Capital One to acquire Brex for $5.15B

Capitol One statement: https://investor.capitalone.com/news-releases/news-release-d...

Brex statement: https://www.brex.com/journal/brex-and-capital-one-join-force...

Brex literally came to us one day in 2022, and notified us that "We have 6 weeks to move everything off their service" they told us boldly they are refocusing on the enterprise market and we were only a "SMB". The guy who literally told us this framed it as a good thing for us like it was some sort of weird break up.

At the time we had signed a large enterprise agreement not long before that, and we even were advertised as a enterprise customer testimonial. When we mentioned that he said it was final. They ghosted us apparently and from what i heard a bunch of companies were the same somehow no longer acceptable for their services. I had a friend who worked for a very large F500 company who also got a similar treatment.

Ironically i had a friend a tiny crypto startup that somehow was allowed to stay despite not meeting their requirements.

That's weird. I remember the great SMB cleavering, where they spiked anyone that was, say, a small brick & mortar, preferring to focus on firms that were more pure tech and higher average balances. I've banked with Brex for, I don't know, 5 or 6 years now, and somehow dodged that, but it was concerning at the time since migrating operating accounts is an enormous pain in my ass.

This was made a bit more annoying when they lost their magical single operating cash sweep account and forced you to split to a separate Treasury account in order to earn interest. Even with auto balance shifting rules, I've had a few transactions fail because of bad timing. (And ACH is scheduled at the same time an intra-bank transfer is scheduled, but the ACH processes overnight and intra-bank has to wait until market open.) Super obnoxious.

Yeah it's actually been quite horrific how many (albeit rare but severe) payroll payments, rent payments, or large scheduled vendor payments we were a day late on because of the moronically dumb transfer rules. We also had minimum balance enforcement and even then it would often somehow magically screw up.

Or having to double login to Brex to first do a transfer from treasury and then wait hours to then login and schedule the ACH.

Anyways will never use Brex again after all that annoyance.

Brex rejected my application to open a bank account in 3 different occasion. mercury.com provided me the B2B account within the day and the product and UX is awesome.

+1 for Mercury.

Another good thing about Mercury is that in case you’re stuck/not being treated fairly, you can just email/publicly mention Immad (CEO) and he’ll reply within minutes and will look into this

Feels like they were first in the space but then somehow Ramp ran away from dev with a higher dev pace. Fascinating to see.

Personally I'm okay with being outcompeted if their's a billion dollar payout at the end.

Everything that's wrong with venture capitalism condensed into a single fifteen word sentence. Bravo.

If you can't provide a billion dollars worth of value, extract a billion dollars worth of grift!

I hear A16Z is hiring.

How is being outcompeted “grift”? I feel like I’m missing some context here.

Why do you start a startup? Is it to build an idea you believe in and believe it is potentially lucrative or is it so you can go through the motions, say the trendy things, and get outcompeted because in the end you are primarily focused on getting acquired with a 1B exit?

Spoken like someone who has never started a business. Brex raised much less than $5b and Capital One apparently thinks it is worth more than that (otherwise they wouldn’t buy it).

This is called value creation.

Definitely. No company has ever overpaid for another company. No fraud or FOMO-driven overvaluation has ever occurred in an acquisition. And all acquisitions have always turned out for the best. It's all 100% pure value creation.

Your statement is true on average because the world’s economy is continuing to function.

"functioning" is doing a lot of heavy lifting here

Oh wow, I don't even know where to begin with that.

Like, the world economy can't continue to function even if acquisitions were only 80% value creation on average? Or does the entire world economy depend on companies acquiring other companies with 100% value creation on average, such that it continuing to function logically implies 100% average value creation?

So, they got Greenlight, Discover, and now - Brex. They are turning into a financial powerhouse.

As if they weren’t before?

Wow why did it go for so much less than the last valuation? Is the overall market turning bad or is it just a Brex thing?

Investors will only invest in AI plays. They don’t seem to care for fintech.

Probably true, but our fintech still gets tons of unsolicited emails from growth equity shops. I don't respond because as you mentioned this sector is out of favor, and as such the multiples are not worth my time.

...and Blockchain!

Was this ever a thing?

I know individual investors get pretty crazy for blockchain, but I don't recall any major companies doing big investments.

At most, I was asked about it briefly, explained what the usecases were, and it never came up again.

Sold for $5.15B.

Brex last raised $300M in Oct 2021 at a $12.3B valuation.

There's a lot of speculation about how different rounds will get paid out.

Unless someone has insider information and is willing to post, we have absolutely no idea who was made whole, who lost and/or who gained.

At the size of Brex, anything is possible and it depends on how much leverage they had at each priced round. Guaranteed payout, equal, founders multiplier, lead multipier. All possible.

Additionally, what people don't realize is the headline number can get severely inflated IF debt is included in the purchase price. If say their book was 4.3B in debt then the equity part is ~800m and all of a sudden everyone's underwater.

We simply don't know the details.

All of these SaaS and Fintech startups from ZIRP were so overvalued.

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That is a 50% discount, which isn't great for those who got into the latest round.

Seems like Capital One is very excited on the deal and announced it earlier while Brex hid the announcement and made it hard to find. (It's on the Brex [0] journal directory, but you cannot see it featured on its front page)

What (really) happened?

[0] https://www.brex.com/journal

fintechs are a hard hat area - they make a lot of noise while raising money - but hardly ever mention costs, profitability

hence few fare well in the public markets or when its time for acquisition

Its not great for those who got in later rounds, but I would assume all the investors had at least 1X preferences, so they'll at least get all their money back.

I think this is a pretty decent outcome for Brex. I read they received a total of 1.3 billion in funding, so a 5.15 billion exit isn't bad, especially since the bottom dropped out of the market for so many fintechs that were founded and had big raises between 2015 and 2021.

I'm curious how the employees faired. Seems like they may bet getting nothing out of the deal if the investors get their money back.

Brex has been around for a long time, so employees will have been issued stock options with vastly different exercise prices.

Early employees' options will have value, but more recent options are likely underwater.

I strongly suspect they shifted to RSUs at those valuations.

It seems unlikely that regular employees would be issued RSUs. Tax is due at vest, and you can't liquidate to fund the tax bill.

There's double trigger RSUs and so on that allow you to have reasonable tax treatment, due to the theoretical threat of loss if liquidity isn't available. I worked at a company that had this at least while I was there.

The usual move here is "double trigger" RSUs that don't vest until a liquidity event, thus no taxes due until said liquidity event.

Right. Plus often the tax is paid out of RSUs given, you just get less in RSUs, some is subtracted to pay tax.

Are those common for regular employees?

highly common

I was a regular SDE at brex for a couple years and my various documents about comp say I have RSUs, and carta says so as well.

I've never bothered to understand the details since none of the private companies I've worked for have had the non-cash portion of their comp be worth anything but $0 before.

Nope, you as a company owner are highly motivated to shift to RSUs once you hit a certain valuation and number of employees. Everyone does it.

Can you expand on why at a certain valuation and size you would shift?

options can only last 7 years, but brex was founded in 2017.

Who says options can only last 7 years?

ISO options have to expire within 10 years of when they are granted. Sometimes companies make them expire earlier than that, so OP might be thinking of options they were granted. E.g. I once had options that expired 30 days after ending employment even thought the ISO requirement is up to 90 days.

When the options expire do they give new equivalent ones to the employees that hung on? Otherwise what’s the point?

You have to exercise the options or let them expire. You normally have 10 years not 7, but if a company comes up on 10 years after they issued their first options, they might try a tender offer to buy some employee shares. If your 10 year old "start up" shares can't be sold anywhere, then they probably aren't worth exercising. A company that can't provide liquidity to employees for 10 years will probably never do it.

You can exercise the options before that time is up, paying the strike price to convert them to shares

But then you’re potentially stuck with worthless options you can never trade, right? Seems very unfriendly to employees

These days, most employees getting nothing out of the deal is par for the course for acquisitions, unfortunately. The acquisition price is almost never exchanged directly for shares in the company as implied, often a chunk of it is kept for key personnel retention, etc. Typically just enough goes towards the share purchase to make investors happy, and the rest is structured as incentives for founders and key execs with milestone payouts. That‘s the set of people with leverage towards making the acquisition happen, so that‘s who gets paid.

If you‘re just a regular employee with some options, and the acquirer doesn‘t want to keep you on, you should expect nothing.

> Typically just enough goes towards the share purchase to make investors happy, and the rest is structured as incentives for founders and key execs with milestone payouts.

So they're getting the employees' shares without compensating the employees?

