This story is available exclusively on Business Insider Prime.
Join BI Prime and start reading now.
- On May 29, Brex, a 3-year-old fintech that skyrocketed to a $3 billion valuation, laid off 62 employees, or about 17% of its staff.
- It had announced a $150 million fundraise less than two weeks prior.
- Among those cut was Paul-Henri Ferrand, Brex’s recently hired chief operating officer, along with senior employees on the customer-experience, compliance, and marketing teams.
- Insiders described a fast-growing company that was already grappling with employee turnover and aggressive financial targets in early 2020.
- Sign up here for our Wall Street Insider newsletter.
Early on the morning of May 29, an email landed in the inbox of members of Brex’s customer-experience team.
The note, sent from a manager’s address, explained how difficult the recent meeting had been and how unfortunately some members of the team would be let go. Those who were safe would receive a separate email, while those who would be let go would get a meeting invite, according to a recipient of the note who verbally described it to Business Insider.
The problem? No meeting had taken place yet.
The email was sent about 6:30 a.m. PT, according to one of the recipients of the note. The day was just getting underway for the team, which was spread across Brex’s offices in San Francisco, Salt Lake Valley, and Vancouver, British Columbia.
Not everyone on the customer-experience team saw the message, as the email had been recalled before the entire group was able to read it. But those who had seen it quickly spread the word.
It didn’t take long to understand layoffs were coming. The coronavirus had crippled much of the economy, and Brex, a startup offering corporate charge cards for early-stage companies, was no exception, despite raising $150 million a few weeks earlier at a $3 billion valuation.
A few hours later, an all-hands meeting appeared on all Brex employees’ calendars. By 11 a.m. PT, cofounder Pedro Franceschi addressed his 400-plus employees. Brex was laying off 62 people.
Brex had long positioned itself as the “startup for startups,” and its customers include Airbnb, ClassPass, Carta, Flexport, and Lookout, according to its website. In late March, Brex hosted a webinar on recession contingency plans for young companies to put in place during times of economic uncertainty.
Less than two weeks before the cuts, Brex publicized its new fundraise, an investment the company said would further pad large cash reserves.
“Our employees, our customers, everyone is happy,” Henrique Dubugras, Brex’s cofounder and co-CEO, told Business Insider when the raise was announced on May 19.
“You can never be too careful,” he added.
Ten days later, in a blog published on Brex’s website after the all-hands meeting, Dubugras and Franceschi said the 3-year old company would be restructuring “to better align our priorities with this new reality.”
The layoffs on May 29 cut about 17% of Brex’s staff, including several high-ranking executives, according to seven current and former employees.
Companies of all sizes have been slashing jobs around the globe as revenues evaporate amid the pandemic.
Brex, which earns a big chunk of revenue from so-called interchange fees on each transaction made with one of its cards, was positioned for a hit as its startup clients cut jobs, looked to control expenses, and limited their employees’ travel and meetings.
Business Insider talked to eight current and former employees to learn more about the run-up to the layoffs and how the cuts went down. These insiders described a fast-growing startup that was already grappling with employee turnover and falling short of aggressive internal financial targets before the pandemic hit.
The sources all requested anonymity, either to speak candidly about their experience or out of fear of retribution from the company. Business Insider verified their identities.
When reached for comment for this story, a Brex spokesperson shared details of efforts around management training and diversity and inclusion, as well as overall employee-satisfaction scores that indicated a generally positive experience among respondents.
Read more:$3 billion Carta slashed its revenue goal but kept hiring anyway, leading to massive layoffs in April. Insiders describe whiplash and organizational chaos as the company attempts an ambitious new pivot.
Brex had been a VC darling
Brex was founded in 2017 and raised $465 million in equity financing and $300 million in debt financing over the past three years.
Dubugras and Franceschi, who are originally from Brazil, created and sold the online-payments company Pagar.me in 2016 before cofounding Brex in their early 20s.
They were accepted into the high-profile Y Combinator accelerator, essentially ground zero for what would be their target customers, before launching Brex.
Y Combinator funded Brex after the two completed the program in exchange for about 7% ownership of the startup, as is standard for any company that goes through the accelerator. The money would continue to flow from the organization that helped launch Stripe, Airbnb, and DoorDash.
