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T HE NEW YORK TIMES INTERNATIONAL EDITION MONDAY, AUGUST 5, 2019 | 7
Business
Things should be dismal in Silicon Val-
ley right now, with technology’s biggest
companies under attack from regula-
tors, lawmakers and even President
Trump.
Not for Henrique Dubugras and Pe-
dro Franceschi. The two Stanford drop-
outs, both 23, are the founders of Brex,
one of the hottest young companies to-
day. Their start-up’s mission? To pro-
vide charge cards to other start-ups.
“We knew that if we could build what
we wanted to build, people would want
it,” Mr. Dubugras said. “We never had
questions about that.”
Mr. Dubugras, sporting a black hoodie
and tortoiseshell glasses, was speaking
from Brex’s new San Francisco head-
quarters, where an orange “511572” mu-
ral displayed the bank identification
numbers that appear on all its charge
cards.
The two-year-old start-up moved into
the sun-filled space this year as invest-
ors poured in tens of millions of dollars,
valuing Brex at $2.6 billion — and mak-
ing Mr. Dubugras and Mr. Franceschi
worth roughly $430 million each on pa-
per, according to EquityZen, a market-
place for private stocks.
Brex is an example of Silicon Valley’s
unflagging start-up exuberance, even
amid the Big Tech backlash. Start-ups
raised $55 billion in venture capital in
the first half of this year, the most since
2000, according to CB Insights and PwC.
And a burgeoning class of these compa-
nies is thriving by catering to a fast-
growing market: other start-ups.
Apart from Brex, there is Carta, which
helps start-up employees manage their
equity and is valued at $1.7 billion. There
is Guideline, which provides retirement
services to start-ups. There are Brex
copycats. And there is InterPrime,
which helps start-ups manage their
“idle cash” and has more than 50
customers.
“Start-ups are great because they’re
underserved and provide a lot of feed-
back to companies like ours,” said Kan-
ishka Maheshwari, a founder of Inter-
Prime, based in Menlo Park, Calif.
Brex’s journey began in Brazil, where
Mr. Dubugras and Mr. Franceschi were
raised. At age 12, Mr. Franceschi gained
notoriety for “jailbreaking” iPhones to
remove their software restrictions. At
14, Mr. Dubugras created a gaming com-
pany that was later shut down over pat-
ent violations, causing what he joked
was a “14-year-old life crisis.”
The two met on Twitter as teenagers
and together built a payments start-up,
Pagar.me, based in São Paulo. By the
time they turned 20, they had sold it to
Stone, a Brazilian charge card proces-
sor.
In 2015, they moved to Silicon Valley
to attend Stanford University. Going to
Stanford was a dream, they said, be-
cause of the TV show “Chuck,” whose
protagonist was a hacker who studied
there.
But after eight months, the pair
dropped out. They were participating in
Y Combinator, a start-up accelerator,
with an idea for a virtual-reality com-
pany, Veyond. There, they noticed how
difficult it was for entrepreneurs to get
bank credit from traditional sources,
which required a credit history and a
personal guarantee. So they turned
Veyond into a credit card company,
which they later renamed Brex.
The idea was to appeal to start-ups by
offering nearly instant approvals and
requiring no personal guarantees. Brex
struck a partnership with Sutton Bank,
in Ohio, to issue the cards. To mitigate
risk, the company monitors customers’
bank accounts and adjusts credit limits.
It also requires that the start-ups pay off
their balances each month.
The cards cost $5 a year per user after
the first five users, who are free. Brex
would take transaction fees from mer-
chants.
Mr. Dubugras and Mr. Franceschi be-
came co-chief executives. Mr. Dubugras
now handles partnerships, fund-raising
and communications, with Mr.
Franceschi focused on technology and
operations.
Immediately, Brex had more demand
than it could handle.