And there's incentives paid to the people who approved the deal, separate from their shares?

(I've heard of liquidation preferences, but never by the person making a job offer with stock options. Bribery also never came up.)

Because “shares” are not all the same. Preferred vs common, so unless you negotiated some kind of preferred share terms, assume your shares are worthless. For a non publicly listed company. For a publicly listed company, the details are all publicly available, so the different types of shares will have their different prices be easily available to see.

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While I don't think it's the case here, but a lot of time there is more liquidity preference than the deal value so employees can only get what investor want them to pay.

We know how the employees did. Same as ever. They got whatever slop was left in the trough after the big pigs ate their share.

Bitter about VCs? Me? Never.

> 50% discount

There are liquidity preferences, nobody took a haircut, they may not made a lot of money as long as the sale price($5.1B) is greater than funds raised($1.2B) everyone made some money not as much as they thought, but nevertheless some.

The reason may be different than you think, Capital One is known for its aggressive marketing campaigns and physical mail spam, it is more likely they didn't want to upset the customers and end users on what Capital One will mean

It is quite likely Capitial one will mine the data, monetize the brand, sell other products and target high value users the typical Brex user.

Liquidation preferences may have multiples. A 3x liquidation preference would have erased most gains for anyone who didn’t raise in the last round, employees and founders included.

Fair point, but Brex' business would have had to have been incredibly weak to raise on those terms.

Late round investors at least have liquidation preference. It's the worst outcome for employees.

This is a weird theory. Brex sent an email to all customers, alongside posting everywhere on social media. You are making your conclusions because they didn't put the announcement on their landing page?

Some people, (eg people who aren't already Brex customers), aren't going to get that email, and aren't following Brex's social media presence. They may not even have a social media account of their own, not even a Linkedin. The only way they would hear about is is via their landing page.

How much you use social media, and are a Brex customer, is going to influence how big you think that group of people is, but it's for sure, non-zero.

I mean, welcome to literally every tech startup valuation 2021 vs now. 2021 was so amazing for stock valuations.

It's as easy as some VC bros desperately searching for a bigger fool and finding it. Most likely CapitalOne management consists of friends with the VCs.

It's just another case of the principal/agent problem and normalized white-collar fraud in US tech.

I don't know why the downvotes, that's most probably what happened. These deals are rarely done for some economic reason, it's mostly because somebody knows someone else who can do it and get mutual benefit, a legalized version of fraud.

So you are saying VC bros are defrauding Capital One shareholders?

It's simply an example of the principal/agent problem, finance 101.

CapitalOne shareholders will decide if they want to sue the management over buying a company which primarily focuses on AI-bubble-startups.

We're at a very late stage of the AI bubble which might be the last ZIRP-fueled bubble to pop after which VC as an investment vehicle will be dead for years to come. Rising tide lifts all boats and all, but many of the "genious" VCs already have problems returning capital from their older funds.

Capital One management is friends with VCs, VCs want to cash out from their investments without big losses, some parties, some holidays, as easy as that.

Employees got wiped out!

May I ask if you're an insider / some who has first hand information about this?

Tough outcome for many involved given peak valuation @ 12B

For many?

many/most employees

Employees get options at common stock prices. The valuations you see, like $12bn, are for preferred stock. So no employees got stock priced at $12bn, but all of them get paid at a $5.15bn valuation.

Not saying they did well, but depending on the 409a valuations, they still might have made money.

Edit: friends, if you’re going to downvote please leave a comment as to why. It’s okay to disagree! There’s a lot of misleading FUD in these discussions about equity. It’s helpful for everyone to hear those sides.

Their options should be priced lower, but the common stock isn't valued according to the $5.15B. They raised $300M at $12B and $425M at $7.4B, which are both under water, so those shareholders will use their liquidation preference to get paid at least 1x. Assuming those rounds owned 7% of the company, there is at most $4.4B left for the remaining 93% of shareholders. That's about 8% less. If they deducted fees, legal services, or retention packages or had worse liquidation preferences or more underwater rounds, then it gets even lower.

I guess it's not a bad Brexit.

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there are no good brexits, bro. god promise.

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Ramp valued at $32B is a joke. Hopefully this sets a realistic benchmark for valuation. All Ramp did was spend more on ads and marketing. And CEO is now claiming their "AI Agents" are going to do something meaningful.

If Ramp is getting all the business, is there any reason to think they wouldn't command a much higher valuation?

Brex killed a ton of their customer relationships to "refocus" on larger biz. That created a lot of negative sentiment for the brand.

> All Ramp did was spend more on ads and marketing

That's distribution. It matters.

Ramp has a much more synonymous name, better recognition, and less bad reputation.

Distribution is king. Kudos to Ramp for that. My weird thesis is that for whatever reason Ruby on Rails shops just seem to survive more. I wonder if someone did a stack specific survival rate analysis.

Pretty sure Ramp uses Elixir.

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Capitalone is going to need something to make up for switching all their debit cards from MasterCard to Discover

Yeah, I was pretty unhappy about this. They are already really annoying to use, with a bunch of “offers” popping up every time I open the app.

From ING Direct to Capital One Discover. From fuck Wellsfargo, I'll never do business with them again to two of my subsequent mortgages being sold to them over the last 20 years without my consent. This entire world is designed explicitly to fuck people over at literally every turn as long as someone in the chain somewhere can pocket an extra buck.

It turns out "vote with your dollars" doesn't work when the same 3 companies own everything.

But surely if we demonstrate just how evil Nestle is just one more time, the rest of humanity will wake up and boycott them and it will be the end of suffering! Crazy to think I was libertarian minded when I was nineteen. Then again, who could actually maintain it much older? We're talking believing in the tooth fairy levels of delusion wrt to its interactions with the real world.

Who in the world uses debit cards

Majority of EU population. Even in US debit is more popular than credit in 18-25 age bracket.

(Frame of reference: US only) That's a shame, given 18-25 is just the age where a credit card skimmer or online card fraud causing a big fraudulent withdrawal from your checking account, and weeks of waiting to get it back, could be devastating. This has happened to people in my family (likely from gas stations) but we only use credit cards except to pull cash from ATMs, so we only suffer a temporary dip in our available credit line while they investigate and do not have to pay the disputed charges in the meantime.

I know people with terrible credit may have problems getting a credit card, and others may have trouble not treating a credit line as spendable beyond their means, but everyone else should keep the 'debit card' at home or at least confined to their wallet.

It's extremely common advice to not keep large sums of cash sitting in your checking account. With capital one (and others) you can just open a free savings account, keep the bulk in there (if you don't want to invest it instead), which earns an actual interest, and then there's never a "big" amount of vulnerable cash sitting in your checking account. There's free/instant transfers between savings and checking when you need to move more into your checking.

Not a great solution to constantly have to top up your checking account with some amount between "I need this much to pay my bills" and "losing this amount would devastating" which for many people has quite some overlap

You can pay bills from your savings account with ACH in the US.

I wish I could scream this from the rooftops. People should keep their debit cards locked/frozen, and only use them to get money from ATMs when needed.

All other spending should go onto credit cards, for numerous reasons that have been bought up throughout this thread.

Stay on your own rooftop please. That is a very US only view.

There's nothing wrong with debit cards being used.

If I can shout one thing back up to your rooftop:

Why on earth do your transactions cost 2 or 3 percent. For what? For basically verifying an RFID chip and adding a single entry to a ledger?

Don't say you're getting it back with points or whatever because we all know that the credit card company won't be going broke so that cut is coming from somewhere. And in the end that's always the consumer

Of course it's a US view. It's a US site and the OP even prefaced it as such. Does every reply need to do the same?

Retailers(in the US) typically eat the cost. Some industries(in the US), like gun shops, are up front about charging more for credit card payments. Most companies(in the US) just see it as cost of doing business.

Points have next to nothing to do with why you should always use credit cards(in the US). There are legal consumer protection reasons. The points are just an optional perk.

> Retailers(in the US) typically eat the cost

This is what I really have a problem with. It feels so incomprehensible to me that, assuming you're an adult, you can think this.

It's just a cost, if that cost didn't exist then either the price would be lower or the margin would be higher. In the end you're paying for it. You're the one exchanging money for a good/service.

This is proven by your other comment about how some sectors give you the option. I would rather have that option because those legal protections are useless for the majority of purchases. Good luck disputing that burrito you bought or those groceries. In such transactions you're basically just inviting a company to take a cut for 0 added benefit (aside from points).

Most banks/CU will issue you ATM only card that cannot be used a credit card. Might require some wrangling with the bank.

