at such a scale, it's sort of, I think it's like hard to get, you know, public companies to fork over cash. But anyways, point is that they had to have a breakup fee. They they were not sure. I haven't heard, I don't know if you have, but I was reading a bunch of stuff. I haven't heard like breakup fees around any of these announcements and things like that. And so.

• 22:11Molly O'Shea?

  No, I haven't either.

• 22:13Speaker 00

  Yeah. So I think that's pretty interesting, meaning like. Folks are.

• 22:17Molly O'Shea?

  There's gotta be.

• 22:19Speaker 00

  Some.

• 22:19Molly O'Shea?

  They're definitely in there, but I don't know why we're not hearing about.

• 22:22Speaker 00

  Yeah, we're not hearing about them. I mean, they are probably in there, but they're probably not at the same scale is my point because the probability of the deals going through, both buyer and seller feel more confident.

• 22:33Molly O'Shea?

  Okay.

• 22:33Speaker 00

  And then you have these reverse aqua hire.

• 22:36Molly O'Shea?

  Yes, we need to get into these.

• 22:38Speaker 00

  Where it's like they're not taking any risk on it. They're just gonna structure in this way so that they believe regulatory will completely leave them alone.

• 22:47Molly O'Shea?

  So one really good example of this, I'm so happy you brought this up, is the MetaScale AI deal. We need to talk about this. This is a really hairy one, seemingly from the public perception. I was just listening to the BG2 pod when they were interviewing Thomas and Philippe LeFond and they were, they were specifically talking about the Scale AI Meta deal. And they don't really know what's gonna happen. I mean, I think the consensus was like, Zuck is, is going full force on AI, just like he did with Meta, Metaverse.

• 23:20Speaker 00

  Yeah.

• 23:21Molly O'Shea?

  So much so that he renamed the company.

• 23:22Speaker 00

  Yeah.

• 23:23Molly O'Shea?

  Wonder if he's gonna rename it to AI.

• 23:26Speaker 00

  Honestly, like if he can, he probably should.

• 23:28Molly O'Shea?

  He should. Why not?

• 23:29Speaker 00

  If you can get the domain.

• 23:30Molly O'Shea?

  I mean, that would be a, that would be a good bet. He should rename it to AI.

• 23:34Speaker 00

  If you're listening, let us know.

• 23:36Molly O'Shea?

  Let us know. But specifically with Scale AI, their whole thinking around this deal was, okay, Zuck is super competitive. He should have made these moves probably yesterday.

• 23:49Speaker 00

  Yeah.

• 23:49Molly O'Shea?

  Now he's going after every big name in AI. Someone actually joked that he's not going after the people that know how to build it. He's just going after the brand names, which is also funny on like a technical standpoint. Besides the point, they did also bring up, they didn't hear anything about a breakup fee. From your perspective, like, how do you structure this kind of like reverse aqua hire and what does this mean?

• 24:11Speaker 00

  Yeah. So first of all, I would like to say, I think that Mark Zuckerberg is the best, I'll go on record to say, the best public market CEO at M and A in tech.

• 24:24Speaker 00

  The bets that he's made over the years, I feel like have paid off in spades. Whether it was Instagram or WhatsApp. It seems that whenever Meta or Facebook at the time is about to lose a step, he just acquires to solve the problem. And like, look, a lot of people would want to do that. And I think the thing he does really well is use M and A as a capital allocation method. So one of my favorite books is this book called The Outsiders. It's like a really old, stodgy, like, business book by William Thorndike that talks about like eight great CEOs and how they use M and A as like a tool in their arsenal. A lot of people don't see M and A as just, it's just an allocation of money.

• 25:07Speaker 00

  Just like you could spend that money to buy a hundred engineers or you could buy this company for a hundred million, whatever it is. It's a way to spend money to solve your problem. And it shouldn't be viewed as this exciting thing. A lot of people love working on M and A, which is the problem. People get over excited about it because, you know, it's exciting to work on deals. It should just be one of the things you do to try to create shareholder value, just like doing buybacks, just like hiring great people, et cetera. So first, I'd like to put that out there. Specifically on this reverse aqua hire situation. It's pretty funny because as we were talking about a few moments ago, I believe that everything is moving so fast right now in the valley. Consolidates are getting bigger.

• 25:48Speaker 00

  When I was back at Teespring, I learned how to do M and A and how to do aqua hires from a woman named Sarah Adler, who was at Dropbox and Airbnb. And she and Lawrence Tosi, who was at Airbnb at the time, really, I think, like, really created the idea of the aqua hire in the sense of, hey, you're going to pay about a million dollars per engineer for companies where there's a lot of talent, but you're not sure about the product, but you really want them on your team. And it was sort of this tried and true method that, you know, from like, call it 2010 to 2018, I feel like in the valley, that was what people were doing. They're doing aqua hires around that price. You give something back to the cap table and everyone moves along. And so it's pretty interesting to now see essentially like aqua hires on steroids. But remember, it's not just Meta, right? You had Care

• 26:33Speaker 00

  After AI where the CEO left, you have Amazon and Adept AI, which was about a year ago. You have Meta now also going after SSI's founders.

• 26:43Molly O'Shea?

  Yeah, yeah.

• 26:44Speaker 00

  Which we we we should get into as well. But on the scale situation. Look, I think it's really interesting because first of all, if you're Zuck, you had to get the, I think you had to get the investors. Or you definitely had to get the investors of scale behind this. And so the way that he did it is super creative in the sense of he allowed a buyout at 14 billion, which is exactly the number that they were valued at just last year. Just like Wiz was bought for 32 billion, not 30, because their last valuation was 16. And these VCs, they want to show a nice 2X. And so here it was, okay, 14 billion dollars was what they were previously valued at. We're going to value it at 28, so 2X that last round.

• 27:26Speaker 00

  But we're going to cash everyone out at 14 billion. So you at least, if you invested at that price or you invested before that, you make money, you get your money back. And now you're kind of rolling, the investors are rolling their stake into the 50% that Meta didn't buy, or 51% into like Scale, Scale AI 2.0, which is, you know, TBD what that company even does if Alex isn't there, since he'll be at Meta. But from what I'm reading, they're going to continue to run the business. It's going to be super interesting to see what happens to both Facebook with the Superintelligent Lab and also with Scale AI.

• 28:05Speaker 00

  I was reading over the weekend about Scale AI has a bootstrapped, very fast competitor, Surge AI.

• 28:12Molly O'Shea?

  Yes, yeah.

• 28:13Speaker 00

  I'm sure you heard about it. And so in many ways, it seems like it was potentially just a great marriage of two people. Like, you know, the best, when you're thinking about deal making, you always, you don't actually want to screw over your, your counterparty. Even in M and A, like I know I talk a lot about, like, you don't want to be nice. Like, you know, you want to get what's yours. That's true, but it still needs, the deal needs to make sense for everyone. Otherwise, like, something's going to get screwed up at the end, someone's going to call it off. And so here you had. Scale AI that had a competitor that was at a, I read like a billion in revenue. They just missed projections. And you had Meta that needed to jumpstart its AI problem. And specifically, you cited it earlier.

• 28:55Speaker 00

  He's hiring the people that have the brand name because that's, I think it's really like a market play. It's perception, you know, random Wall Street hedge fund guys, they don't really know the difference between the AI talent. And so with this big play, Zuck can say, hey, we're making like a huge push here. We're doing this and look, the share prices responded. I mean, there's a lot going on, but it seems to have responded positively versus if he said, look, we're going to spend,

• 29:20Speaker 00

  you know, five billion recruiting top talent at all of these engineering schools. I don't think anyone would really care. They'd be like, okay, like, I don't think he has a strategy. So I think it's interesting because I do think as a public company, you have to have both your strategy, but also a strategy that the street understands. And I think Zuckerberg's been masterful at making those strategies the same in the sense of like, he says something and then people understand it. And then in many cases it's worked, you know, like with Instagram, like with WhatsApp, like with some of his pivots.

• 29:50Molly O'Shea?

  That's a really good point. With a public company, you have to have public market signaling. It's all about public market signaling. So you want brand names, you want like things that are already known pretty generally because retail investors, other hedge funds, they're placing bets on that. I mean, at the end of the day, it's like a news pumping game. And people are always going after different kind of headlines. So if you can get the headliners and add them to your stack, it's like a great play.

• 30:18Speaker 00

  Yeah, exactly. And look, I think the truth is like Alex Wang did create a generational company in Scale AI. You know, they're, they've been Brex customers since day one. Sorry to give the plug.

• 30:30Molly O'Shea?

  No, you need to give the plug.

• 30:32Speaker 00

  Need the plug.

• 30:32Molly O'Shea?

  Scale AI, Brex customer.