“We call that ‘things are on fire,’ ” said
Anu Hariharan, a partner at Y Combina-
tor’s Continuity Fund, which invested in
Brex. “Everyone wants it, and you’re
like, ‘Oh, my god, I don’t know how to
deal with this.’”
Among the start-ups that flocked to
Brex’s charge cards were Hims, an on-
line medicine provider; SoFi, a personal
finance start-up; and ClassPass, a fit-
ness company.
Another was Boxed, an e-commerce
start-up in New York, which began us-
ing a Brex card a year ago to pay for
items like inventory and digital ads. The
card let Boxed sell some merchandise
before paying for the goods, which freed
up capital to fund more growth, said
Chieh Huang, the chief executive.
Boxed, which has nearly $250 million
in funding and more than $100 million in
annual revenue, had an extremely high
limit, Mr. Huang said.
“It’s so much that we don’t want any-
one physically holding the card,” he said.
“It’s, like, melting your hand.”
While growth took off, Brex initially
struggled to recruit engineers because
of the competitive talent market, said
Larissa Maranhao Rocha, the compa-
ny’s first employee and chief communi-
ty officer. “You’d Google us and nothing
came up,” she said.
That changed after Brex raised fund-
ing in February and October last year.
Within six months of being in business,
the company hit a $1 billion valuation.
Its investors include Peter Thiel and
Max Levchin, co-founders of PayPal.
Brex then went on an advertising
blitz, covering San Francisco’s bus
stops, billboards and airport terminals
with its logo and tag lines like “The cor-
porate card that actually lives up to the
hype” and “Don’t charge it. Brex it.”
In November, Mr. Dubugras showed
off the billboards at a conference, saying
they were a cheaper way to reach poten-
tial clients and employees than digital
ads. Afterward, San Francisco’s bill-
board prices rose, he said. Now he has a
new rule: “Don’t talk about advertising
that works.”
Today, Brex has 220 employees. The
company estimates that it will have just
under 400 by the end of this year.
Brex’s rising profile soon drew more
venture capitalists. Mr. Dubugras and
Mr. Franceschi turned down many of
them, but used the meetings to pitch
their charge cards for the other compa-
nies that the venture capitalists had in-
vested in.
One meeting was held at a cafe in San
Francisco’s South Park, near the offices
of more than 10 venture capital firms. It
was crawling with entrepreneurs and
investors, all potentially eavesdropping.
So in March, Brex opened a private
lounge, the Oval Room, directly above
the coffee shop.
Named after the White House’s Oval
Office and South Park’s shape, it is one
of the perks that Brex offers its
customers. Others include credits for
cloud storage, discounts on WeWork of-
fice space and points for spending on
scooter rentals.
Mr. Dubugras and Mr. Franceschi are
enjoying some fruits of leading a hot
start-up. Mr. Dubugras said he now buys
subscription home-cooked meals for his
Bernese mountain dog, Ruby, who is
named after the coding language Ruby
on Rails.
How long Brex’s success can continue
is unclear. Most start-ups fail, and al-
ready hundreds of Brex’s customers
have gone out of business.
Brex tries to be understanding when
that happens, Mr. Franceschi said. Un-
like credit card providers that tell
customers, “You’re running out of busi-
ness, you didn’t pay us, I’m going to cut
you off now,” he said, Brex sees failed en-
trepreneurs as future customers who
may try again with a new idea.
Mr. Dubugras said he did not expect
venture capital to disappear if things
turned, and added that as long as Brex
served the fastest-growing start-ups, it
would be all right. Brex can usually tell
when customers will run out of money,
he added, because it constantly moni-
tors their financial health and adjusts
credit limits.
But just in case, Brex, which is unprof-
itable, has stockpiled money. In June,
the company said it had raised another
$100 million from investors, including
DST Global and Kleiner Perkins. That
brought its total funding to $315 million,
including debt.
Neil Mehta, an investor at Greenoaks
Capital, which led Brex’s funding round
in October, said he was taken by the
start-up because it offered a “J.D.C.E.” —
jaw-dropping customer experience —
comparable to the first time he used
Uber or drove a Tesla.