Really, this is a non-existing problem in most places outside the US. Are you still using magnetic stripes?????

It's a non existent problem in the US, too. The internet likes to blow things out of proportion, but not only are pretty much all payments made with tap to pay for many years now, even when it was magnetic strip, the incidence rate was miniscule.

That's way less common in Europe. Most places are chip and pin or NFC and that limits skimming quite a lot.

Thankfully the US is very slowly catching up. We actually have NFC at most payment terminals already.

Even better, our small town (pop. 100) gas station upgraded their pumps a while back, and they have NFC! Finally my normal fill-up location is skimmer-resistant. Or is it skimmer-proof?

> Or is it skimmer-proof?

Put a reader with a shield on the pad and a new pad on top and a small terminal in somewhere out of sight. You won't know the difference. Requires infrastructure though so it is a bit more complicated and a lot more noticeable. Likely used the non-pin entry limit which is always reset after you payed a large amount and had to enter your pin. Not like the strip readers of olden days.

Anecdote: We had a "chip charge" system where you put money in your card via a ATM like device and those sometimes had strange "extensions" in front of it which read your chip while you charged it and immediately took the money. People often don't know what too look for when it comes to skimming devices and with tech it may look like a strange but genuine device.

Ah but you see, chip cards were a French invention so obviously the US is going to turn their head from it and pretend it doesn't exist for more than 20 yrs

How so? My card was skimmed and I had only tapped it in maybe a half dozen locations. Never swiped it or inserted it anywhere or used it online.

Maybe you waved it in front of a hidden camera?

fraudulent withdrawal from your checking account, and weeks of waiting to get it back

I've had this happen to me twice in about 25 years. Neither bank made me wait weeks.

The most recent one (with a giant megabank) issued a provisional credit in under an hour.

There seem to be a lot of people in this thread who have never actually been through this and are just apeing what other people say online.

U.S. banks largely give debit cards the same protections as credit cards for at least the last 15 years.

The key with debit cards is the incentive misalignment. With credit, it’s the bank that loses out, not you. With debit, it’s you. Until the consequences are equaled by legislation, there’s no world where they get equal treatment by the bank

With credit, it's the merchant who loses out. They get bullied by the credit card provider to eat losses.

Relatedly, the credit card system is truly a tragedy of the commons situation.

It's a ~2% drag on the economy for what? For some silly points with constrained value and an excuse to not build better financial infrastructure.

The frustrating thing is that, given the current equilibrium, you're a sucker for not using a credit card - you end up subsidising those who do.

it's transaction fraud insurance. like any insurance, you pay a small amount regularly, and in return get protection in case of large sporadic loss.

points are just premiums: some insurance consumers are a greater risk, and so pay more.

any convenience features are built on top of the insurance product: _because_ all players are covered, _therefore_ i can make online purchases. _since_ (i have a justified expectation that) i am not liable for fraudulent use of my account number, _therefore_ i can read it to a customer service rep over the phone.

we can of course debate whether 2% is a good price for this coverage! but there must be some price paid here -- if the insurance broker doesn't collect it, the scammers will. this, after all, is the real tragedy.

What 2% drag? Aren't you using credit card with 2% bonus? Just see it as 2% reduction in prices.

My friend, as a rule of thumb, every additional player im a transaction takes a cut.

So assuming the rest is all the same, you just paid exactly what you would've paid with a debit card. Because the merchant had to raise prices to accommodate the fee. And that's with the credit card company not taking a cut and we all know that's not true.

The merchant chose to not offer a lower debit card / cash price because the merchant bets that people will pay a higher price if they use credit cards, so the merchant incentivizes credit card usage by asking for the same price for credit card and non credit card payment.

There are merchants that do not do this, such as Target, which charges 5% to use a credit card. Insurers/tutors/daycares/schools/healthcare providers/contractors/gas stations/restaurants/governments/utilities are also known to frequently charge more for credit card payments.

Any seller can choose to offer a lower price for debit card / ACH / Zelle payments if they want to.

Even ignoring the cut taken by the credit card issuer, why do I have to go through some random card to get a 2% discount, when prices could just be 2% lower across the board by default?

Unfortunately a 2% rewards card usually costs the merchant more then 2%.

High tier cards are more expensive to accept, unless your merchant rate is a high enough flat rate that it covers the average and then some.

To add on to that: if someone fraudulently uses your credit card, it's the issuer's money that's now missing and they need to get it back. If someone fraudulently uses your debit card, it's your money that's now missing that you need to get back. Hopefully things don't start overdrawing your account in the meantime.

My experience with disputes isn't that....

Yes we'll open a dispute. Yes we'll give you a credit immediately. But then we just take the sellers word for it that they're trying to make it right and charge you anyway.

This is my one singular experience with a dispute but that's with a big bank getting almost all of my transactions over the course of years....

How come this is not a problem in Europe? Credit cards make same promises there, but usage is greatly diminished.

A very big percentage of credit card expenses in the US come from cards with rewards programs, so you get money/gift cards/travel discounts in exchange for using the credit card instead of the debit card. A lot of this is funded from much higher interchange fees: It's ultimately the merchant you buy from funding most of the rewards. Since those very high fees are nowadays illegal in the EU, European credit cards cannot have this kind of generosity, and incentives are very different.

How does this work when using a US credit card in the EU? I assume the merchant still pays the lower interchange fee, so are the banks just betting that customers won’t do a large proportion of spending abroad?

They exempt those transactions from rewards.

I have a friend that got a call/notification that her card was being used suspiciously. It may not have been from the bank. I'm not sure what exactly happened, but then very shortly after, someone else got her newly issued debit card and then used it at an atm in her area. The bank didn't believe that she wasn't involved. And despite filing a police report and giving them all the information that she could, she was out 2.5 grand, which was a big deal for her. BofA if anyone is wondering.

Every atm has a camera... So they could just check that.

Also, that means the person had the PIN too? That becomes harder to defend

They might, and it's good they do, but they're not legally required to in quite the same way that they are with credit cards. If someone pulls $10k out of your BofA account, they're completely within their rights to do basically nothing about it.

In the rest of the world (not the US), "credit card" == "debit card without zero overdraft limit".

Most 18-22 year olds are living alone for the first time and have just set up their first bank account and are spending all their time focused on studies and trying to get an internship, so they aren't focused on the difference between credit card and debit card, plus they don't spend a lot out anyways

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People who don't have credit? I used a debit card at one point, though I don't anymore.

But also, they're looking at moving their credit cards to Discover as well, which would make huge waves (both in the credit card/banking world, and for their customers, who would probably find it very annoying).

I suspect the play they're making is that putting millions of new Discover cards out there will be a tipping point, pressuring the remaining merchants who don't take it, as a play to break the Visa/MC duopoly.

This could be not that hard to pull off. American Express historically was less accepted because of their high fees, but I don't think Discover has or had that problem.

Maybe I just don't use it enough but I can really only remember one time in the last ~15 years that I've tried to use my Discover card and been told they don't take Discover. I wonder if there's a geographical component, or if certain industries are less likely to take anything other than Visa/MC?

There is a geographic component. Outside the U.S. acceptance of Discover is not nearly as universal as in the U.S. So much so that in the letter that accompanied the new Discover debit cards they sent out, they had something to the effect of “maybe you should bring a backup card” if you were planning on using it internationally.

I’d just drop them.

Nearly every transaction account in Australia now uses a debit card as the access card, usually Visa debit. Some people will have a credit card in addition to that.

Other than merchant transactions, the CapitalOne MC card was one of the recommended cards for overseas ATM withdrawal, so the transition to a different network with almost zero international coverage has been very jarring.

I'm overseas and have a Capital One MC card which I've never had a problem with regarding ATMs and frictionless payments, so I find this news fairly alarming. Wait—they're planning on killing their MC card and converting all their card accounts to Discover?

That doesn't sound good.

I use mine at Costco for purchases over $300 (limit for tap). At least here in Canada, they only accept Mastercard, not Visa, and I don't remember the PIN for my Mastercard.

I'm glad I'm not the only one that occasionally forgets a PIN then just uses that as an excuse not to use that particular card for a few years.

Not uncommon in Canada as far as I can tell. Lower fees for the merchant which I care about when buying locally.

People who don't enjoy debt?

What do credit cards have to do with debt? I've used them for over a decade and never a carried balance

That's like asking "what does rent have to do with property prices?". Just because you've managed to be on the top of this perverse social summation of usury doesn't mean it isn't predatory and a net negative for society.