• 30:34Speaker 00

  Since day one. And now they're a huge business, but point is he built a generational company. I think this is a very exciting move and I think that he's going to be very successful at Meta. And I think that the truth is it's like, it's a ballsy play, but like Zuck does, like makes ballsy plays.

• 30:49Molly O'Shea?

  Could you like, explain a little bit more on like, the 49% ownership? Because I feel like people don't really understand that part.

• 30:55Speaker 00

  In terms of what specifically?

• 30:56Molly O'Shea?

  Yeah, like, they, so you mentioned a little bit of like, acquiring it for 14 billion. They bought a 49% stake. But like, what does that mean? Like, it just seems kind of hard to understand.

• 31:09Speaker 00

  Yeah, so essentially, the line of like, 5149 is, I think of it as like, a, a red line in the sense of that-

• 31:16Molly O'Shea?

  And like, the whole company was essentially bought out, though. That's what I think the confusion is.

• 31:21Speaker 00

  Well, essentially, what that means is basically, control of the company remains with the other shareholders that aren't Meta. Meta becomes the largest minority shareholder in Scale AI. But, from an accounting point of view, and from a, I guess like, once they own 51%, Scale AI is now owned by Meta. And like, you can't say it's an independent company. You don't necessarily have investors that are thinking that it can chart its own path, because it's squarely owned by Meta. And so, in this case, it's a, it's a line that, again, is back to regulatory, where like, if you ask me, did Meta buy Scale AI? Did they acquire Scale AI? The answer is no.

• 32:06Speaker 00

  If it was 51%, the answer is more yes than no, because it's a majority. And so, the idea is Meta probably, again, I don't have any insider info, but they went to all the investors and said, hey, like, we're gonna buy 49%. So you get cash out of this valuation, and you get to roll your stake. And so, you'll get to own whatever happens to Scale AI. I'm taking the CEO. Customers might churn, you know, a lot of things might change. But like, we don't own, to be very clear, like, we don't own the company.

• 32:37Molly O'Shea?

  That's good. I needed further clarity on that.

• 32:39Speaker 00

  Yeah.

• 32:40Molly O'Shea?

  Sorcery is brought to you by Brex. The financial stack trusted by more than 30,000 companies, including one in three venture-backed startups in the US. Nearly 40% of startups fail because they run out of cash. Brex is literally built to help founders avoid that. Unlike traditional banks that let your money sit idle, chipping away at it with fees, Brex is designed to help you spend smarter and move faster. Their all-in-one solution combines checking, treasury, and FDIC protection into one powerful account. You can send and receive money globally at lightning speeds, get 20 times the standard FDIC coverage through their partner banks, and even high yield from day one. With same day and even same hour liquidity, access your funds anytime.

• 33:25Molly O'Shea?

  Companies like Scale AI, DoorDash, Service Titan, Hims, Anthropic, Flexport, Robinhood, and Plaid. Trust and use Brex. Start today at brex.com/sorcery. That's B R E X dot com slash sorcery. There's other huge deals going on. Could you share more? Like, what are the biggest deals that have happened recently?

• 33:49Speaker 00

  In like MySpace or just in tech in general?

• 33:51Molly O'Shea?

  In your space specifically, what are the biggest deals that have happened in M&A? And why are they so significant?

• 33:56Speaker 00

  Yeah, so the ones that I've been tracking really closely, the first one that comes to mind is Capital One and Discover. Huge deal. This is not a tuck in. This like materially changes their whole business model. And the reason is because it creates the largest credit card issuer by loan volume, because it allows Capital One, that is a bank, and Discover is a card network similar to Mastercard, Visa, and American Express. There are four in the US. And so now they can create what you would call a closed-loop system in that it's the card that now is on a network that they own. So they both get the interchange revenue when you swipe, but they don't have to pay the network rails for everything because they own the rails.

• 34:40Speaker 00

  And so the reason it's significant is that it touches on two themes. Number one, the bigger, the consolidators are getting bigger. And number two, vertical integration. Because now Capital One issues cards on Visa, Mastercard, and Discover, and time will tell to say, hey, maybe they move all their business to themselves, because why would you pay Visa and Mastercard for their rails if you own your own payment rail? So that one we're watching, or I'm watching very closely, and that was just approved. So back to my point at the beginning, is that like, large M&A that potentially could be anti-competitive, or whatever the, like, you know, could cause regulatory problems is being approved.

• 35:21Speaker 00

  The next one that is obviously really interesting is the Stripe Bridge deal. So, you know, that was announced a few months ago, and Bridge was started by a Brex alum, Zach Abrams, we love him. And that's super interesting, obviously, because it shows Stripe taking a big bet on stable coins as a method of payment, as a, as a view that, you know, consumers and their customers want to be able to transact in that. And obviously, Brex as a card issuer and spend management platform, we need to take note of that, and we need to be thinking about our own stable coin strategy as we monitor what folks are doing.

• 36:03Molly O'Shea?

  Yeah.

• 36:04Speaker 00

  I think I touched a little bit earlier on some of the tuck-in M&A in my space, around MX and Airbase and smaller, some of those smaller companies. But those are probably, or those are the most interesting M&As that I'm kind of taking note of at the moment.

• 36:21Molly O'Shea?

  As you watch all of these play out, what are the best practices, or what are the worst practices that people do in these processes? I know they're pretty sensitive. It takes a long time, there's a lot of legal work with it, but like, what are the best and worst practices for M&A?

• 36:38Speaker 00

  For M&A. Yeah, look, so I think Paul Graham has an essay called "Never Talk to Corp Dev" that he published, I think like, 15 years ago. Which, my hot take is I actually don't agree with it, and essentially, his, his point is that, look, as soon as you talk to a, a large big tech, or you talk to a potential acquirer, you've kind of crossed the Rubicon, so to speak, of like, thinking about being bought, and then you like, can't run a business successfully because it's always in the back of your mind. So I actually don't agree with that. I think that as a founder, you have a fiduciary duty to talk to partners, talk to VCs, talk to potential acquirers in your space.

• 37:19Speaker 00

  Not like every month. It's a little like dating. You're basically, you want them to know who you are and be like, hey, like, we're doing our thing. We're killing it. Like, I'm around. Call me if you want. But like, that is important because like, let's say, yeah, Stripe. I know the Stripe-Bridge deal. You know, you can read about it. That, that deal happened a lot because Stripe was aware of what Bridge was doing. They have mutual investors. Folks were flagging the traction. That's kind of what you need to get acquired. If Bridge was being built in, you know, South America, or Europe, or, you know, Africa, I'm not sure that that M&A would have happened. The fact that it was being built in San Francisco, fortunately or unfortunately, I think is relevant because you had the same group of founders,

• 38:03Speaker 00

  partners, talking to each other and flagging that this is interesting. So number one, I think you want to stay in the information flow. And you can do that by like posting on X, going on Sorcery, or just, you know, reaching out in a way that is kind of innocuous to folks that you think you should be on their radars. The second is partnerships. I think that most successful M&A, I would bet, you know, I have to run the numbers on this, but most successful M&A comes in tech where the companies have been partners first. Because like, why wouldn't you take a call option on a relationship? There's a million reasons why a partnership will fail, but if it's deriving customer value, you know, you could still hate the other party because they're assholes.

• 38:45Speaker 00

  Or it doesn't actually work because for whatever reasons that the joint customers don't react in the way you thought. And so with Stripe and Bridge, they were partners for most of Bridge's life before Stripe bought it. So it's sort of like, how do you know the M&A is going to work? Well, because the partnership worked. Versus you kind of fly in and acquire a company that you've never actually talked to. You know them for like three, four weeks. Like, that feels like not the right way to do it. So I think you want to potentially use partnership as a wedge in. You want to get to know your potential acquirers or... Potential sellers, if you're on the buy side. And I think the last thing I would say is like, in the process, you know, Silicon Valley has this adage of like, being really nice, like,

• 39:29Speaker 00

  being really nice gets you places, it's the right way to behave, like you want to open.

• 39:33Molly O'Shea?

  Is that an adage in Silicon Valley?

• 39:35Speaker 00

  I feel like at least a little bit, it's sort of like people want to help each other and like, because you never know who's gonna make it, so you're always like trying to stay in everyone's good graces. Is my like cynical New Yorker take on it, it's not because everyone in Silicon Valley is like a good person. But my point is in M and A, it's the opposite. I think you don't want to be nice, you want to be not rude, but you want to be direct and you want to be harsh. You basically want to be like, listen, like, because a lot of large tech corp dev teams like sniff around. These people have nothing to do, Molly, like these corp dev people at large businesses. And so they just call up small founders, and this goes back to why Paul Graham is saying this. They call up small founders and they're like, oh, you know, like we should chat about M and A. And those founders go on a dog and pony show also because they haven't read my X,

• 40:18Speaker 00

  they haven't read the books on M and A, and so they get dragged on like a six month journey. And they shouldn't do that, it should be like, hey, like, I need an LOI tomorrow. Here's the three things you know about my company. Otherwise, like, this call is over. And when the corp dev guys are like, well, like, you know, I need, I need to talk to my boss and I need more information. Then that's like a classic higher authority negotiating gambit. Then you should say to them, great, well, it sounds like you have no decision making power. Why don't you have the decision maker call me? And zoom.