“It’s just the beginning” for Brex, Mr.
Mehta said.
This year, Brex also started working
with life sciences and e-commerce com-
panies; the latter now make up 30 per-
cent of its business. Some publicly
traded companies have asked Brex
about its card, but the company has
turned them away.
As Brex gets bigger, it’s crucial to stay
disciplined, Mr. Franceschi said. In Sili-
con Valley, “it’s easy for you to kind of
get your feet off the ground and forget
what matters,” he said.
A start-up serving start-ups
SAN FRANCISCO
Stanford dropouts’ Brex,
which offers charge cards,
is valued at $2.6 billion
BY ERIN GRIFFITH
Above, Pedro Franceschi, left, and Henrique Dubugras, the founders of Brex, a company that provides charge cards to other start-ups.
Below, Brex’s advertising blitz in San Francisco helped raise its profile, drawing employees and more venture capitalists.
PHOTOGRAPHS BY ARSENII VASELENKO FOR THE NEW YORK TIMES
“We call that ‘things are on fire.’
Everyone wants it, and you’re
like, ‘Oh, my god, I don’t know
how to deal with this.’”
The Federal Reserve’s decision to cut
rates for the first time in more than a
decade was driven, in part, by a recogni-
tion that policymakers have a role to
play in the fate of American workers.
The United States economy contin-
ued its record run of hiring last month,
as employers added 164,000 jobs, the
Labor Department reported on Friday.
The job market has gained about 21.
million workers since 2010, and the Fed
now faces the lowest unemployment
rate in nearly 50 years.
Despite the positive momentum,
many people have remained on the side-
lines or have seen only modest pay in-
creases. By lowering rates last week,
the Fed hoped to protect the economy
against potential risks to ensure that it
keeps growing. The decision could fos-
ter a labor market that continues to
draw in disadvantaged workers while
prodding companies to raise wages.
“The best thing we can do for those
people is to sustain the expansion, keep
it going,” the Fed’s chair, Jerome H. Pow-
ell, said after the move. “That’s one of
the overarching goals of this move —
and all of our policy moves.”
The wealthiest also benefit from the
Fed’s decision, since rate cuts push up
stock prices, creating big gains for in-
vestors. But the central bank’s push to
portray its policy as a win for rank-and-
file workers highlights an evolution:
The Fed is trying to be more attuned to
the needs and attitudes of everyday
Americans.
Some of the changes are superficial.
Mr. Powell, previously referred to as
“chairman” in the Fed’s post-meeting
releases, is now a gender-neutral
“chair.” The 17-member policymaking
body is as diverse as it has ever been,
with leadership roles held by two openly
gay members, five women, one black
member and one person with Indian
heritage. The powerful Federal Reserve
Bank of New York flew rainbow flags
outside for pride month this summer, for
the first time.
A visit to the Federal Reserve Bank of
Atlanta’s Instagram account shows that
it is following up its #dogsofthefed cam-
paign with a #humansofthefed one,
complete with inspirational stories and
not-so-candid snaps.
But something more significant is
happening under the surface.
An institution long shrouded in mys-
tique and hemmed in by its desire to re-
main above the political fray is opening
up. Fed research has long hit on diverse
and even hot-button topics — from so-
cial mobility to global warming — but
presidents at its 12 regional banks in-
creasingly promote and publicize that
work. They even occasionally take posi-
tions on issues like immigration and
skills training.
Fed officials have also spent much of
the year visiting community groups in
places like Augusta, Ga., and Camden,
N.J., part of a widely publicized cam-
paign aimed at convincing the public
that policymakers are listening to work-
ers’ concerns. Officials now regularly
talk about unemployment rates by race
and gender.