Credit cards are one of the most insidious ways that banks extract money from those living closest to the margins of poverty. The benefits you gain are a fraction of the profits gained from raking the most vulnerable over the coals of bankruptcy. They're a financial instrument of torture and I refuse to have anything to do with them. I'm not by any means rich, but I'm 48 years old, have zero debt, and will spend the rest of my life avoiding debt.

Finance is not a zero sum game.

It has been legal for sellers to ask buyers to pay more if they use a credit card for 15 years now.

There is no "moral" quandary. Sellers that have the same price for credit and non credit payment methods are simply betting that people using credit will be more willing to pay higher prices overall and still buy from them compared to their competitors' with lower prices who charge more for credit cards.

Every year, fewer and fewer of my expenses are paid with a credit card because more and more sellers are not betting on this. My kids' gymnastics class/tutoring/daycare charges 3% or more for credit cards. My home wired ISP and mobile network provider charges 5% more for credit cards. My property tax, insurance, water/sewer utility, all charge 3% or more. Even Target charges 5% for credit cards. Basically all tradespeople that come to fix things on my house charge extra and ask for Zelle/Venmo electronic cash payments instead.

So in all these cases, I do not use a credit card to pay. But the point is, it is up to the seller to decide what price they want to charge for credit and non credit, so there is no "moral" quandary for buyers. No one's hand is being forced.

Edit: to respond to comment below due to hitting posting limit, the extra charge does not go to the card issuer, the seller collects the higher price. If I choose to pay with a non credit card payment as a result of the extra charge for credit cards, then the credit card issuer gets nothing.

Whether or not credit card interest rates and terms are usurious or otherwise morally problematic is not a credit card user's moral responsibility. When I use a credit card, I do not ask or enable or incentivize someone else to be taken advantage of.

The extra charges you are describing are a "cherry on the top" for the card issuers. They could easily survive without those charges (in many countries they do). They also act as a convenient diversion. If you think that's the way they make money you will avoid looking into the other ways they make money. Namely, exhorbitant interest rates on defaulted loans by those who were "sold" credit cards with no practical means of ever servicing the debt.

Morally, they're also quite problematic, imo. Even if you aren't paying interest because you pay off the balance every month, CC companies can only offer points and cash back and all of that other stuff on the backs of the customers who aren't able to pay it off every month. It's a subsidy of the financially illiterate to those who are. If the predatory 20%+ interest rates were banned, the points and rewards programs would disappear overnight.

I know this isn't popular in the USA, but when compared to the rest of the western world, consumer debt is off the charts insane in America and it doesn't have to be that way. I've lived on both sides of the pond and I much prefer a society where people buy things that they can afford instead of financing everything on the back of a hope and dream that they will for sure pay off the balance this month.

As for the "but muh security!!" argument that I can hear someone typing, having a credit card for security is a terrible argument. You should be lobbying your politicians to regulate financial institutions to build better systems that are not susceptible to such obvious exploits and fraud. Again, much of the world has solved this problem to the point where I can post my bank account number on my business website and nothing bad ever happens. Customers can wire me money directly without approval and I have to manually approve all outgoing transactions at least once (scheduled transfers are still possible); it's not rocket science!

In your moral dilemma your assertion is that the credit card companies are only making money off of people who aren't paying off their cards each month which must mean that people like me are costing them money by paying off each month. Since I'm costing these evil companies money then don't I have a moral obligation to continue using my credit card?

As for saying that the argument that using credit cards because they have more fraud and security measures is not a good argument because the world should be different is also quite silly and naive since arguments should be made based on how the world currently operates not how you wish it might operate in the future. Life is much easier when you live in reality

Credit card companies make money from interest on debt. That is undisputed. To pay out your rewards, they need to make a profit above and beyond what it takes to run the business such that they can afford to give you 2% back. This leads to higher interest rates for everyone that are approaching usurious (imo). Your circular argument about costing the evil company money therefore makes your purchases justified, doesn't make sense.

I agree that the US financial system does not currently operate in a manner that is secure for consumers. I am not naive to that reality (I'm also American and have had various amounts of credit card debt throughout my life, and also times when I paid off balances for years). However, that does not diminish the societal responsibility to advocate for a financial system that is more secure by default. The fact that I need to expose myself to more financial risk in one area to circumvent a shortcoming in another area of the market is a bad thing, in my opinion.

Again, I think if we capped interest rates at something reasonable (12% maybe?), it would force credit card companies to more seriously evaluate if their customers can afford the debt they are incurring and this entire problem would disappear overnight. Sure, there would be less rewards programs as revenue would be decreased, but we would make society better as whole by not incentivising a financial instrument that ruins millions of lives annually. We tried doing it this way for almost 50 years and it doesn't seem to be working out for society if you believe the debt/income ratios as a percentage of GDP in the United States.

As to your last point, I'm much happier living in a reality where I own the things I purchase. Nobody is ever going to repo my car if I lose my job. A sheriff/the state is never going to come to my home and take things to pay off a creditor because I hit the unlucky lottery and was injured in a freak accident or Act of God. Please try to engage my arguments in good faith and not make personal attacks about my separation from reality. The rest of the western world is proof that you do not need debt to participate fully in society.

> Your circular argument about costing the evil company money therefore makes your purchases justified, doesn't make sense.

You are saying they make money off of interest which of course is correct. But I don't pay any interest so by your own logic I'm not contributing to this evil company's profit so how is it a moral dilemma? And how is my argument circular?

> The rest of the western world is proof that you do not need debt to participate fully in society.

I'm not advocating for debt. In fact I have no debt, I even own my house outright. Don't try to argue against things that I never even said :)

The main argument that people who seem upset at my original comment keep making is about how they don't want to take on debt to buy something. Well I absolutely agree. I save and invest the majority of the money I make and I've never bought anything on bad debt in my life. But if you learn the absolute basics behind credit cards you can treat it the exact same as a debit card but you get extra benefits. Not sure what is so hard to understand about that lol

> I'm also American and have had various amounts of credit card debt throughout my life

I think this is the key here. You are probably upset about the poor mistakes that you made in the past and you want to blame other people for it. I fully realize that the majority of Americans can't use a credit card responsibly so I'm glad that you are able to see that for yourself but you shouldn't make wide sweeping arguments about why other people shouldn't use them

> I don't pay interest so I'm not contributing to [their profits]...

That's true, but by accruing rewards, you are indirectly incentivising the CC company to increase interest rates to subsidize your usage. If every single CC user didn't carry a balance, there would be no rewards (see Europe).

I think we ended up at a better place here at the end so I will end with the last point.

When I was 17-19 year old, I had a small credit card with a $3k limit. I never hit this limit and it was never a problem on my path to financial freedom and I largely paid off the balance in full every month. My spouse and I were debt free by 26yo after paying off $75k in student loans. My aversion to consumer debt has little to do with my own experience and more to do with how I see it affecting my friends and family and American society more broadly. We put speed limits on roads to protect people from themselves. I'm only advocating for similar guardrails as it pertains to credit cards and other high interest consumer debt.

Especially after moving abroad, I just don't see the point in a system that is built on top of so much debt. It only hurts the most vulnerable people in society while funnelling money back to people who probably don't need it, imo.

> It's a subsidy of the financially illiterate to those who are.

Counterpoint, the financially literate are subsidizing the existence of the financially illiterate via taxes and social programs.

Setting your incredulity aside, I'm curious why you think using a debit card would be so shocking. I effectively don't use a credit card at all: I use a debit card (or an equivalent Apple Pay representation thereof) exclusively. From my perspective, if I want something and I have the money, I'll pay for it. If I want something and I don't have the money, I won't pay for it. I don't often want things outside my budget (and I am not well-off, as a grad student), so I don't often feel any pressure to amortize the purchase over time with a credit card. And I prefer that state of affairs, because I don't want to get in the habit of using someone else's money if I can't afford to pay them back.

This isn't a value judgment on people who do use credit cards. There are plenty of reasons why using a credit card by default would be appropriate, and I'm not shocked to hear of someone who does so. But I am curious where your shock comes from, so I shared my story as a data point.

Credit cards are many products rolled into one.

Despite the name, many people use "credit cards" simply for rewards and enhanced purchase protections, with only incidental use of the credit facility.

In the US market, it is surprising that someone would choose to use a debit card over a credit card (if they have the choice) because they are giving up the rewards and enhanced purchase protections, which are available at effectively zero cost.

If I used a debit card over a credit card, I'd effectively be paying ~2% more for most things I buy, for no benefit.