• 40:48Molly O'Shea?

  Wow.

• 40:50Speaker 00

  Yeah. Because that is what people will be like, oh my God, like this guy must be building something really great. He's right, like, that's not rude, it's sort of just matter of fact. Yeah, don't waste my time.

• 41:00Molly O'Shea?

  Wow.

• 41:01Speaker 00

  Yeah.

• 41:01Molly O'Shea?

  What else you got? This is great.

• 41:03Speaker 00

  In terms of when you actually started the M and A process, I think that's when as a seller, you're actually at the most weak negotiating point, so be very careful. So that's when you got something in writing and you're bought in, but nothing's closed. That's when the buyer will try to do what they can to extract more value from you. And I think that's why you have to have a real champion on the other side. And so I. I think like probably one of the reasons these M and As at Meta get done and it seems are successful. You know WhatsApp, Instagram, I don't think you can say those aren't successful M and As is because he at the founder level was really bought in to those deals and making them successful.

• 41:43Speaker 00

  Versus if a corp dev guy, and I've been a corp dev guy, so I can, you know, I could keep kicking these guys in this conversation. Like if he's your champion, then like best of luck, like you're not going to be successful as a founder at the new company. Like sure, maybe you'll get paid on closing day, but like what about after? Because I think one of the things about these founders is or founders in general is like they want to build. And the reason you sell a lot of times is because you want to sell. I mean, there's a lot of reasons, but I think one of them is for to create something bigger under another rocket ship, right? Like Alex Wang is not retiring. He like wants to use this platform to continue to build. And so I think like when you've convinced yourself that big tech is right for your company and they're going to scale your distribution. But you haven't closed the deal, like that's when you're at your weakest point.

• 42:28Speaker 00

  So I'm so basically I'm saying like be super paranoid. Don't tell everyone the deal's happening until the wire hits, literally, because I've seen some crazy shit in my time. Like until the wire hits, like this deal is not closed.

• 42:39Molly O'Shea?

  Yeah, same.

• 42:40Speaker 00

  And also just make sure you have a true champion on the other side where there's someone who has skin in the game. Because basically what I'm saying is that as a founder, you need someone to care how the deal goes post facto. Because otherwise you're going to be basically losing all leverage at the time you sign the like indication because you guys agreed on price and everyone's going to just like try to get the deal done. And you have to be like, well, no, wait a second. If you don't do these things for me, like I'm not going to make it successful once we close. And so you need someone on the other side that really cares. That's what I would say.

• 43:11Molly O'Shea?

  No, this is really interesting. I'm quite curious. I've experienced this my day, been in VC for like seven years now, but I'm curious from your standpoint. What are the different types of archetypes for the buyers? So you can have a PE company, you could have a large big tech, you could have like strategics. There's all these different kinds, but like what are the different kinds of processes that they run?

• 43:33Speaker 00

  Yeah.

• 43:33Molly O'Shea?

  And what are things you should be concerned about?

• 43:36Speaker 00

  Yeah, so I think it really depends on scale of company. I think one of the exciting things that we're seeing with M and A this year is that a lot of these deals are at the size where you might think a banker would be involved. So, once you're selling to PE, I would say absolutely use a banker 10 out of 10 times, because that's like a tried and true method of like a data room and a management presentation and like a whole dog and pony show. But what we're seeing, especially this year, is a bunch of early-stage, what I would call like times where I'm sure, like, I don't think any of these deals that I mentioned, Windsurf and Johnny Ives, there wasn't a banker on that. Because it seemed like these companies didn't have that much traction just yet from a revenue

• 44:20Speaker 00

  point of view, but they had a massive amount of traction from a product adoption or customers or user point of view. And so, it's super exciting because you're seeing these huge outcomes even without the usual like trusted advisors that would take you through the process. So, when you think about the processes, I think that there is big tech that approaches you as a startup that has traction. So, a lot of these AI companies that are raising right now at like, you know, 500 billion, 2 billion, 3 billion, all of them, I'm sure they probably have been approached by like one of the big tech companies about an acquisition. And when that happens, it's sort of basically like, okay, one company has reached out to us. Should we take the deal and start negotiating?

• 45:05Speaker 00

  Or do we want to run a process? Or are we just, we want to go back to building? And a lot of times, the first call a founder makes, which is right, is to their board to talk about the potential M and A deal. But I think the truth is that even with your board, as a founder, I'm not sure your incentives are completely aligned, because it's back to, well, first of all, what is the price on the table, right? Is it a nice 2 or 3X for the VCs on the board or not? Because if it's not, they're going to tell you not to sell, even if it's life-changing money for you and you've been at it for 15 years, like, right? Like, you kind of have to know, when you're talking to someone, what their incentives are. So, you can run a small process where it's like Meta reaches out to you, so maybe you

• 45:47Speaker 00

  then figure out a way to talk to Google and OpenAI or something like that. Or you hire a banker to run a process. But once you've hired a banker to run a process, suddenly you're truly for sale. So... Basically, taking a step back, if you're talking to PE, use a banker. If you think you're gonna sell, but you know there's only like one acquirer, I think that you can figure out how to extract value by yourself with your board. I'm not sure you need a banker. And then if you're, if you, if you're starting, you get an indication and you wanna launch a process. I do think that it's good to have a third party help intermediate, whether it's a banker or investors on your board or things like that.

• 46:31Speaker 00

  I mean, like, one of the most interesting parts about the Stripe Bridge deal was that it seemed that the, one of the investors from Sequoia on both boards was like pretty instrumental in helping to get that deal done, which you don't see very often, and it's a testament to that, to the brand. I think it was Sean McGuire, this great, great guy, who kinda helped structure that. But usually you see that from bankers, or you have to have, be the founder who does it themselves.

• 46:59Molly O'Shea?

  Not to kick this in too much, but with a PE process or one of these processes, when should you pull the cord? Like, when should you back out of it? I've seen processes before where, you know, next week, oh, lower price, something happened, we wanna reprice it, or something like that.

• 47:18Speaker 00

  The number one advice I give founders on when they're testing the waters on M&A is to not tell anyone at their company. Because

• 47:26Molly O'Shea?

  Ooh.

• 47:27Speaker 00

  as soon as you get folks excited, it's a little bit like raising around, but at an extreme. As soon as people at the company, even if it's just your CFO knows and he sees dollar signs or she sees dollar signs because like Google offered us this, and it doesn't go through, everyone is disappointed.

• 47:41Molly O'Shea?

  Morale, yeah.

• 47:42Speaker 00

  Morale declines. You need to be hitting num, excuse me, hitting numbers throughout the conversation with the acquirer. Because if they pull out, it's like, great, go fuck yourself. I'm now gonna be three times as expensive next year because, as you can see, I'm growing 300%. And since we started talking, all my numbers look better. Like, again, like, have a nice day.

• 48:00Molly O'Shea?

  Yeah.

• 48:00Speaker 00

  And so you need to not get people invested. It's again, it's like back to relationships or anything else in life. As soon as you're more invested than the other party, you lost all your leverage. And so you need to like be guarded, be avoidant, and just like be doing your thing.

• 48:18Molly O'Shea?

  Dating advice.

• 48:21Molly O'Shea?

  Hilarious, but also very helpful.

• 48:23Speaker 00

  No, it's really true.

• 48:24Molly O'Shea?

  It's really true. It's really true. Sensitive either way. And true. Okay, so taking all of this, I want to wrap it up in a bow.

• 48:33Speaker 00

  Okay.

• 48:34Molly O'Shea?

  If you could break down the main reasons why people go after M and A strategically, could you just share those? Maybe it's specific distribution, maybe it's like technology, maybe it's talent. Like, what are the main reasons people go after M and A?