In 2018, Y Combinator participated in Brex’s $50 million Series B funding round and in its $125 million Series C just months later. The accelerator, which also has a growth-investing arm,re-upped in the startup’s $100 million Series C-2 in June 2019 as well.
Franceschi and Dubugras’ expectations for the company were always large.
In the pitch deck used to raise its Series B, annual card revenue for US Fortune 500 companies ($25.6 billion) and the global business-to-business payments space ($101 billion) were both listed as market opportunities. The round eventually attracted $57 million from PayPal cofounders Peter Thiel and Max Levchin, early Facebook investor Yuri Milner, and Y Combinator.
Brex’s pitch was simple: It’s tough for startups with little-to-no credit history to obtain corporate cards. Brex, by creating credit limits based on how much capital a startup has in the bank from fundraising, and requiring companies to pay down balances each month, could limit its credit risk exposure. Meanwhile, Brex generates revenue every time its card is used, taking a cut of the interchange.
The idea was that by offering cards to young startups, Brex could build a base of customers that would stick with the company as they grew.
From its home base in San Francisco, Brex also embedded itself in the startup community and made its presence known. From bus stops to billboards, Brex ads dotted the Golden City. Dubugras told Business Insider in 2018 that the company had spent $300,000 on the ads.
Brex, further embedding itself within the San Francisco startup community, opened a members-only lounge in March 2019, which was followed by a restaurant a few months later.
Read more:Brex raised $57 million from Peter Thiel and Y Combinator using these 19 slides
Brex jumps out to a hot start
By February 2019, just over eight months after its official launch, Brex had already made its first expansion beyond serving traditional startups with a card geared toward e-commerce companies.
Brex attracted more money in June 2019, this time in the form of a $100 million Series C-2 that doubled a previous valuation it received less than nine months earlier to $2.6 billion. A week later, it rolled out another product, this time for companies specifically in life sciences.
Behind the scenes, though, former and current employees who worked across the organization said young, inexperienced employees who started at the company early were put into management positions they were unprepared for.
Multiple sources described a workplace where only those with the most aggressive attitudes and approaches succeeded. It was an environment, according to one source, where the loudest voice in the room got the most attention.
Feedback, in particular, was another issue, with some managers resisting any change or suggestions made by their teams.
Meanwhile, others would use feedback as a “sword,” according to one source. Issues between people were sometimes raised directly to their superiors and then brought up publicly in meetings, the source added.
In an effort to address concerns raised by those who felt quieter voices were being drowned out, Brex adopted a written-memo culture by the fourth quarter of 2019. The idea was initially developed by Jeff Bezos at Amazon in 2004 as an alternative to PowerPoint presentations and has picked up steam in corporate America over the years.
With meetings outlined beforehand with a narrative, the goal of the meeting, among other items, could be highlighted to keep things on track and limit louder employees from taking control.
Read more:A new Goldman Sachs tech exec hired from Amazon is taking a page from the Jeff Bezos playbook by urging engineers to ditch PowerPoint and write memos
Other issues were evident in simple day-to-day interactions. One source said a manager would allow his team 30 seconds of socializing for every two hours of work. The manager also encouraged subordinates to not get friendly with colleagues, instead instructing them to just work, get stuff done, and go home, the source said.
Two other sources said they did not view management as a primary issue but did acknowledge there were areas where improvements could have been made.
A spokesperson for Brex said coaching opportunities were made readily available to managers, with $209,000 spent on this initiative in 2020 so far. An in-house learning and development curriculum was also developed, with Nadine Namoff joining in February to lead the efforts.
“Our 70 people managers are well tenured, with an average total employment experience of over 12 years,” the spokesperson added.
In an effort to increase transparency into the company, all documents at Brex, from personal calendars to Google drives, were made public by default. The practice isn’t that uncommon among tech startups, as new companies push to be viewed as open as possible to their employees.
But what was meant to help improve culture hurt it in actuality, sources said.
“Calendar stalking,” or the practice of looking at others’ calendars to get a sense of when big announcements or layoffs might occur, became common practice, according to multiple sources. One source said they unintentionally came across people’s offer letters and employment agreements.
