The CFO of credit card startup Brex said that its 'made sense' to take on $200 million in debt financing as the company picks up the pace on growth

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The CFO of credit card startup Brex said that its 'made sense' to take on $200 million in debt financing as the company picks up the pace on growth
Henrique Dubugras Pedro Franceschi

Buzzy credit card startup Brex has had a breakout year.

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In the last 12 months, the company has swiftly expanded beyond its roots as a "black card for startups" to include a checking account service, ACH transfers, a members-only lounge, and a restaurant.

Its presence at the annual startup conference TechCrunch Disrupt was so ubiquitous that it wasn't clear whether the conference was essentially a customer marketing event for the startup itself. The sleek black and orange ads blanket San Francisco's buses, newspaper stands, and billboards.

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The cherry on top of the company's year is a whopping $200 million round of debt financing led by banking giant Credit Suisse, the company announced Wednesday. The financing will help fund the company's e-commerce credit card, also launched this year, Brex CFO Michael Tannenbaum told Business Insider.

"Debt makes sense for business models that are more asset intensive, because debt helps unlock additional funding capacity for these assets," Tannenbaum said. "Fintech is a good example of these type of businesses. If you look at scale financial services companies, including credit card companies, most of them will take advantage of the debt capital markets in addition to the equity capital markets."

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This is the second debt financing round for Brex in 2019, and its third funding event of the year, according to PitchBook data. The $2.6 billion startup raised $100 million in debt financing from Barclays in April, and completed a new venture round, also $100 million, in June.

Tannenbaum said that the venture fundraising and the debt "serve different purposes." It doesn't make sense for Brex to dilute equity in the company just to get the cash it needs to back the core credit-related aspects of its business, he said.

"We raise equity to fund the operations of the business, while the debt is used to leverage our balance sheet and the credit card receivables that arise as part of our corporate credit card business. Debt is much more efficient financing for that part of our business," he said.

However, there's no avoiding the fact that taking on this much debt financing does complicate matters when it comes to balancing the books.

To help steady the course, Brex also announced Wednesday that it was bringing on former American Express underwriter Mira Srinivasan as Head of Credit and fintech startup exec Erica Dorfman as VP of Cash. Marco Mahrus, from Uber's payments team, rounds out the senior leadership team as VP of Payments.

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"These individuals are consistent with our overall hiring strategy at Brex, which is to bring leaders who have experienced scale and success at other companies," Tannenbaum said. "Mira brings expertise from best in class corporate card underwriter American Express, Marco from the highly respected payments organization at Uber, and Erica from SoFi and then Tally."

Those fresh faces will be necessary going into 2020, Tannenbaum said, as the company is not slowing down its growth, already breakneck even by Silicon Valley standards, in the new year.

"The pace of innovation and product investment, alongside the overall value we add to our customers, will only continue," Tannenbaum said.

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