• 48:51Speaker 00

  Yeah, look, the way I think about it, there's three types of M and A. There's talent M and A, there's product M and A, and there's full business M and A. And I think those are really the three reasons acquirers go after M and A. Talent M and A, self-explanatory. You're literally paying whatever price. Back 10 years ago, when I got my start, it was a million dollars in engineer. Now it's a billion dollars in engineer. It's actually insane. Okay, but that's literally a talent deal. Like, when Zuck went to his board, it's like, hello, we're gonna spend $14 billion, an X billion on SSI just for talent. It's actually pretty self-explanatory. Number two is is product M and A. So this is, there's a company, probably an AI company, they're doing something super cool. There's a ton of traction, but it's very early. I believe I can plug this into my distribution systems,

• 49:35Speaker 00

  and I will get a 10x return on whatever I'm paying. And yes, it's early, and I'm paying a billion dollars or 2 billion, but like, I'm confident it's going to work. And that's Instagram and WhatsApp. We can actually just use Meta for all these examples.

• 49:48Molly O'Shea?

  Meta, Meta, Meta.

• 49:49Speaker 00

  Meta, Meta, AI, AI, AI, actually, I think they just changed their name.

• 49:51Molly O'Shea?

  Yeah, they changed their name.

• 49:53Speaker 00

  So Instagram and WhatsApp, where like, there's a ton of users, but like, it's not like a fully flushed out business. And the third is what you would call like, business M and A. And so this is more common, actually, with like, PE firms, or like, more later-stage companies, where you're basically, you have a standalone business, and you're buying it as is, because you believe that, like, yes, you can help it on the margin, but you're not, or maybe you can help it a lot, but you're not actually going to change that much about it. And so that would be, I would say, like, whiz. And honestly, WhatsApp Might have been that because like, uh, Facebook hasn't really changed WhatsApp that much since then. But so the idea would be like, and honestly, like Waze, if you like, you use that product, I love that product.

• 50:38Speaker 00

  It's sort of like, it's kind of just stayed the same since they bought it. And like, maybe that's in, that, that could be a negative in the sense that like, are they really extracting all the synergies because they haven't brought it all together? A different example of that would be this Capital One Discover deal, right? It's very clearly going to change Capital One's cost structure to own a network. And they're going to plug that network in and issue all of their cards. And that's going to be vertical integration, like, but, uh, Discover is its own standalone business. It's not just some like cute fintech startup. And so that is what I would call business M and A.

• 51:12Molly O'Shea?

  Okay. So Art, we need to shift this over to Brex because you are the expert, you're the chief business officer there.

• 51:18Speaker 00

  Yeah, we literally haven't talked about Brex in one hour. I know the sign is like right there, presented by Brex, but.

• 51:23Molly O'Shea?

  Presented by Brex. Yeah, we, we need the, I don't know, do I even need a Brex segment in this? It's all Brex. Okay.

• 51:30Speaker 00

  I could wear, so one time in San Francisco, and hopefully someone listening to this was at that party. But when I was at Teespring, working for our friend, Jack Altman, in 2013 Halloween party, I actually dressed up as my own business card.

• 51:44Molly O'Shea?

  What?

• 51:45Speaker 00

  Yeah. So it was head of corporate development at Teespring. It was a business card and I just wore it to the party. So I could have done that with a Brex card.

• 51:52Molly O'Shea?

  Oh my God, that's so nerdy.

• 51:56Speaker 00

  We can cut that out.

• 51:57Molly O'Shea?

  That's hilarious. No, we'll keep it in. Okay. So expert over here, M and A partnerships, chief business officer, Art Levy. Could you walk us through how you're thinking about this at Brex? I know you just had some really big announcements with Zip and you've also had big announcements previously with Coupa. So how are you thinking about it at Brex?

• 52:16Speaker 00

  So specifically, how do we think about partnerships?

• 52:20Molly O'Shea?

  M and A and partnerships.

• 52:21Speaker 00

  M and A and partnerships. Fair enough. Yeah. So I think the way we think about M and A partnerships at Brex is, is candidly a lot like how we've been talking about it to date. And so.

• 52:33Speaker 00

  When we think about partnerships specifically, one of the things that Brex has done really well, I think, is we're really serious about meeting our customers where they are and giving them what they want. And so that means a delightful product experience on Brex and everything Brex offers. But it sometimes also means that depending on the customer, making sure we play nice and integrate in a delightful way with their other tools. And I think one of the things that Brex does differently than other players in the space is that our product is more modular. We have a suite of five products, but you can use our card without using our bank account. You can use our card without using our travel portal. You can use our card without using our payables product.

• 53:16Speaker 00

  And that's really important because depending on the company, you might have your system set up in a different way. And because Brex built our infrastructure, we can play nice and delight the customer in that situation. So you mentioned some of the partnerships we've done in the last year and a half. The ones I'm the most proud of, there's Zip, there's Coupa, there's Navon. All of those were joint customers coming to us and saying, hey, I love your product. I love this product. Why can't I use them together in a better way? Navon, literally, the president over there, Michael, he's become a good friend of mine, came to us a year and a half ago and we have like 2,000 mutual customers. And there were a lot of them being like, hey, like, why can't I pay with Brex

• 54:01Speaker 00

  in my Navon portal? It doesn't make sense. What is Navon? Navon is the leading like travel management company. So they work with large global enterprises, companies like Unilever, Heineken, and they help you manage your travel experience as a company. And so you can basically make sure people aren't flying first class. You can make sure they're staying in budget. You can make sure they are booking the right flights. And so essentially, the idea there was, hey, Navon had been building their own card. Brex had been building our own travel system. But there was a segment of customer, namely the largest companies in the world, people like Coinbase, people like ServiceTitan, Anthropic, Wiz,

• 54:42Speaker 00

  that wanted to use the two systems together because that was what that customer wanted. So why should either of us or anyone try to jam down your throat? Hey, it needs to all be one system. I think that as long as you integrate well with other parties. Partnerships can be really additive and we've seen that in the revenue growth that we've gotten from them. That being said, you need to pick your partners carefully and you can't like partner with anyone under the moon because otherwise it confuses the customer experience. So, taking a step back, our strategy has been to partner with other best-in-class vertical software players to create a really delightful joint product that customers love to use together.

• 55:27Speaker 02

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• 56:09Molly O'Shea?

  I want to go particularly into Zip because I thought this one was fascinating.

• 56:14Speaker 00

  Yeah, for sure.

• 56:15Molly O'Shea?

  You both were once viewed as extreme competitors, but now you're allies, you're partnered together. So how did this one evolve?

• 56:22Speaker 00

  Yeah, so, look, I think one of the nice things about being at one company for a long time is that you get to see things come to fruition. So, I first reached out to Zip in August of 2021 because I saw what they were doing. I heard about it through...

• 56:41Molly O'Shea?

  What do they do?

• 56:43Speaker 00

  So Zip is an intake-to-procure-to-pay system. So essentially what that means is it helps large enterprises and growing companies manage their purchase workflows and figure out, hey, like, there's this contract coming in, has it been approved by the right people? And then has it been paid correctly? Have I gotten all of the right approvals on these large ticket spend items? And it's really important... As a company that you keep track of all of the approval workflows for large ticket spend items, of course. And so they created a really delightful user experience for mapping that procurement workflow. So the way it came about was, yeah, I reached out to Rejul,

• 57:24Speaker 00

  the CEO, four years ago, and wanted to talk about partnering because at the time, we didn't have any procurement and they did, but they were serving very large companies. And Brex at the time was still serving largely startups. And so he essentially told me that there was no partnership here because, again, back to one of the things I've said, you need to have joint customers. So, you know, that was me trying to push what I thought would be very good for us to get into enterprise by working with them. And they were like, well, wait a second, you don't have any enterprise presence. Why would we work with you? Very smart of them. And this is like an example of when one side is pushing a partnership that doesn't, doesn't work for both parties, right? Like, you gotta practice what you

• 58:08Speaker 00

  preach. But then, two years later, in 23, I reached back out again and was like, hey, like, look at all these great logos that we're working with. We should talk about doing something. But at the time, we were still pursuing our own procurement strategy for, you know, for large enterprises. And so, again, Zip was like, wait, like, it seems like you guys are still kind of doing what we're gonna do. And also, we might launch a credit card. Like, credit cards seem like a great revenue work stream or revenue stream. So I'm not sure it's the right time. And so then, after, it's sort of like post-Zerp, call it, again, like similar timing, like March of 2024, we started talking again.

• 58:51Speaker 00

  And now, it was perfect timing. It was, Brex has massive traction with enterprises, and we focused on partnering in enterprise outside of card and spend management. Zip had decided, you know, like, we don't need to build our own card. Let's just focus on the best intake to procure to pay system for all types of companies, not just large enterprises. Let's do a deal here. And so, we started building together. About six months, we signed that we were negotiating, then we started building six months ago and we announced that deal a few weeks ago and the customer feedback has been overwhelmingly positive.

• 59:28Molly O'Shea?

  Really?