A Brex spokesperson, meanwhile, cited recent employee survey scores as an indication that the culture at the startup was strong.
“Brex’s employee satisfaction scores have consistently been high: 76%, 75%, and 78% over the last three quarters with over 90% participation. Our internal surveys are 100% anonymous and run by CultureAmp, a best-in-class People Engagement survey platform,” a Brex spokesperson said. “Note these results are better than benchmarks of peers in the industry as measured by CultureAmp.”
Diversity and inclusion
Multiple sources also said the startup and its senior-level positions lacked female and minority hires. To be sure, the issue is not unique to Brex, tech startups, or even broader corporate America.
Brex has no women as part of its executive committee, nor has it previously. Of its five board members, only one is a woman, Anu Hariharan, a partner at Y Combinator and board member since March 2018, according to her LinkedIn profile.
Diversity was a topic constantly raised in periodic surveys given to employees. According to multiple employees, ratings around diversity and inclusion were consistently low.
In an effort to show progress, Brex had a diversity-and-inclusion section as part of the quarterly goals it set across the company. According to a current employee, the 2020 first-quarter goals for diversity and inclusion were focused on stronger engagement with a human-resources system and on holding one to two cultural events during the quarter. The folder holding goals for the second quarter remained empty as of last week, the source added.
To be sure, one source said that while the company needed to improve its recruitment and support of women, there was “no doubt” that any issues of serious sexism or misconduct would have been handled appropriately, as opposed to being swept under the rug.
Neal Narayani joined Brex in August as chief people officer, a newly created role from marketing and operations roles at Caesars Entertainment Corp. and Salesforce.
A Brex spokesperson said 36% of its workforce identify as women, adding that at the vice-president and manager level, 34% identify as women.
Those numbers are on par with similar fintechs and startups, the spokesperson said.
“We look to Facebook as a good benchmark for the industry overall (37% as of last report), and Plaid as a peer closest in size and maturity (35% as of last report),” the spokesperson said.
One former employee also cited Brex’s willingness to work with employees who require visas. In January 2019, Dubugras penned an op-ed for TechCrunch and cited an international talent pool as a key reason for Brex’s growth and called for a loosening of restrictive visa laws.
A Brex spokesperson said over one-third of employees identified as first- or second-generation immigrants.
“We take pride in building a diverse team, especially in terms of nationality,” the spokesperson said. “We welcome employees regardless of their US visa status and support those through their visa application and process, having spent over $305k on this in 2020 alone.”
The launch of Brex Cash represented a big step
In October, the startup took another giant step, announcing onstage at TechCrunch Disrupt in San Francisco the launch of Brex Cash. The product allows businesses to store, send, and receive funds from wire or ACH transfers. The move represented Brex further embedding itself into customers’ day-to-day operations.
At the time of the launch, Dubugras told Business Insider Brex Cash was a progression of what the company had already released.
“Instead of building products in which they’re just money generators, we’re trying to build products that either open the funnel, or products that make the other products better,” Dubugras said.
Brex then secured $200 million in debt financing from Credit Suisse near the end of last year. It marked the second time the company had raised debt financing that year, the first of which came in the form of $100 million from Barclays in April 2019.
The wave of product launches at times produced internal scrambles. One source said that in the lead-up to the launch of Brex Cash, engineers were encouraged to work weekends to hit the October deadline.
To be sure, long hours and weekend work, especially before major deadlines, can be expected while working at a tech startup.
But at least five former and current employees said the churn to push out products and grow came without thinking through the strategy entirely.
Multiple sources described Brex as being driven by its financial team, which is led by Chief Financial Officer Michael Tannenbaum, who joined the startup in July 2017 after three years at SoFi, where he served as chief revenue officer.
The group was able to dictate the speed at which products or plans were rolled out, leaving compliance, legal, risk management and customer service left to pick up the pieces.
The product team, led by Zachary Abrams, who joined as vice president of product in August from Coinbase, was also aggressive, sources said, oftentimes looking to push new products out without collaborating with other teams.
To be sure, the focus of most startups during a high-growth stage is to focus on customer-facing products, as opposed to the back- and middle-office operations.