Not to mention the grace period. Especially with high interest rates, it's another perk to have thousands of my dollars stay in the bank all month while my credit card bill piles up. This matters less when rates are super low.

One thing I didn't truly appreciate until my wife and I consolidated our spending and had children - having nearly every expense flow through a credit card puts total spending into perspective without having to look through bank statements or keep up a spreadsheet. Getting a $10k bill when you're expecting $8k (or a $30k bill when you're expecting $20k) can be a pretty jarring event and is a built-in monthly touch point to review budgeting and spending.

It wouldn't be quite the same impact spread out over 5 cards paid out of multiple checking accounts with slightly different billing cycles.

> One thing I didn't truly appreciate until my wife and I consolidated our spending and had children - having nearly every expense flow through a credit card puts total spending into perspective without having to look through bank statements or keep up a spreadsheet.

This can work amazingly well for some folks. And can be a spiral of debt for others. This is generally good advice if you can and do actually pay off your credit cards every month. This gets quickly out of control as soon as you don't or won't for one reason or another.

Better fraud protection, too. Depending on the bank it can be a real battle to get fraudulent charges dropped and funds restored, but credit card companies go out of their way to make that process easy. Some even offer it as a function of their site/app so you don’t even need to make a call to get things resolved.

I have several cards and don’t keep a balance on any of them. They’re a tool with several uses, and one of mine is to be able to pay for things without exposing my debit card/bank account.

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Because you're leaving 2-3% on the table for every transaction. Using a credit card doesn't mean you can't pay it off in full every month, costing you zero in interest, while taking advantage of reward programs.

I have heard this, and it is probably a flaw in my approach to purchases. But is that really justification to ask "who in the world uses debit cards"? I still feel more comfortable not being on the hook to somebody, and the organizations that extend lines of credit don't do so as a prosocial program, certainly. (Just because some people can safely make use of credit doesn't mean everyone can. I know someone who has unfortunately made poor use of their credit card, and I don't necessarily trust myself to avoid a similar fate.)

No, credit card companies aren't giving out rewards at a loss. Better cards have a higher interchange rate, ie the merchant pays more fees to accept a good card.

Hence why cash discounts are a thing (and yes they're legal again).

On top of all the benefits, if for some reason you get hit with fraud or scammed on a debit card, it's a lot harder to get that money back. Credit is an extra layer of protection.

I've heard this, too, and it's a good reason to use a credit card at least for significant purchases. But I'd rather see those same protections extended to debit cards. I wish I understood why they aren't.

The fees that fund those protections don’t exist on the debit card.

It’s also fundamentally different. There are protections, but they depend on you being aware of the activity to avoid impact. Basically, in the event of fraud with a credit card, Chase or AMEX have a problem. With a debit card you have a problem until the resolve it. In the meantime, your payments and checks may not clear or hit overdraft.

As long as you can control your spending, credit cards are a real superpower for consumers.

You do realize that 2-4% is not left on the 'table' its taken from the merchant you are shopping at. If you are at a big box store sure but when going to local merchants its best for them if you use debit or cash. One could argue the merchant 'choose' to accept CC but in this day and age its more like extortion because the CC lobbyist were able to make it illegal to pass that charge onto the customer.

Don't you think the 2 to 4% is built into the prices of every merchant that accepts credit cards, big or small?

It's not a great system but it's what we have so using debit instead of credit does mean losing out.

At the big box stores absolutely they have it worked in to the prices. I have no idea if the local mom and pop shops are working that 2-4% into their prices or not.

Yes, they do. They understand where their margins go and the fees on credit cards are a huge one. They simply don’t have much of a choice.

I had this thought as well. I didn't want to raise it myself, because I don't have any personal evidence that this is the case, but of course the "cash back" has to come from somewhere.

Handling cash costs money too though. I know some small business are credit/debit card only since they do not want to deal with the hassle of cash. Out of everywhere I have been, only one place (some grocery chain in SLC) has accepted debit cards but not credit cards.

In some countries they simply outlawed such high fees, merchants pay lower fees and there's no cashback.

You are young, you want to use a credit card to protect yourself and build credit history.

Using a debit card, in the event of fraudulent charges, the money is already gone from your bank account and now you are negotiating with your bank to get it back. With a credit card, you file the claim and its generally resolved before your statement closes and anything is due. Your card will also be immediately cancelled, so if its your debit card you will lose ATM access while awaiting the new card.

This will happen to you many times over the course of your lifetime, maybe every 5-10 years. Usually when a number is stolen, they speed run getting as many $1000s of charges in before the card is stopped, which would drain your debit card account.

Credit history is also important. If you don’t have a credit card and build basic credit history before your first job, you will have trouble signing a lease without a parental guarantor.

That has not been my experience at all. I've been using debit cards for all my everyday non-cash purchases for about thirty years now, and it's worked just fine. I expect to keep doing it indefinitely.

I have had exactly one encounter with fraud: a vindinctive ex-girlfriend stole my card info and had herself a little shopping spree, emptying my checking account. I walked into the credit union branch, filed a report, and walked out with $300 and a new card. All the stolen money was restored within a few days. It was not a big deal.

> All the stolen money was restored within a few days. It was not a big deal.

You just agreed with my premise but that in your case the dollar amount was low enough to be inconsequential. If someone ran up $5k of charges on your card right before you needed to pay rent/mortgage/whatever, this would have been far more annoying.

Also - credit card protects you from this scenario, for free, or in fact pays you money with any of the cash back cards.

You’re lucky. My colleague had his skimmed at a gas station and his bank froze his funds, causing his mortgage, car loans and other stuff to bounce. Major PITA.

I'm not lucky, I just don't use commercial banks. I had to get screwed over a few times before I learned that lesson, but it did eventually stick.

May I ask why you eschew the basically free money that comes from credit card rewards as a responsible credit card user?

Is it really free money? Actual cash? I've always seen rewards programs advertised in terms of discounts on specific products or services: consumer electronics, cruise vacations, furniture, gift cards, and other things I rarely spend money on. I expect it to be an overstock clearinghouse, something like the old Columbia House record club, where you would page through a catalog of random stuff looking for anything you could convince yourself to settle for, just because you'd already paid for the subscription. It sounds like a hassle and I'd rather ignore it.

Maybe it once was like what you're thinking, but not anymore.

There are fee free cards that give cash back as statement credits (AMEX Blue iirc). No limitations on what you can spend it on. The Apple Card does 2% cash back which you can just transfer to your bank account.

The Amazon card requires a Prime membership, but gives 5% back on anything bought at Amazon. I bought my last TV using the 5% back I had received.

Then there are top tier cards like the Chase Sapphire or Cap One Venture X that have yearly fees. But, if you take 1+ trips/year they immediately pay for themselves and more (credit for global entry, yearly statement credit for travel that almost equals the yearly fee, lounge entry, etc...). I routinely use points from the Venture X to cover travel expenses like tickets, rentals, hotels, eating out, etc...

Yes, there's quite a few that just give you actual money: You can get a check back. You often get a better return if you instead purchase things at a specific retailer or something like that, but it's not all gift cards and discounts.

Yes, on some credit cards it's actual 2% cash - Apple Credit Card, Fidelity.

Amazon gives you 5% back for using their credit card, it's criminal not to use it.

If you buy a lot of equipment or expensive equipment - B&H credit card covers sales tax! I.e. 10% for my area! (I don't use it since I don't buy that much, but still it's an option)

Yes literal dollars I can spend anywhere. It can even be deposited into my bank. For doing nothing at all except paying my normal expenses via my 2% cash back card I get $400-800 annually.

I know I could probably min-max this into more by juggling different cards for things like Amazon and Costco but I'm lazy and don't want to think.

This varies a lot between countries and cultures.

For example in New Zealand, EFTPOS cards are very popular (similar to debit cards, but issued directly by our banks so no user fees ever - the merchant pays for the machine and that's it). People usually have all 3 - an EFTPOS card for most in-person purchase (although online EFTPOS is gaining adoption), a debit card for online or paywave-only places, and a credit card for large purchases/ emergencies. Credit cards here are highly unpopular among the under-25 age bracket; most young people just have EFTPOS and debit.

I think this might be a result of our stricter banking regulations compared to economies like the U.S.; it's difficult for banks to offer tempting enough rewards schemes to entice people to credit cards. Additionally, there is much less of a borrowing culture - most people will only ever properly borrow money once - buying a house. Paying cash for cars is the norm, and purchasing anything else on finance is seen as stupid compared to just saving the money (and earning the interest yourself).