• 59:29Speaker 00

  Yeah, people are really fired up. And again, it's back to something I like to say about partnerships, which is like, you need to partner with folks that are similar to you in order for it to be successful. It can't be one really large company and one really small one, or one that serves companies in one space and one in the other, because then again, it's like, what's in it for me? Everyone's in business. It has to be an exchange of value. Like, another thing I like to tell my teams that I, that I, you know, I really like to give credit to Christina Cordova over, now she's at Linear, but she was at Stripe, like the OG killer at Partnerships, is, I ask folks, who is our Shopify?

• 1:00:06Speaker 00

  To their Stripe, because Stripe did a partnership with Shopify and they were both actually valued at a billion dollars when that partnership started in around 2013, 2014-ish. And they rode together, right? Those are now two of the largest companies in the world. And so I like to say, look, we're the payment side. Brex, obviously, like, who is our Shopify? Who are we gonna ride with? Through to the sunset and like, scale with? Because that's the best types of partnerships, like Zip and Navan, I think are both examples of potential Shopify's because they're both growing extremely quickly. We're growing extremely quickly. Everyone grows together. You don't want to be partnering with a slow incumbent. Or, you know, a lot of startups try to partner with companies that are much bigger than them because they're like, oh, great, I'm gonna ride off of this company's co deals. It's like,

• 1:00:49Speaker 00

  no, because that company's gonna say like, what's in it for me?

• 1:00:53Molly O'Shea?

  Okay, I have a challenge for you.

• 1:00:56Speaker 00

  Okay.

• 1:00:56Molly O'Shea?

  You recently partnered with Warp.

• 1:00:58Speaker 00

  Yeah, yeah, I knew. I knew that was coming.

• 1:01:00Molly O'Shea?

  So, can you share about this? This is an early-stage company.

• 1:01:04Speaker 00

  That's an early-stage company, yes, yes, but, but.

• 1:01:07Molly O'Shea?

  But?

• 1:01:07Speaker 00

  The partnership there, and I also partnered with Sorcery, right? So you could also.

• 1:01:11Molly O'Shea?

  Of course you did, yeah. Except Sorcery is already on.

• 1:01:14Speaker 00

  Yeah, Sorcery has some pretty similar valuation to Brex, from what I heard, actually.

• 1:01:18Molly O'Shea?

  A little bit, little bit higher.

• 1:01:19Speaker 00

  Oh, oh, makes sense, makes sense. So yeah, the, so Warp, really interesting payroll company. Done a fantastic job over there. The traction there is, is really exciting. But again, with them, we do have a partnership and we're really excited about it. But the partnership is really commensurate with the, uh, the size of Warp today. And what I mean by that is that we're taking a crawl, walk, run approach with them. So we're starting with some amazing co-marketing. We're gonna push Brex to their base. We're gonna make Warp a key rewards partner. But the, the engineering side of it and like a product lens side, that will come later if and when it makes sense. And so you do wanna be taking bets.

• 1:02:01Speaker 00

  And one of the things that another one of my mentors likes to say, Emile Michael, is that like BD and product partnerships should be the VC arm of a company. And this is what I tell my team is like, look, we need to look for pole vault opportunities, but we're gonna fail sometimes. Like, yeah, Navan Zip are going great, but there's a bunch of other partnerships that haven't necessarily worked out as, as well as I wanted. And that's okay, as long as you get your winners along the way. But what you wanna do is with someone like Warp is you wanna see if the customers like the two products together. You wanna see if they keep growing. We, we wanna see that like neither of us is trying to build in each other's space. And then in six months, a year, you're like, okay, let's put a product lens on it. And if we did, how much more would that help?

• 1:02:45Speaker 00

  The thing with Navan and Zip that's so important is that, that those partnerships were really based on the fact that we wanted an integrated product and then the distribution would come. We didn't come in there saying, look, I want an extra billion in revenue. Let me go like glom onto Zip. It was customers being like, hey, I need these products to talk better to each other, like figure it out. And then we did, and then it's like, wait a second, now that they're talking better, we have a killer go to market, a joint go to market motion here because, you know, we're going after the same customers, people love both companies, et cetera.

• 1:03:20Molly O'Shea?

  I want to go back to something that we talked on briefly previously. But this is more strategic. So like, as you're thinking about these partnerships, M and A, the growth of Brex's business in different areas you want to get into. We talked about stable coins and stable infrastructure. So Stripe just did some big deals, like we mentioned, with Privy and with Bridge. How are you thinking about stable infrastructure for Brex?

• 1:03:47Speaker 00

  For Brex, yeah. Yeah, so look, fantastic outcome for Bridge. Amazing deal by Stripe. I think, we think it's very interesting. When we think about integrating stable into our product, over the past six months, we've been exploring a number of partnerships with on-off ramps into stable coins and really thinking through what is the actual customer pain point that we're solving. So if you take a step back, like what are the pain points that stable coins solve? It's, we believe the main use case is around global connectivity and solving for currency and FX. And as you think about Brex, one of our main differentiators

• 1:04:28Speaker 00

  is that we've created a network and global funds flow for customers that allows for what's called constant currency because we issue cards locally in 60-plus markets. So essentially, the big use case for stable coin, at least as talking to our customers, has been around this global funds flow and cutting out SWIFT banking fees. And we believe that we've done some of that, at least to date, with the partnerships we've set up, the local banks that we're working with globally, and a lot of the technical infrastructure that we set up. That being said, we can always get better.

• 1:05:08Speaker 00

  And so we need to and are actively looking about how to use stable coins to augment what we're doing. But I think that's the way we're looking at it, as like an augmentation of something that we've been working for several years to build. Because I do believe our global infrastructure is one of our biggest differentiators, and stable coins will make it better. But we don't feel that we need to re-haul the whole global infrastructure that we've built to date.

• 1:05:36Molly O'Shea?

  It's really cool to see this be integrated across the market with more like legacy institutions as well. I don't know if you listened to it, but Patrick O'Shaughnessy had one of the heads of Apollo on his podcast. And they were talking about how Apollo has integrated crypto and like blockchain rails within their actual like platform and how they invest into things.

• 1:05:58Speaker 00

  Interesting, like on the asset management side?

• 1:06:01Molly O'Shea?

  On the asset management side. Yeah, yeah, yeah. So Apollo is like integrated a little bit of like crypto into their strategy and how they're thinking about flows. It's been really fun to watch. What are some other like broad trends that you're excited about in this space?

• 1:06:15Speaker 00

  So, look, I think that my take is the use case will start with consumer as many new technologies start. In the sense of, I thought the Shopify Coinbase announcement was super interesting last week. And then today, there was another announcement about with Fiserv integrating stable coins. And so I think folks are basically anchoring that there's consumers that want to cut out merchant fees, which makes sense and make it cheaper to buy things and stable coins and USDC will make that, um, make that happen. I think the challenge on the B to B side is that, uh, first of all,

• 1:06:55Speaker 00

  you basically already have a global banking system that is trying to cut out as many FX fees as possible, if you do it in the right way. And so I'm just not sure. Of course, stable coins will become a mainstay for B to B companies, but I believe it will take a lot longer.

• 1:07:13Molly O'Shea?

  So this might be a world record podcast, but we need to talk about your specific strategy. Or I guess we need to talk about why Brex.

• 1:07:23Speaker 00

  Okay.

• 1:07:24Molly O'Shea?

  Okay, so Brex started off, I believe, as a card for startups.

• 1:07:29Speaker 00

  That's right.

• 1:07:29Molly O'Shea?

  Now it's evolved.

• 1:07:31Speaker 00

  Yes.

• 1:07:31Molly O'Shea?

  Okay.

• 1:07:32Speaker 00

  The rumors are true.

• 1:07:32Molly O'Shea?

  The rumors are true.

• 1:07:34Speaker 00

  Yeah.

• 1:07:34Molly O'Shea?

  How are you going to dethrone Amex?

• 1:07:37Speaker 00

  Yeah. So, look, I think everything you're saying is true. We started as the corporate card for startups. That was the beachhead into the larger market. But I think that the way that we are going to dethrone Amex is our ability to serve a broader swath of customers in, frankly, it's, it's, it's easy in a, in a better way. And allow them. To enhance their workflows in a way that that makes them spend smarter and move faster. And so what exactly does that mean? What it means is that when you look at the spend on Brex, actually only 22% of it is what we call T and E spend.

• 1:08:21Speaker 00

  So that's on like travel and restaurants and burritos and Ubers and Waymos. The rest of it is actually on the things that help a business run. And so that's like, you know, your server costs or things that go through Zip or Coupa for procurement. These are the what you call operational spend, basically the things that that help businesses run. And the reason that's important is that that spend used to go through procurement and used to be spent on like via ACH or wires. And the reason people are putting it through Brex cards is because, or companies are, is because they get more controls on it while maintaining the speed of a T and E corporate card. Speed meaning like it's easy to review, it syncs with the ERP.