A Brex spokesperson said the company has pushed to include perspectives from all corners of the company when it comes to the decision-making process. Abrams runs a weekly meeting, called Decision Review, that helps ensure a product is aligned with business issues and includes participation from across the company.
However, as the company grew, sources said they expected more plans to be put in place around growing the rest of the business to keep pace.
Brex has also never had a dedicated chief risk officer. Tannenbaum has led the risk function since joining the company. A risk-management committee was established two months before Brex publicly launched. The group — which is made up of a team of risk managers that includes Mira Srinivasan, who spent over a decade at American Express before joining Brex in June 2019 as the vice president of risk — meets monthly.
Three sources familiar with the situation said the risk department, covering everything from assessing the riskiness of customers to establishing credit lines, failed to scale its operations with the rest of the business.
The process of onboarding and approving customers for new cards was entirely manual. And while that in and of itself isn’t uncommon for a company of Brex’s size and maturity, there was no concrete plan in place for improving or streamlining the process.
“Our protocol includes use of some manual processes during beta periods (private, controlled programs where we onboard small numbers of customers to a product), and based on the learnings we automate those processes as we roll out the product more broadly. This has been true of both Brex Card and Brex Cash,” a Brex spokesperson said.
2020 was a turning point for Brex
The turn of the year meant even bigger things for Brex.
Startup funding was as robust as it had ever been, and the US equities market seemed to be outperforming itself every day. The failed or disappointing initial public offerings of 2019 — WeWork, Uber, and Lyft — that had left a bad taste in Wall Street’s mouth for high-profile startups had started to subside.
But according to one former employee, Brex started failing to meet the monthly gross merchandise volume benchmarks it had set for itself early on in the year. That metric is critical for a company like Brex, as it indicates the total size of all transactions taking place via the platform.
Another source acknowledged that goals, which the company was strict about hitting and had successfully done so throughout 2019, began falling by the wayside in early 2020.
That in turn prompted the sales team to onboard higher-risk companies in an effort to hit sales goals, one source said.
While the growth of the company continued, the first few weeks of January, particularly in e-commerce, were slow. The e-commerce card, which launched in February 2019, was wrapping up its first full year, so seasonality that hadn’t been accounted for could have been an issue.
The start of the year also brought turnover. After the startup had quadrupled head count in 2019, new hires began to plateau and exits increased. Incoming classes of new employees, which at times had been as large as 25, had diminished to nearly half that, according to a source.
By mid-March, a hiring freeze was put in place for the go-to-market, finance, legal, HR, and recruiting teams, with employees still being brought on for product, engineering, and design.
One source from the San Francisco office said the company did its best to help employees directly affected by the closure of Brex’s office, which occurred around the same time. People in roles around the management of the physical office were moved onto other teams in an effort to allow them to keep their jobs.
Executives at Brex consistently reassured workers at meetings that the company was not laying people off and had no plans to do so, according to multiple sources. The increasing number of employee departures since the start of the year were either voluntary or performance-related and not related to the coronavirus, the company said.
In an effort to keep track of departing colleagues, employees took to tracking deactivations on Slack, sources said.
Problems at Brex begin to come to a head
By April, in the middle of the coronavirus pandemic, the strain of running a company that generates revenue from others spending was finally beginning to show. In a response to the worsening economy, Brex cut credit limits for customers.
Brex paused onboarding e-commerce customers in early April, one former employee said.
The directive was to focus on startups, the source said, but even that was done with a degree of caution. In particular, any business that could have been affected by COVID-19 was looked at closely.
Brex wasn’t alone in its decision, as many credit-lending financial organizations reconsidered their limits. According to a May report from CompareCards, 25% of American credit-card holders had credit limits reduced or closed by an issuer at the height of the pandemic.
But that didn’t calm some unhappy customers, according to one former employee, who said the move prompted negative feedback from clients who had credit limits reduced just as they needed it the most.
Still, even as word got out about Brex’s decision to cut credit limits, the company kept a strong public image. Dubugras told The Information in April that the founders had no plans for layoffs unless “this is a three-year thing.”
Internally, a similar message was shared. Brex had plenty of cash on hand to weather the storm, executives consistently told employees at meetings, and there were no plans for cuts.