I am young, but not so young as that. I do have a credit card, I just don't use it for anything except the monthly cost of server hosting (to keep it in use). Despite its disuse, I have an "exceptional" credit rating, probably mostly due to the age of the account. So I appreciate the point about credit history, but my habit of preferentially using debit doesn't seem to have been to my detriment on that front.

As to fraud protection, I agree, but as noted in another reply, I wish I understood why the protections afforded to credit don't also apply to debit. There must be some systemic reason for it that I'm unaware of. As it stands, my best guess is simply that "it's a perk to entice people to use credit".

The reason is just that it would be more risky, I think. Compare the scenarios:

1. Scammer clones your credit card with a skimmer and pays for $500 of clothes at the mall. You dispute the charges. The funds are actually not given to the store for a bit given that credit transactions take a while to settle. Upon the dispute, the store now needs to prove that you were there and bought those clothes to get their $500, or else the bank/Visa won't pay them.

2. Scammer clones your debit card with a skimmer and pays for $500 of clothes at the mall. You dispute the charges. The store already got paid though. The bank doesn't want to give you another $500 in case you are actually in on the scam, then they'll be out an additional $500. Eventually assuming they can't prove you actually bought the clothes, I think the store would have the $500 confiscated, but usually you're still liable for $50 if you reported it quickly enough, but could be more if you take too long to report the fraud.

Of course debit cards can easily be converted to even easier-to-launder money substitutes, too.

So the protection is that debit cards take longer to pay out to merchants? An increased window to dispute charges doesn't strike me as innovative but more like an arbitrary variable from the CC company.

No, the protection is that when you pay with a credit card, no money has left any of your accounts, and you have plenty of time to dispute the charge before it does.

With a debit card, your money is out of your account, immediately, and you have to fight to get it back. For some banks, for some accounts, this isn't a big deal, and you might have it back in a few hours. But for others it might take weeks, and in the meantime you've failed to pay your rent or mortgage.

I do the same - I use my debit card for everything, all the time. If I don't have the money to buy something, I'd rather just wait until I do; credit cards make it too easy to spend money faster than I earn it.

People who like to tell other people they shouldn't use debit cards often cite fears of fraud, but that's really never been a problem for me.

Because I get 2 to 3% back on every single purchase and I have my account set up to automatically get paid off every month so I've never paid a fee or interest for a credit card so I basically get free money, extra protection, and better credit just for using a credit card, that's why.

They make money off people who pay interest so I just take advantage of that.

Credit cards are strictly better in all aspects (rewards, protection, free working capital, etc) UNLESS you are bad with money/finances.

So there is actually no good reason to use debit cards. I say this as a former user. Makes no sense at all once you think everything through.

I find my usage of credit cards shrinking every year in the US. It's pretty much narrowed down to non Target retail, travel, and restaurants.

As the sellers get bigger and bigger and electronic cash payments become more normalized, I think we'll see more and more sellers charge at least 3%, if not 5% extra for credit cards so that all of their merchant fees and chargeback risk are covered.

Right now, it's just a bet that having the same price for credit card and non credit card will result in sellers willing to pay a higher price (a psychological phenomena), but more and more sellers are not betting on that.

I wonder if the effect of people being more willing to pay higher prices is seen in discretionary purchases, so travel/non staple retail will continue to incentivize credit card usage, while most other businesses will not.

It’s shocking to many because there are so many downsides to using them. Only the merchant benefits.

Why are people saying this seems like a bad deal?

If they really only raised $1.7b, per Crunchbase, then this seems to me like a very good outcome for everyone involved except its late stage investors. And, even for the late stage investors, they're breaking even.

I assume if you put in 100 mn at a 12 bn valuation in the last round, you're either getting 100 back at 1x pref or you're screwing over the common even more?

Considering the 12bn round was back in 21, I'd expect most of the employee base to be taking a haircut on the value of their options.

assume it's the $1.2bn paid back to investors and then some divvying of the remaining amongst investors, founders, and common

[deleted]

No. The last two investment tranches will get back their money, based on 1X liquidation preference. Employees who joined in the last 5 years if they got options are fucked. If they have RSUs then they will take a fraction of their equity.

It sounds like investors got out okay, but employees got fucked big time. It's a terrible exit and Brex waited too long until their growth stalled.

Hopefully those who joined took the all-cash option when that was still available.

Silicon Valley seems gamed against employees - it gets worse every year. Companies don't even share the cap table (including many YC companies).

Brex's CTO recently came on LS to talk about their AI strategy and tech: https://latent.space/p/brex

Great pod. Timing wise he had to have known about it during recording, but he didn't give anything away.

Feels like a great outcome for Brex. Mercury and Ramp seem to have been chipping away at their leadership position in recent years, so I wonder how their growth trajectory changed over that period.

Most people at Brex will lose on this.

Let's talk about “Liquidation preference”.

Means investors get paid before founders during an exit.

The basic math: investors get their money back first, then everyone else splits what’s left.

Usually 1 times.

Sometimes 2 times or 3 times.

Occasionally, “participating preferred”... get money back PLUS percentage of remaining proceeds.

This means founders can build a $100 million company and get nothing when it’s acquired if venture capitalists structured it right.

Here’s how it works in a typical acquihire:

The startup raised $10 million. Gets “acquired” for $15 million. Sounds like a win.

The liquidation waterfall:

Venture capitalists get their liquidation preference first: $10 million.

Legal fees and transaction costs: $2 million.

Retention bonuses for engineers: $2.5 million.

Founder compensation: $500,000 vesting over 3 years.

Early employees who built everything: $0.

The $15 million exit becomes:

Investors made whole.

Lawyers paid.

The acquirer got talent locked for 4 years.

The founder got $500K spread over 3 years.

Employees got nothing.

In a real exit, liquidation preferences get worse with multiple rounds.

Series A investors: 1 times preference on $5 million.

Series B investors: 1.5 times preference on $15 million.

Series C investors: 2 times participating preferred on $40 million.

The company sells for $100 million.

Series C gets $80 million for their preference. Plus 30% of the remaining $20 million. Total: $86 million.

Series B wants $22.5 million. But only $14 million remains after Series C.

Series A gets $0.

Founders get $0.

Employees get $0.

The company sold for $100 million.

Late investors took it all.

That’s liquidation preferences.

The structure venture capitalists use to ensure they extract regardless of the outcome.

Build a $50 million company?

Liquidation preferences eat it.

Build a $100 million company?

Liquidation preferences eat it.

Build a $500 million company?

Finally, maybe founders see something.

But most companies never reach $500 million.

So most founders never see anything.

The preference isn’t protection.

It’s extraction by design.

Real-world example: Brex.

On January 22, 2026, Capital One announced the acquisition of Brex for $5.15 billion.

Brex was last valued at $12.3 billion in 2022.

58% down round.

$7.15 billion vanished.

But the real damage happens in distribution.

Brex raised hundreds of millions across multiple rounds.

Late-stage investors who invested at the peak $12.3 billion valuation have senior liquidation preferences.

The waterfall likely looks like:

Series D/E investors: 1 to 2 times preference on $300+ million.

Series C investors: 1 times preference on prior rounds.

Series A/B investors: 1 times preference on early rounds.

Total preferences could easily exceed $3 to 4 billion.

Leaving $1 to 2 billion for common stockholders.

Founders and employees hold common stock.

After 8 years building a company “worth” $12.3 billion that sold for $5.15 billion, the founders might walk away with a fraction of what they expected.

Or nothing at all.

Meanwhile:

Pedro Franceschi, co-founder and CEO, gets to keep working... for Capital One now.

Venture capitalists get their preferences paid.

Capital One gets the business.

Build a $12 billion company. Sell for $5 billion. Watch preferences eat everything.

The founders who built it get whatever’s left after investors take their cut.

That’s liquidation preferences in the real world.

Not hypothetical.

Happening right now.

But wait...

Won’t founder Pedro be fine?

Probably better than employees, yes.

Here’s the extraction hierarchy:

Capital One negotiates a management retention pool.

Pedro gets carved out before liquidation preferences hit.

Part of his payout comes as a retention bonus, not equity distribution.

He likely sold shares during secondary markets at peak valuation.

Translation: Pedro probably walks away with low 8-figures plus a retention package.

Not zero.

But nowhere near “co-founder of $12 billion company” money.

Who gets destroyed:

Early employees with common stock options: $0.

Mid-stage employees who joined at $5 to 8 billion valuation: $0.

Late employees who joined at $12.3 billion valuation: negative. Underwater options.

Engineers who turned down Google... $300K salary plus $500K stock.