• 1:09:05Speaker 00

  You get a lot more control over, you get more data from it. You get the what's called L2, L3 data from the network. So you can basically close your books faster is the easiest way to say it. And so what we what we're actually seeing is that for mature cohorts, customers are spending 60% more on their Brex cards than they were on Amex in the last month that they were on Amex. What? 60% more. And so what does that mean? It means that they're finding new use cases for the product. It's not that they're hiring a bunch more employees because these are non-tech companies, by the way. It's that there are more use cases for Brex because they're putting it through procurement and we have an integration with Zip. Amex doesn't.

• 1:09:50Speaker 00

  They're doing it through Nivon and we have an integration there that works much better than Amex's. They're finding ways to give P cards, procurement cards to their employees to spend on things, virtual cards, so to speak, in ways that make them comfortable. They're they're they're issuing cards in geographies where previously they had to do what's called personal reimbursement. So our acceptance is really good in the Philippines and in Asia. That's a region where previously large multinational enterprises would just give what's called reimbursement. So they would say, oh, just spend on your personal card and we'll pay you back. Now they're giving those folks Brex cards and they're buying, you know, desks and chairs and tables. And so all of that is new, what we call new spend. DoorDash, one of our beachhead customers, they've been on Brex for now three years.

• 1:10:35Speaker 00

  They're spending many multiples more on Brex than they were on their American Express. And that's again back to, so how do we just throw an Amex? It's that not only is global payments one of the largest market in the world, it's that we're uncovering white space opportunity, which is super exciting.

• 1:10:52Molly O'Shea?

  So how big is this market? And what is the business model for a corporate card? Like revenue, margins, give us all the insider info.

• 1:11:01Speaker 00

  There's about $2 trillion of US commercial corporate card spend. And so what that represents is the top 100 issuing banks on Mastercard and Visa, plus Amex commercial card volume is around $2 trillion a year. And so that's again only in the US. So let's just, let's keep it simple and look at that, $2 trillion. Then when you think about what Brex is best for, which is basically all companies in the US that have, call it more than 20 employees as well as aren't in fleet cards or governments.

• 1:11:43Speaker 00

  Cards, that's spaces we've looked into, but right now aren't necessarily serving. So that might take off another, another, one of the trillion, actually, it's a lot. So now you're left with $1 trillion per year as the TAM. Now, we've done a lot of research on this and about 20% of companies are evaluating their commercial card program per year. And so that means that there's $200 billion of serviceable TAM per year.

• 1:12:16Speaker 00

  In the US, because there's that many companies, card volume that's up for grabs, or what we call flow share or jump balls if you're into basketball. And so essentially, Brex has to win a tiny, single-digit percent of those jump balls per year to grow extremely quickly. In the sense of $200 billion of opportunities up for grabs, that's hugely exciting at a time where, you know, Brex were growing quickly and we're a big business, but that, even a single-digit, single digits percentage of that card volume would materially change the business. And so, when you think about the business, we're monetizing through card interchange mostly, but folks are choosing us because of the software.

• 1:13:01Speaker 00

  It's back to the example I gave with, with customers using us over American Express. The fact that they're using us for 50% more card spend is because of our spend and controls, it's because of software. If we were just another kind of, quote, dumb corporate card issuer, they wouldn't be increasing their spend. And so what that means is, they're choosing us for our software even though we're monetizing through financial services. And so when you think about the business model, we believe that we monetize 20 times better than other spend management systems, systems like Expensify or Concur, because we monetize through financial services. Concur is a 30-year-old company, I think what I was reading online, their revenues

• 1:13:45Speaker 00

  are a billion and a half. If Brex continues on our current run rate, like, we're gonna eclipse that much, much faster by winning their customers, but monetizing through the interchange, not through generic software revenue. So, revenues are mostly interchange. We do have a growing software business, and we also have a banking business, and we now are a multi-product company in the sense of we have more than two business lines at over $100 million in revenue. So Brex is now very squarely a platform, not just, you know, a corporate card for startups, which is super exciting.

• 1:14:26Speaker 00

  Talking about margin profile and long-term business model, I think the thing, the way to think about it is we're opening white space opportunities. So we believe we can grow durably for, for, you know, for the next 10 years. Like the market, as I, as I broke down for you is so big that we don't really see a reason why our growth should slow. And in terms of the margins, I think that the margins can be very healthy because of the way that we've set up the business in the sense of we own our own financial infrastructure.

• 1:15:01Molly O'Shea?

  Yeah.

• 1:15:01Speaker 00

  And we're winning because of the software. And so what that means is that for our customers, we don't necessarily need to always be giving crazy cash back because they understand that the cash back lever turns with the software lever in the sense of if you're not going to pay us for the software, then we need to, they, they want us to grow our business, like our customers are smart. They, they know that like if something's free, then it's probably not going to be around for a long time. And so we're able to keep a really nice margin because they want us to invest in the product and we can flex the cash back down, let's say, if they don't want to pay software and vice versa.

• 1:15:38Molly O'Shea?

  So structurally, how does Brex differentiate itself against competitors? There are some very interesting competitors in the mix that are quite loud, maybe yellow. I don't know.

• 1:15:51Speaker 00

  I haven't seen that one.

• 1:15:52Molly O'Shea?

  I'm not sure either. I don't know what it is. But how do you structurally differentiate yourself against them?

• 1:15:58Speaker 00

  The way that we differentiate against our competitors is the fact that we're the only next-gen category defining company that owns our own financial infrastructure.

• 1:16:08Molly O'Shea?

  You're vertically integrated?

• 1:16:09Speaker 00

  Vertically integrated, so to speak. And what that means is getting super technical is that we don't have an issuer processor between us and our banking partner and our network partner. So all the other competitors use someone like Stripe issuing, or Lythic, or Adyen issuing, or Marketta. And they use this to help them generate the cards and you do some of the software for them. We're the only one that built that ourselves. And the reason- That matters is twofold. Number one, margin. If there's less people at the table, you have to pay less people. That makes sense. The second is you have a lot more flexibility on where you drive your product roadmap and how deeply, you know, the customer experience can be much more delightful

• 1:16:54Speaker 00

  in the sense of geographically. If there's, and this just happened last week, a customer that wants to turn on a new country and they say this was a joint Brex pay for Navon customer. They absolutely need Brex cards in Estonia. We could quickly work over a few weeks to figure out a local solution for that market versus a competitor that needs to go and call up their middleman, figure out how to make Estonia work, come back to the customer. Like the feedback loop just becomes much slower. And so when you own your infrastructure, you can just move much more quickly. That also dovetails to some of the partnerships that I mentioned that are how we delight and differentiate in our upmarket with our upmarket customers.

• 1:17:35Speaker 00

  The only way you can build directly with Zip and with Navon and have two teams working hand in hand is if you're both building on your own rails. If there's a third person, like who's ever heard of a try, try partnership, try product partnership that worked out, like that sounds extremely complicated and like not something I want to get involved in. It's really, we own the infrastructure, we decide what we build and we basically, we own our own destiny in that way. And so I think over time that becomes a real moat because we are able to, anyone who doesn't have it is going to have to add it, which is going to take years to do. And in the interim, we're able to move much faster in different segments of the market where, you know,

• 1:18:20Speaker 00

  geographical or the software, the other softwares they use are relevant.

• 1:18:26Molly O'Shea?

  Playing a little bit of both sides.

• 1:18:28Speaker 00

  Yeah.

• 1:18:29Molly O'Shea?

  Thinking from the other side, you don't own the whole stack. Is you don't own the whole stack, your margins aren't as good. So do you try to make that up in volume of customers? Like, how do you then reach like an attractive business model?

• 1:18:46Speaker 00

  Yeah, I think on the other side, the way you would think about it is that you're differentiating mostly or trying to on the software you build, not on the financial infrastructure. So I think you have to build and bundle as much software as you can to try to make more margin per customer while also, yeah, you're in it. You have to win that customer either based on your software or on your, you know, rewards or rebate program, but you need to know that, yes, you're making less money per customer.

• 1:19:16Molly O'Shea?

  Wow.

• 1:19:17Speaker 00

  So I think over time, that's a tough spot to be, especially in a world where, you know, eventually capital will not be flowing, you know, the, the market goes in cycles. So eventually, I believe, you know, capital will not necessarily be as easy to come by and it's harder to make money if your margins aren't as high, obviously.

• 1:19:35Molly O'Shea?

  So you count over 30,000 customers, 200 plus of these are public companies.

• 1:19:41Speaker 00

  200 plus public market companies on Brex today.

• 1:19:45Molly O'Shea?

  On Brex today? Okay, Art, okay, Art. I have a really important question for you.

• 1:19:51Speaker 00

  Shoot.