Read more:McKinsey says payments companies could see a $210 billion hit from the coronavirus pandemic. Here are the 10 most important things execs need to know about managing the crisis.
Layoffs rock the company
The narrative finally changed for Brex on May 29 with the news of the layoffs.
Franceschi’s announcement of the cuts mirrored much of what was detailed in an email that would circulate afterward and a blog post by the cofounders that would go up later that day. While it was clear Franceschi was upset, multiple sources said it was obvious the young executive was reading directly from a script.
The move sent shockwaves across the company, among both current and former employees, the latter of whom stay in touch via a variety of messaging platforms.
“I think a lot of people were just really confused because all we had been told was, ‘Everything’s fine. Everything’s fine,'” a current employee said.
There was at least one bit of news that did not make it into the blog. Franceschi said Paul-Henri Ferrand, Brex’s recently hired chief operating officer, would no longer handle the go-to-market organization, the group tasked in part with understanding new sets of customers and how best to approach them.
Ferrand, commonly referred to as PH, had been a big get for the startup just a few months ago as a proven executive with decades of experience from roles at Dell, Nokia, and Google.
Ferrand, after most recently serving as president of global customer operations for Google Cloud, was set to lead “Brex’s go-to-market function through the company’s next phase of growth and expansion,” the startup announced in a release in January.
However, multiple sources indicated Ferrand had butted heads early on with Brex executives, with one source adding that Ferrand struggled to connect with Franceschi and Dubugras on the best way to approach product launches.
Ferrand wasn’t the only senior hire to exit with the layoffs. Roli Saxena, Brex’s chief customer officer, was also let go. Elenitsa Staykova, the vice president of marketing, and Elliott Lum, the corporate compliance director and BSA/AML officer, were also laid off. Neither Saxena nor Staykova’s roles have been filled yet, while Lum’s has via an internal promotion.
Business Insider reached out to all four senior employees via their personal LinkedIn profiles. All of them either did not respond or declined to comment.
The sales, marketing, and customer-experience teams faced the most significant cuts, according to sources.
Brex’s exit package included two months’ severance, health-insurance coverage through 2020 via COBRA, favorable changes to existing equity compensation packages, the ability to keep tech, such as laptops, and access to recruiting services for help with future placement.
The shake-ups among senior employees continued the following week.
On June 3, Vince Cogan, Brex’s general counsel and head of compliance and a key early senior hire along with Tannenbaum, announced at an all-hands meeting he was shifting roles to serve as the head of government affairs. Cogan would retain his responsibilities as general counsel.
Read more:Read the full memo Airbnb CEO Brian Chesky just sent to staff announcing 1,900 job cuts. It lays out severance details and which teams are getting hit the hardest.
The dust has yet to settle
Employees who were laid off were supposed to maintain access to Brex’s network until 4:30 p.m. on Friday to say their goodbyes and, more importantly from an operational perspective, help coordinate the transition of their responsibilities. In reality, that access was cut earlier, and their computers were remotely wiped clean of all files, according to one source.
But for all the issues that have come to a head in recent months, nearly all the former and current employees have faith in the company to turn things around.
The majority spoke highly of Franceschi and Dubugras, citing their youth and inexperience as a potential issue but one that could be overcome.
Brex has also seen business pick up in May, with monthly revenue from April to May growing by 18%, according to a Brex spokesperson.
As for the culture, that too is fixable, sources said.
“I think Brex is very cutthroat. I think they’ll continue to find success, but it’s just a matter of who gets impacted, gets caught in the wake along the way,” one source said. “They’re going to continually have a retention problem if they don’t start to balance people leadership with execution.”
Megan Hernbroth contributed reporting to this story.
Got a tip? Contact this reporter via email at email@example.com, Signal (646-768-1650), or direct message on Twitter@dandefrancesco.
- POWER PLAYERS: Meet the 8 PayPal execs shaping the payment giant’s future as its stock rockets to record highs and e-commerce surges
- Amazon’s plans in finance could be ‘more compelling’ than taking on Wall Street. Here’s how it’s building a bank for itself.
- SoftBank-backed companies laid off more than 11,000 people in 2020 as the pandemic ravages startups