For Brex... $180K plus equity “worth millions”.

Just lost everything.

The real extraction:

Pedro built an independent fintech company.

Raised billions.

Hired hundreds.

Served thousands of customers.

Now he’s a Capital One employee for the next 3 to 5 years.

Can’t leave. Retention package clawback.

Can’t compete. Non-compete clause.

Can’t build independently. Golden handcuffs locked.

He traded “founder of Brex” for “division president at Capital One.”

The money he gets is real. The freedom he loses is worth more.

The pyramid:

Top: Late-stage investors. Get preferences, exit clean.

Middle: Founder/CEO. Gets some payout, loses independence.

Bottom: Employees. Get nothing, lose jobs, or become Capital One workers.

Liquidation preferences don’t just determine money.

They determine who keeps their freedom.

Investors: always free to move to the next deal.

Founder: locked into the acquirer for years.

Employees: lucky to have a job offer.

Pedro won’t starve.

But he’s not independent anymore.

That’s the extraction that doesn’t show up in the press release.

Brexit 2.0

The investors all have liquidity preferences so the ones that invested at higher valuations didn't lose any money.

But all employees after 2021 are underwater. I wonder if they got any relief from management or if they got screwed.

do you know, is that 1x?

Not publicly disclosed as far as I'm aware, but likely 1x. In Q4 2021 when Brex last raised, only ~3% of rounds had >1x liquidation preference according to Carta. https://carta.com/data/state-of-private-markets-q2-2024/

Fintech trading poorly. Also Brex didn't successfully make the AI pivot like their competitors at Ramp

Fintech exuberance was a symptom of zirp. Brex enabled more credit to folks who couldn't otherwise get credit without a personal guarantee. Zirp and exuberance is over at this point in the credit super cycle. AI doesn't help those fundamentals. Valuations are trending towards fundamentals (based on interest rates, discounted cash flows, etc).

Capital One is paying a fair price for the customer base and infra imho to add to their business customer portfolio.

Congrats to Brex et el on their incredible journey.

Fintech of that cohort is trading poorly, if they haven't found a way to survive post-ZIRP. Many have not.

Conditional anti-trust approval reflecting NXP unsolicited bid.

https://web.archive.org/web/20190827190311/https://www.wsj.c...

That's less than half of Brex's crazy $12.3 billion peak back in 2022.

But honestly, it’s still one of the biggest fintech deals ever and actually gives people real money in a market where most unicorns are just stuck. The founders are reportedly splitting about $1 billion each, early investors (2017-2018) are getting 12-80x returns, and YC’s tiny $120k seed turned into ~$100 million (800x, insane TBH). Even later folks (especially the 2021-2022 crowd) are breaking even (at least) or getting a little upside thanks to some 2024 RSU top-ups.

“Breaking even” on what? The cost to exercise? Or the missed opportunity cost of going somewhere else?

Should they have continued growing for a while before selling or was now the best ever time?

I feel like one of their primary investors wanted out. It was probably not the opportune time considering the cost of money right now.

Is there any reason to think the cost of money is going to improve at all in the foreseeable future?

Do you think the founders were strong-armed and are pissed at this outcome?

Economy’s maybe at risk… see housing starts esp.

This looks like a bad deal for Brex as they were valued at 12 billion.

Capital One got a nice discount.

  Mavis Beacon Approved

https://m.xkcd.com/2206/

https://www.ycombinator.com/companies/brex

https://www.clay.com/dossier/brex-funding

https://www.brex.com/

Does this mean Stripe is worth $1B?

Different businesses. Stripe main business is a payment processor. Brex provides credit.

From website footer:

> Brex is a financial technology company, not a bank. The Brex business account consists of Checking, a commercial checking account provided by Column N.A., Member FDIC, and Treasury and Vault, cash management services provided by Brex Treasury LLC, Member FINRA/SIPC.

Stripe is a much bigger business with hands in all sorts of instruments, chiefly payments processing.

Do you know how many businesses move money on Stripe rails? It's wild.

Stripe has for years helped non-EU companies to do tax fraud in the EU, and in a just world their management would be charged.

Every time a customer in the EU pays with Stripe, they exactly know if they are a private customer or not and in which country that customer is located in. Stripe also knows who the counterparty is ("their merchant").

Yet Stripe systematically enabled their merchants to avoid paying appropriate VAT for sales to private customers in the EU. The merchants would send you a "receipt" and then go dark, no proper invoice provided and no appropriate VAT payments to the EU made.

Their merchants could write fantasy names on the invoices, Stripe would not check or correct anything. They simply ignored the whole Mini-One-Stop-Shop in terms of VAT.

That's the "benefit" of using Stripe, they had very happy merchants who didn't need to pay taxes when selling digital products to EU customers.

I had to light a very big fire under their ass for them to provide proper invoices. I have zero indication they systematically remediated the tax fraud situation and actually paid the EU the VAT that Stripe merchants owe if you'd look into Stripe's accounting.

Why do you think that payment processors are obligated to intercept VAT? They're not.

Ignorance is bliss I guess? Unfortunately in civilized non-US countries we have a thing called accounting and if you spend money with the company credit card there is someone called "accountant" who wants to see the invoice.

And Stripe is OBLIGATED to tell me at least who is the damn COUNTERPARTY to my transaction. Company name, company registration number, company country of residence. Ideally with address. And - wow - now we have everything to actually legally follow up with the merchant to get a proper invoice from them.

But Stripe is actively obscuring this information, and making it hard for users to find out. Many of the Stripe merchants don't even have an imprint on their website.

You ask why they hide the information? Because otherwise it would be clear even to ignorant people like you that in fact a VAT needs to be paid on that transaction.

How is this any different to US users? Do you think stripe is correctly remitting US sales and county taxes?

The obligation has always been on the company making the sale not the processor.

> Do you think stripe is correctly remitting US sales and county taxes?

You tell me. Would the same people who help evade tax payments in the EU really do the same in the US? That's unbelievable! /s

> The obligation has always been on the company making the sale not the processor.

That's incorrect. At minimum, the processor needs to tell me exactly who the money goes to, so I can reach out to them.

And that's a "legal reach out" kind of information including company name, company type, company registration number, and company country of incorporation.

Stripe makes it easy for merchants to obscure that information and is actively hiding it from the customers who paid the merchant.

Stripe never claimed to handle tax however. Merchants have to handle tax on their own. This is no different than accepting cash or using a card terminal in your shop. The payment processor does not handle your tax for you.

There is no credit card terminal in the whole EU which is not tied to a point-of-sale system, which only purpose is to create INVOICES. Somehow the Stripe team forgot that fact.

I find your critique not very sensible. Point-of-sale systems are not necessarily tied to the payment terminal just because they communicate to each other. If companies choose to use Stripe they do have to set up their own invoicing and tax handling. Your comment makes it sound like Stripe hides this fact and thus users end up not handling tax or invoices because they were mislead. But if you run any kind of businesses being on top of taxes is obviously paramount. I don’t quite get your gripe here.

Stripe has built-in features for merchants to create invoices and receipts.

Stripe does KYC for their merchants and exactly know that they are a company of certain type from the US.

Stripe facilitates a sale of digital goods between the US-based merchant and EU-based consumer. At this point the US-based merchant is obligated to pay the VAT and create an INVOICE.

Only Stripe knows from which EU country the customer comes from. The US-based merchant does not know which EU country the customer comes from.

Therefore Stripe is obligated to calculate the applicable VAT (based on country of customer) for the transaction and deduct it fromt he payment amount. STRIPE IS NOT DOING THIS.

And once payment is made Stripe does not enforce the merchant to provide an invoice, even though Stripe knows exactly it just facilitated a sale of digital goods between US-based company and EU-based customer. Stripe even enables the merchant to put fantasy information into the receipts and invoices, they don't have valid company name, addresses, or registration numbers.

Stripe also allows their merchants who just did a transaction to EU customer to only offer a "receipt", with no sign of an invoice. This "receipt" can contain a single website url, it can contain total fantasy name, it does not need to contain an address, or even a country of the Stripe merchant. It does not contain a company registration number or jurisdiction of the Stripe merchant. It does not contain company type or legal company name of the Stripe merchant. EVEN THOUGH STRIPE KNOWS ALL OF THIS BECAUSE THEY KYC THEIR MERCHANTS.

This is in total violation of any EU accounting rules which also applied to Ireland where the Stripe EU HQ is.