• 1:19:52Molly O'Shea?

  Can you name every single customer of Brex?

• 1:19:55Speaker 00

  I can name every public customer. Unfortunately, I'm not allowed to disclose all of them, but I can give you a small taste.

• 1:20:03Molly O'Shea?

  That's okay. Yeah, we can just a few would be fine.

• 1:20:06Speaker 00

  So Coinbase, DoorDash, ServiceTitan, also legendary private companies like Wiz and Anthropic, Dr. Squatch, which just got bought today.

• 1:20:19Molly O'Shea?

  Scale AI, David, the protein bar, I think.

• 1:20:21Speaker 00

  Yes, that's right. That's right. So yeah, very proud of the traction that we now have across more than just Silicon Valley startups.

• 1:20:31Molly O'Shea?

  How did you land these huge names?

• 1:20:34Speaker 00

  So the thing that's really cool about the names we've landed is a lot of them have grown up on Brex. So Scale AI was our first customer. Pedro and Enrique hand-delivered the card to Alex in their offices. And that's a company that's used all of our products as they've scaled, no pun intended. But then there are companies like DoorDash, like Coinbase, like ServiceTidings that we got in the last, you know, nine months or, you know, two years, let's say. And that, I think, is what I'm most proud of because that shows product-market fit of a completely different segment at a different time in a customer's lifecycle. It's one thing to grow up with a business and scale within, and that's why we're in startups,

• 1:21:17Speaker 00

  is to back the generations of companies and stay with them. But the truth is, it's a completely different thing to convince a finance team at a large public company that Brex is the best choice for them. And so I'm super proud of how and why we've done that. And the way we've done that is really by identifying, again, it always comes back to the customer pain point, a customer pain point, and then driving that home. So because our platform is modular, we're able to say to DoorDash or to Coinbase, "Hey, I see you're having a problem with local card acceptance in the Philippines. I see you have Navon. Have you heard of Brex for Navon?" When we say these things, we get in with those customers and then we're able to expand the account over time.

• 1:22:00Speaker 00

  So I'm very proud that our enterprise business is growing over 100% and our NRR in the segment is over 130%.

• 1:22:08Molly O'Shea?

  Oh, wow.

• 1:22:09Speaker 00

  Yeah, and that's back to what we've been talking about for a lot of the pod, which is you want to be growing with your customers, but also you want to be expanding the use cases and figuring out where in an organization your product fits. But you need to start somewhere. And I think one of the mistakes some of our multicolored competitors make is that they try to go in and rip whole systems out at once. What Brex is saying is, "Hey, use us in a region, try it out, and we guarantee you, you're going to want to scale our product through your whole organization."

• 1:22:45Molly O'Shea?

  As we wrap up, I have just two more questions, but...

• 1:22:50Molly O'Shea?

  I'm really curious. I've been reading a lot on the finance fintech space. What is the new finance operating model?

• 1:22:58Speaker 00

  Yeah, so I think the new finance operating model, basically what we're seeing in our customer base is a bit of a fundamental shift in that there's a lot of uncertainty and volatility in the world. And we recently published this CFO survey of 500 large company CFOs and their views on the macro and like the way they think about their teams and their tools. And essentially, finance teams are really re-architecting their whole stack and really only wanting to work with the tools that help them better understand their business and also work well with each other. And I think the the second point is really important because

• 1:23:41Speaker 00

  the idea is Brex wants to be one of the systems of record for a business, but it also has to work very closely with the other systems that they use. Another huge theme, as I'm sure you're aware, is the rise of AI and AI agents in finance. Finance is a space where there are a lot of numbers and there actually are a lot of ways where agentic workflows can really help and delight the back office financial manager or CFO. And basically, as a part of that, we saw that our agents, specifically our expense and accounting agents, saved folks 169,000 hours over the last six months.

• 1:24:24Molly O'Shea?

  Wow.

• 1:24:25Speaker 00

  Yeah. And we're just getting started because the thing with Brex is it really is also a data company. We now, over seven years, have swiped at almost like millions and millions of merchants around the world. And so we've categorized that data and now we're giving these CFOs and procurement managers and travel managers their data in a way that they can understand. And there are definitely agents that we're building that can help interact with that data. They can say, hey, Art, why did you fly first class on this flight? Like, you shouldn't be doing that. Now, instead of a procurement manager chasing an employee, it can just be a An agent inside of the Brex mobile app and we already have those agents live. The other exciting thing is as we work with with more what I would call like capstone partners.

• 1:25:10Speaker 00

  We're now building agents with them. So Nirvan has a travel agent, no pun intended, where it's pulling payment data from Brex to help, you know, name a Nirvan customer to help Unilever book a flight. Zip just launched just launched a suite of procurement agents last week. I don't know if you saw. Penny Pincher, the agent, great name. We're now going to build building agents alongside them so that when you're using Zip or Brex, you having the agents talk to each other like this is the world. It's going to be the different systems of record, the different software is interacting and different agents talking to each other. And Brex is at the forefront of that.

• 1:25:49Molly O'Shea?

  Agents are huge. AI is huge. This is the future.

• 1:25:52Speaker 00

  This is the future.

• 1:25:54Molly O'Shea?

  Talking about the future, Brex is the future. What are you most looking forward to in the next year?

• 1:26:01Speaker 00

  Next year, I think that what I'm most looking forward to is Brex has spent a lot of time investing in some of the things that we've touched on in the last two hours around our AI push, around our partnership push. And I think that we're just starting to see the momentum wheel, the momentum flywheel really turn specifically around the bets that we're making in upmarket where, you know, suddenly the procurement person at Coinbase is talking to this other company that then helps us win the deal. There's a real network effect in the business that is really nice to see the tailwinds of.

• 1:26:44Molly O'Shea?

  How many rate cuts do you think are going to happen this year?

• 1:26:47Speaker 00

  So I think that there's a lot of things going on with the new Fed chair coming in May 2026. So that's about a year away. Obviously, Trump is pretty loud on X and on.

• 1:27:04Speaker 00

  Trump social around like pushing rate cuts, but I I don't think Powell's gonna give into that. So my my gut says two.

• 1:27:13Molly O'Shea?

  Two?

• 1:27:13Speaker 00

  Two.

• 1:27:14Molly O'Shea?

  Um, in terms of the best AI, what's your favorite AI? What do you think the best AI is?

• 1:27:21Speaker 00

  So my favorite is chat GPT, and I think it's going to continue to be the best. I think this is back to a point that we've been hammering, which is distribution. Like, they are in everyone's pocket. Like, people say, I'm gonna chat GPT it. Like, they don't say, they don't use the other LLMs in that sentence. I think that's super powerful. And so when you have that that um head start and you can do things like acquire talent and builds on that momentum, I think they're gonna be the winner.

• 1:27:51Molly O'Shea?

  So Cal She has it at Gemini. I looked into this.

• 1:27:54Speaker 00

  Yeah.

• 1:27:55Molly O'Shea?

  And the way that they rate these is based on this survey, um, this specific survey company.

• 1:28:03Speaker 00

  Oh, interesting.

• 1:28:04Molly O'Shea?

  Called LM Arena. They survey off of this. This is their like truth and like resource.

• 1:28:10Speaker 00

  Can you like petition? Can we like petition this?

• 1:28:12Molly O'Shea?

  I think we should petition this because.

• 1:28:15Speaker 00

  Feels like a really hot take.

• 1:28:17Molly O'Shea?

  Cause like even Brad Gersner, Bill Gurley, the co two guys, they just came out with the daily usage of chat GPT.

• 1:28:25Speaker 00

  Yeah, I saw that.

• 1:28:25Molly O'Shea?

  And it's astronomical.

• 1:28:26Speaker 00

  And how it takes away from Google's.

• 1:28:28Molly O'Shea?

  It's insane.

• 1:28:29Speaker 00

  Users use of Google.

• 1:28:30Molly O'Shea?

  Yeah, it's and it's overtaking social media, which I think is fantastic. I think, I hope, right?

• 1:28:36Speaker 00

  Well, hopefully they don't come for X.

• 1:28:37Molly O'Shea?

  Hopefully. Well, I think they already surpassed. I don't know. I don't know what happens with that. Like TikToking our brains with chat GPT like, do you read as much?

• 1:28:47Speaker 00

  No, no, I probably don't. But I think the question is, is like, are you using it to acquire knowledge that is helping you? Or do you think that's making you smarter? And is there like some sort of trade off there? It's like short circuiting things, but. Yeah, it's probably not good.

• 1:29:04Molly O'Shea?

  I feel like because we're so used to going to that as our source of truth.

• 1:29:09Speaker 00

  Yeah.

• 1:29:10Molly O'Shea?