A political calculus is at play. The Fed
needs to shore up public support at a
time when President Trump regularly
criticizes its actions and when govern-
ment bodies — especially opaque ones
aligned with bankers — are anything
but popular. It has come under congres-
sional and popular pressure for being
slow to diversify and not focused
enough on the most economically disad-
vantaged.
Mr. Powell nodded to those chal-
lenges in a recent speech in Paris, say-
ing, “Our audience has become more
varied, more attuned to our actions and
less trusting of public institutions.”
America’s shifting social discourse
also enables the Fed’s evolution. Janet
L. Yellen, the Fed’s first female leader,
broached the topic of income inequality
in an October 2014 speech, questioning
whether it was consistent with Ameri-
can values. It was an unusual topic for a
Fed leader to take up at the time, and Re-
publican lawmakers chastised her.
“You’re sticking your nose in places
that you have no business to be,” Mick
Mulvaney, a South Carolina representa-
tive at the time and now Mr. Trump’s act-
ing chief of staff, told Ms. Yellen during
her testimony to the House Financial
Services Committee the next February.
Representative Sean Duffy, a Wiscon-
sin Republican, said the speech showed
political bias because Democrats were
campaigning on the issue ahead of the
midterm election.
Five years later, Fed officials fre-
quently talk about income inequality. In
February at a forum with teachers in
Washington, Mr. Powell echoed Ms. Yel-
len’s sentiments — but got no pushback.
“We have work to do to make sure that
the prosperity that we do achieve is
widely spread,” Mr. Powell said. “We
need policies that can make that hap-
pen.”
Since Mr. Trump rode a wave of popu-
lism into the White House, issues like in-
equality and tepid wage growth for
workers, once the domain of the left,
have become shared concerns. Even in
areas like gay rights, there has been a
sea change. When the Federal Reserve
Bank of Richmond flew a pride flag in
2011, it drew controversy.
But the Fed’s push goes beyond poli-
tics. It is striving to communicate
clearly, which makes monetary policy
more effective.
When borrowing costs fall because in-
vestors correctly anticipate Fed rate
cuts, it becomes cheaper and easier for
households and companies to get fi-
nancing. Using the bully pulpit might
prod other policymakers, who hold the
reins on everything from education to
immigration, into action. And conversa-
tions with ordinary people paint a
clearer picture of the economy than ag-
gregate data alone.
“You’re supposed to serve the people
you represent, and you have to know
what their experiences are if you’re ac-
tually going to serve them,” Mary Daly,
president of the Federal Reserve Bank
of San Francisco, said in a June inter-
view.
Amid rising opportunity gaps, setting
good policy requires hearing diverse ex-
periences, she said. “The average is no
longer sufficient, I would argue, for rep-
resenting how the economy is playing
out.”
If rising inequality makes an expan-
sive view of the economy prudent, low
inflation makes it essential. The Fed has
two jobs: maximum employment and
slow and stable price increases. It has
long seen its policy setting as a trade-off
between the two; a strong labor market
The Fed wants you
to know it gets you
WASHINGTON
An institution shrouded
in mystery aims to connect
with average Americans
BY JEANNA SMIALEK
F ED, PAGE 8
By lowering rates, the bank could
foster a labor market that draws
disadvantaged workers while
nudging businesses to raise wages.
NOTICE TO CHAOFENG JI:
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ofthecaseisSEC v. Yin, et. al.,andhasacasenumberof17-cv-0972-JPO.TheSECallegesthat
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reliefdefendantBeiXie,youreceivedill-gottengainsfromillegalinsidertrading.TheSEC
furtherallegesthatyouhavenolegitimateclaimtothoseproceeds.TheSECseeksdisgorgement
ofyourill-gottengains.
YouaredirectedtocontacttheSECat:TrialUnit,Attn:GaryY.Leung,SeniorTrialCounsel,
LosAngelesRegionalOce,SecuritiesandExchangeCommission,^444 S.FlowerSt.9thFloor,
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daysofthepublicationofthisnotice,theSECwillbeentitledtoseekentryofyourdefault
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