Luckily Stripe lawyers know exactly that they are systematically aiding and abetting tax fraud against the European Union and once you press the proper regulatory buttons they will cave, and after months of stonewalling suddenly their merchants are forced to provide their FULL COMPANY NAME AND COMPANY REGISTRATION NUMBER AND COUNTRY OF OPERATION, and actually state VAT in the invoice.

But their default mode of operation is "We are located in Ireland, EU law applies to us, we know EU customer buys digital goods from US merchant, we KYD'd the merchant but still we ignore that EU VAT applies to the transaction".

Any accountants and lawyers working for Stripe Ireland should be disbarred just on the fact they are associated with this systematic tax fraud.

There was no systematic remediation of the situation - even though Stripe knows about tax fraud by a merchant, they will only restate the invoices FOR THE SINGLE CUSTOMER THAT COMPLAINS ABOUT IT instead of forcing the merchant to properly create invoices for every single transaction with EU customers of that merchant.

Show me a tax agency in your country which allows you to get away with this. It is highly criminal, systematic behavior, clearly targeted against the European Union.

Taxation is theft

That's incorrect way of typing "tax fraud by US tech companies is theft from European citizens".

Stripe aren't a MoR for most customers. This comment makes no sense.

Years ago I took a chance on hiring an engineer fresh out of a software bootcamp. Turned out to be one of the best engineers I have ever worked with - so much tenacity and thirst for learning new things. They went on to join Brex when the company was just starting out. What an awesome exit!

Hopefully they had the confidence/insight to negotiate properly. I went through BN$ exit (was employee 19) early in my career and unfortunately, only select people at the top got retirement money. The most frustrating part was the Big Co. execs that came in much later, did literally nothing, and got a massive payday. Lesson learned though...

That really sucks. Any advice on how to "negotiate properly" to avoid a situation like this?

Just assume startup equity will be worthless (which it almost always is).

whatever they value their options at in negotiations, multiply that by 0.1-0.25 to get the real value in the best outcome for a late stage startup (series B-C+) as a common employee

Without information about the cap table and liquidation preferences, assume the cash you are getting is the only compensation you will receive. To make it easier, if you are not using your lawyer during negotiations, I would assume the cash portion is the only compensation.

Now I'm wondering if I should've accepted an interview with them. For a while Brex was spamming me with recruiter emails like no other company had done before it.

If it was in the last half decade, your potential stock would be halved with this purchase by C1

yeah, early 2022 if i'm remembering correctly.

Capital One are scumbags. I'm glad they are dying and spending their money on dying companies at the same time. Less than half valuation, lol.

Stock up 15% up YoY. That company isnt dying by any measure. They just acquired a business banking company on the cheap.

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More consolidation. What the end user needs.

so are the founders and employees fucked? wasn't this company valued at like 12b?

They refused my business because I didn't have SV VC money

Chase got it instead, but they are losing it next month because of their shenanigans and greed

Wish crypto hadn't been co-opted by the same people and worse

> Chase got it instead, but they are losing it next month because of their shenanigans and greed

"Capital One marketed its 360 Savings accounts as “high interest” accounts with “one of the nation’s best savings rates”...However, while interest rates rose nationwide...Capital One kept the interest rates for its 360 Savings accounts artificially low...Instead, Capital One created “360 Performance Savings,” a nearly identical type of savings account that provided much higher interest rates than 360 Savings..."

“Capital One misled consumers through false marketing and a lack of transparency regarding its savings account system, cheating consumers nationwide. Given an opportunity to make loyal customers whole, Capital One sank their teeth in even more, attempting to underpay people it harmed and continue its deceptive practices"

In a bit of a faux pas at a social gathering, I was ranting to everyone about the theft of these big banks offering <0.25% interest rates while the fed rate is at ~4-5%. There I was telling big bank customers that they could be losing hundreds of dollars a month by not switching to a proper bank or credit union. But their response was muted, mild confusion.

Now I have a good job, and have been fortunate, but I don't live in a tech hub or am I surrounded by other high earners.

It struck me in that moment that these banks offer high convenience to people who never really have ever had true savings. The interest rate is largely meaningless when your account is chronically in the $250 to $1250 range. Things like app integration, and easy user friendly deposits and withdrawals are much more important.

I think if you are someone who financially made your way to a place where interest payments are meaningful in size, you probably left those "convenience" banks a long time ago. The thought has made me more mindful about my bank rants now.

America's banks enjoy pulling a bait and switch on HYSAs: They will create new account types with better rates, while they let their old ones become uncompetitive. Citi has pulled this too.

Unless you really think you might need the money immediately, chances are that keeping your money in a brokerage account and using a money market fund (say, VMFXX or something like that) will lead to less headaches with rate manipulation, as the funds aren't playing games with the general public.

I highly recommend the Fidelity CMA (Cash Management Account), it behaves mostly like a checking account but it autosweeps into SPAXX so you get the best of both worlds - your money is instantly accessible but you get the earnings of a money market account. I no longer bother with a HYSA.

It's not a bank account so you will still need a backup checking account if you need Zelle or similar, and it has no way to deposit cash - but the CMA has direct deposit, ACH transfer, debit card access, and check writing, so 95% of the time it does all you need.

+1, and wires are free.

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I'd recommend US Bank.

I have a credit card with them for cash back on utilities, and their customer service is awful. For example it takes a lenghty phone call to do anything, in contrast to my primary bank where I can just leave a written message in a minute or so and they respond asynchronously. I also heard from someone who worked with US bank for institutional banking services that they're just as awful there, as well as frequently causing problems for this person's employer's customers, who were mostly low income.

US Bank is way behind in tech though. You need to get in touch with one of their agents for anything. Like I'd love to have a human agent when I need one but for regular tasks, I'd rather use a Web or Mobile App that let me figure things out.

I am with US Bank for 20 yrs... they will not do dark stuff Chase does, but they are really not competitive. I don't want to change them because others are not significantly better.

I see you getting downvotes, but can you elaborate a little on what happened? What kind of business did you mean? If you don't want to share more here, you can email me.

In 2022, Brex shifted away from SMB to refocus their offering. They cut "tens of thousands" of SMB customers who didn't fit their new ICP. They announced this in June 2022 and gave all of those customers 2mo to find a new provider and move their funds.

The new qualifications to be a Brex customer at that time were:

> Received an equity investment of any amount (accelerator, angel, VC or web3 token);

> More than $1 million a year in revenue;

> More than 50 employees;

> More than $500k in cash;

> Tech startups who are on a path to meeting the criteria above, and are referred by an existing customer or partner.

SMB? ICP?

SMB = Small Business Owner ICP = Ideal Customer Profile

Just to avoid confusion, while SMB as used above may be referring to the owner it typically means "Small and/or Medium Business". Where what counts as small and medium varies a bit but is generally <500 employees and annual revenue <$10 million.

Brex got out of the SMB segment in 2022 and required some sort of "professional funding" for clients (e.g. VC money or sizable angel funding). There was a lot of reporting on it at the time: https://techcrunch.com/2022/06/19/what-was-really-behind-bre...

Typical HNer, started a startup around some tech. Brex refuses to do business, even though I had positive cash flow, they apparently only have clients with VC funding. (at least at the time, I don't know if they later changed their policy.

If you don’t mind me asking, who are you moving to?

(in the industry, but not at a startup)

Probably over correcting to a local bank lol

I'm doing a consolidation / rebrand around the verdverm pseudonym this year

Crypto is just extension of the banking system and VC powered money extraction schemes. Bitcoin is the only notably different thing in my opinion.

VCs are pretty good at extracting money from Gulf state oil funds (sometimes via Softbank as the intermediary) and subsidising below-cost services for customers like office space sharing or ride hailing.

Of course, the VCs take a cut, but overall the redistribution seems net positive to me.

Alternative to archive.md:

https://www.msn.com/en-gb/money/other/capital-one-strikes-5-...

Text-only:

https://assets.msn.com/content/view/v2/Detail/en-in/AA1ULTnJ...

Brex post: https://www.brex.com/journal/brex-and-capital-one-join-force...

Pretty steep haircut from their $12b peak in 2022. And that's before you factor in their revenue that's grown 2.5* from ~$312M in 2022. If their figures are to be believed, Capital one is getting an asset growing 50% YoY, for just 7* revenues.

Maybe just pull a Bending Spoons after the acquisition, layoff most of the staff, and bring a lot of ops in-house and they'll be in profit ASAP.

If growth rate was really 50% YoY, their investors would not let them sell for $5 billion.

Not sure what's gonna happen to them of course, but C1 doesn't really layoff the entire team like that. They have a few acquisitions that merge in but often stay as their own business unit and have a fair amount of autonomy.

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