  That we're not as reliant on learning ourselves. We were actually talking about this over the past weekend. Alex Paul, good plug, hey Alex. And.

• 1:29:21Speaker 00

  Brex investor, love him.

• 1:29:23Molly O'Shea?

  He's a Brex investor?

• 1:29:23Speaker 00

  Yeah.

• 1:29:24Molly O'Shea?

  Oh, my gosh.

• 1:29:25Speaker 00

  Yeah.

• 1:29:25Molly O'Shea?

  He's the best investor ever.

• 1:29:27Speaker 00

  Ever.

• 1:29:27Molly O'Shea?

  He really is. There, he's invested in so many of the sorcery companies that have come on here.

• 1:29:32Speaker 00

  That's so funny.

• 1:29:32Molly O'Shea?

  Um, but we were all talking about this because the way that we read now, like, we don't have as much of a an attention span to reading as we used to. And it's like we're TikToking or TikTokifying our brains. With ChatGPT, unfortunately. So I don't know how we solve that.

• 1:29:50Speaker 00

  Well, I use some of those like blocking apps, like Roots. Do you ever, like, for like for a certain amount of time per day?

• 1:29:57Molly O'Shea?

  No idea what that is, no.

• 1:29:58Speaker 00

  Yeah, it stops you from going on on social media or or X or any apps on your phone. So like bricks your phone for a certain period.

• 1:30:05Molly O'Shea?

  Oh, wow.

• 1:30:06Speaker 00

  Yeah.

• 1:30:06Molly O'Shea?

  So we're gonna need that.

• 1:30:08Speaker 00

  I think so.

• 1:30:09Molly O'Shea?

  Probably. How many Waymo cities are gonna, I'm sorry. Waymo is like the funniest name for me, honestly.

• 1:30:17Speaker 00

  It's a funny name.

• 1:30:18Molly O'Shea?

  It's funny. One time I was talking about.

• 1:30:20Speaker 00

  It's very like innocuous. It sounds like a friend.

• 1:30:23Molly O'Shea?

  It does, but it also sounds like someone who's like mispronouncing rainbow. So whenever I say it. I think someone's trying to say like Waymbo.

• 1:30:33Speaker 00

  Waymbo.

• 1:30:34Molly O'Shea?

  But it's Waymo.

• 1:30:34Speaker 00

  Waymo, with an M.

• 1:30:36Molly O'Shea?

  Waymbo.

• 1:30:37Speaker 00

  Waymbo.

• 1:30:39Speaker 00

  So I'm a, I'm a, I'm a big lover of Waymo.

• 1:30:42Molly O'Shea?

  You are.

• 1:30:42Speaker 00

  Love it. Love the product. And it recently came to Los Angeles. As you probably know.

• 1:30:47Molly O'Shea?

  Yeah, it's so sad what they've done to the poor little Waymos.

• 1:30:51Speaker 00

  Yeah, do we know where they escaped to after the downtown incident?

• 1:30:54Molly O'Shea?

  No, I think they're probably on like a spa vacation in like Tucson, Arizona.

• 1:31:00Speaker 00

  Maybe Joshua Tree or something.

• 1:31:01Molly O'Shea?

  Probably Joshua Tree.

• 1:31:02Speaker 00

  The dry heat's good for their cars.

• 1:31:03Molly O'Shea?

  They need some mushrooms, yeah.

• 1:31:07Speaker 00

  What was the question?

• 1:31:13Molly O'Shea?

  How many cities do you think Waymo is gonna be operating in at the end of 2025?

• 1:31:19Speaker 00

  Yeah, so I'm very bullish on Waymo. I think that I love the product, but also it seems like the speed at which they're iterating is increasing. So I'm gonna go with six.

• 1:31:30Molly O'Shea?

  Six?

• 1:31:30Speaker 00

  Six.

• 1:31:31Molly O'Shea?

  Why? What cities?

• 1:31:34Speaker 00

  Um, so right now it's Austin SF, uh, Austin SF LA. And I think they just continue their push into Texas, Dallas, Houston.

• 1:31:50Molly O'Shea?

  Well, they have to like, I mean, think about it. They have to go into like non-socialist cities.

• 1:31:54Speaker 00

  Yeah, exactly. There's probably now like in, like when they're deciding the cities, there's like a socialist barometer, like how many Waymos will be destroyed over a year.

• 1:32:03Molly O'Shea?

  Those are expensive.

• 1:32:04Speaker 00

  Yeah, they're expensive cars, very expensive.

• 1:32:06Molly O'Shea?

  Probably not Seattle.

• 1:32:07Speaker 00

  No, I would say Seattle's probably not gonna get Waymos for a long time.

• 1:32:11Molly O'Shea?

  The Johnny Ive and OpenAI device, what do you think it's gonna be?

• 1:32:15Speaker 00

  So there's a little bit inside baseball here. Did you see this morning what happened?

• 1:32:20Molly O'Shea?

  What?

• 1:32:21Speaker 00

  There was a lawsuit against a company called IO that, uh, or sorry, the company called IO that spun out of Google X is suing John Ive's and, uh, uh, OpenAI. And that was a headphone company, like an earbud company.

• 1:32:37Molly O'Shea?

  Ooh.

• 1:32:38Speaker 00

  So I think it's gonna be an earbud.

• 1:32:41Molly O'Shea?

  All right, our, this is our final question. This is probably the most difficult question I'll give you today.

• 1:32:47Speaker 00

  Yeah.

• 1:32:47Molly O'Shea?

  Are you ready for this?

• 1:32:48Speaker 00

  I'm ready.

• 1:32:48Molly O'Shea?

  What do you think the Run Tomatoes score for Happy Gilmore 2 is gonna be?

• 1:32:53Speaker 00

  So let's just take a step back and evaluate this on first principles, okay?

• 1:32:59Molly O'Shea?

  Okay.

• 1:32:59Speaker 00

  Adam Sandler, one of the most likable people of all time, actors of all time, I would argue. Like, do you know anyone who doesn't like Adam Sandler?

• 1:33:06Molly O'Shea?

  No.

• 1:33:06Speaker 00

  Yeah, exactly. There's a lot of sentiment, sentimentality around Happy Gilmore, right? Like a whole generation grew up loving the product, the product, the movie. And then you have golf, which is like, I feel like having a major resurgence right now.

• 1:33:20Molly O'Shea?

  Huge.

• 1:33:21Speaker 00

  So all of that, to me, suggests that it's gonna be above 90%.

• 1:33:27Molly O'Shea?

  90?

• 1:33:28Speaker 00

  Yeah.

• 1:33:30Speaker 00

  That's my take.

• 1:33:31Molly O'Shea?

  Wow, that's pretty good. I feel like with comedies, though, and this is where it gets tricky, because whenever you make like a secondary, a sequel, they usually don't do as well.

• 1:33:44Speaker 00

  I know, but they don't have Adam Sandler.

• 1:33:46Molly O'Shea?

  And he's like, but like, he's so commercialized now that he just runs the same playbook for every movie. Sometimes it flops.

• 1:33:52Speaker 00

  Hmm, that's true. Like, he, yeah, he's run a lot of movies recently.

• 1:33:55Molly O'Shea?

  So like, how novel will it be? Will you expect the laughs? Or will they be unpredictable?

• 1:34:02Speaker 00

  Well, I think they'll be expected, but it'll be like, sort of like, you know, the people you knew and loved. They're back.

• 1:34:10Molly O'Shea?

  Okay.

• 1:34:11Speaker 00

  Like, there's a lot of cameos from the past. I think it's gonna be more like, you know how like Gladiator 2 was basically just like Ctrl C, Ctrl V of Gladiator?

• 1:34:19Molly O'Shea?

  Yeah.

• 1:34:19Speaker 00

  I think that's, that's the vibe I'm, I'm getting here. But, I mean-

• 1:34:23Molly O'Shea?

  Nostalgia.

• 1:34:23Speaker 00

  Nostalgia vibe, exactly. That's what I'm saying. Ninety.

• 1:34:27Molly O'Shea?

  Ninety.

• 1:34:28Speaker 00

  We'll see.

• 1:34:28Molly O'Shea?

  All right, okay. We'll see. This was a fantastic conversation. We set a new record for Sorcery, and I can't think of anybody I'd rather do it with than Brex.

• 1:34:39Speaker 00

  Brex.

• 1:34:39Molly O'Shea?

  And Art Levy.

• 1:34:41Speaker 00

  Thank you. This was amazing. Enjoyed the time and happy to come do part two tomorrow.

• 1:34:46Molly O'Shea?

  We need to come back for part two.

• 1:34:51Molly O'Shea?

  Thank you.

• 1:34:51Speaker 00

  Thank you.

• 1:34:52Molly O'Shea?

  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.