Capital One Buys Brex at Discount, Early Investors Celebrate Profits

In a significant move within the fintech sector, Capital One has announced its acquisition of Brex for $5.15 billion, combining cash and stock. This news broke on Thursday from the Wall Street Journal, followed by Capital One’s confirmation just thirty minutes later. This acquisition comes at a stark contrast to Brex’s last private valuation of $12.3 billion during its 2022 Series D-2 funding round.

Early Investors Celebrate Profits Despite Valuation Drop

Despite the lower acquisition price, early investors like Ribbit Capital, which backed Brex in its infancy with a $7 million investment in 2017, stand to gain significantly. Micky Malka, a prominent venture capital investor and Brex board member, expressed enthusiasm regarding the deal. He highlighted the impressive growth potential of Brex under Capital One’s umbrella.

• Brex was founded in 2017 by Brazilian entrepreneurs Pedro Franceschi and Henrique Dubugras.
• The founders previously sold a payments processing startup for over $1 billion.
• Brex’s rapid growth multiplied early investors’ stakes nearly 700-fold.

Other notable investors in Brex include Y Combinator, Kleiner Perkins, and DST Global, along with influential figures like Peter Thiel and Max Levchin. These early supporters of Brex have seen substantial returns, demonstrating why venture capital remains appealing.

Market Dynamics: Brex vs. Competitors

While Brex faced challenges, its chief competitor, Ramp, has seen remarkable success, soaring in valuation from $13 billion in March to $32 billion by November. Ramp has raised $2.3 billion in equity financing and announced a billion-dollar annual recurring revenue, further highlighting Brex’s struggles during the same period.

Brex also navigated its own complexities in 2022 when it pivoted its focus from small businesses to larger corporate clients. This strategy has stabilized Brex’s business and positioned it favorably for the acquisition, though it generated negative sentiments among earlier stakeholders.

Capital One’s Strategic Acquisition

Capital One stands to gain not only from Brex’s technology and customer base but also from its new European Union banking license. This license will allow Capital One to operate and issue cards across 30 EU countries, expanding its reach significantly. Brex reportedly oversees $13 billion in deposits at partner banks, which enhances the appeal of the acquisition.

While the valuation decline has been a talking point, investors who backed Brex at its inception view the acquisition as a profitable exit, especially in an unpredictable market. The deal is expected to close in the second quarter of 2024, marking a new chapter for both Brex and Capital One.

As the fintech landscape continues to evolve, Brex’s journey reflects both the opportunities and challenges faced by startups aiming to disrupt traditional banking models.