Brex: Can Silicon Valley's hottest Fintech live up to the hype?

Originally published in The AltFi Weekly Newsletter, for more like this sign-up now.

News that US fintech Brex is chasing a $2bn valuation just 24 months after launching raised eyebrows last week, and for good reason.

By comparison, Europe’s most valuable digital bank, N26, just reached a $2.7bn valuation after 6 years and has captured well over 2m customers spread right across the continent.

So what gives?

The crux of Brex is its fintech credit card business model that has garnered such hype among Silicon Valley investorati—including star investor Kleiner Perkins if reports are to be believed.

Brex alleges that entrepreneurs who take out traditional corporate credit cards are left “exposed” through a “hidden trap” of personal guarantees which link their personal assets and credit score to business borrowing. Brex requires no such personal guarantee.

So how does Brex assess borrowers? Simple, it “considers factors relevant to your business” including core Silicon Valley metrics like funding rounds and who your investors are.

Brex actively monitors these factors and if a startup’s funding falls below a certain level, or an investor pulls out, Brex shuts down their card.

That might not be a problem in a more credit-worthy SME sector, but as Brex helpfully points out:

“Technology startups fail at greater rates than the general population of US service-based (professional) small businesses.”

By its published calculations, which seem remarkably optimistic, 65% of tech startups fail versus 27% of SMEs in the wider US economy, and Brex customers carry an average exposure of around $51k.

Right now none of this matters. Brex is growing quickly by leveraging a credit-hungry audience of startups across Silicon Valley and, more importantly, these startups are in-turn enjoying a flood of investment flowing into the sector.

What happens when that flood is reduced to a trickle, both for the Valley and for unique lending models like Brex, waits to be seen.