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With Scott Orn

A Startup Podcast by Kruze Consulting

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Scott Orn

Scott Orn, CFA

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Scott Orn meets with Healy Jones, VP of FP&A at Kruze Consulting, to discuss innovation in startup corporate cards

Posted on: 11/20/2019

Scott Orn

Scott Orn

Chief Operating Officer, CFA - Kruze Consulting

Healy Jones

Healy Jones

VP of Financial Strategy -
Kruze Consulting

Scott Orn & Healy Jones of Kruze Consulting - Podcast Summary

2019 has been the year of innovation for the financial ecosystem tools for startups, with a ton happening in the corporate card space in the past couple of months. Scott and Healy, our VP of FP&A, get together to discuss Brex, Stripe, Amex, Expensify and the main startup focused banks.

Scott Orn & Healy Jones of Kruze Consulting - Podcast Transcript

Speaker 1: (singing). It’s Kruze Consulting. Founders and Friends with your host Scottie Orn.
Scott: Hey, Scott Orn of Kruze Consulting and today we are doing our 2019 wrap up for startup credit cards with Healy Jones, our VP of FP&A.
Healy: Hey Scott, how are you?
Scott: I’m doing great. Healy is the man with all the stats on how startups use credit cards.
Healy: I do like numbers. That is true.
Scott: He’s a numbers guy and today we’re going to talk about probably maybe I think the most interesting aspect of the startup kind of financial tools ecosystem, which is credit cards.
Healy: And we are seeing a lot of innovation in credit cards in 2019 and I think the thing that’s really exciting is we’re seeing it from startups and now we’re seeing big players like SVB and Amex react. So, I think 2019/2020 is going to be a good year for startups who are using credit cards.
Scott: It’s very good. So, what do you want to start off with? Which vendor do you want to off with start?
Healy: Well, who is the biggest, loudest, sort of most well-known new age player here? I think we should start with them.
Scott: I think it’s Brex.
Healy: Let’s do it.
Scott: Brex is doing a lot with advertising, but actually I always kind of make this point to people. The way to get accountants to recommend your product of your financial services tool is to make it super easy for accountants and make it make accounts super-efficient. And Brex certainly does that. The Brex integration into QuickBooks is so nice. It’s so easy and it’s really easy to spin up other credit cards for other people on your team. And by doing that it makes it really easy to control spend for your employees. Those are the three reasons we love it. I know you have some opinions on this.
Healy: Yeah. I mean, I feel strong … I see our clients dramatically moving into Brex as a solution. So, a year ago, less than 3% of our clients were on Brex and now it’s 23% and they have been taking market share from Chase, SVB and Amex. And Amex, their market share is dropping. And I believe that when I rerun the numbers for end of year 2019, Brex will have eclipsed Amex in terms of market share in the startup marketplace.
Scott: The Amex, it’s like the boyfriend or girlfriend you couldn’t stop dating because you had to. I don’t know what the analogy is there, but like-
Healy: Yeah, I’m not really sure where you’re going with that.
Scott: That might’ve been a bad analogy.
Healy: You generally have a choice in these things, I hope. I don’t know. Like, what? Are they paying your rent or something? Get out of that, man. Doesn’t sound like a good relationship.
Scott: That’s true. I was in a bad relationship. Luckily, I’m married happily and have a beautiful child now.
Healy: Okay.
Scott: But Amex, we’ve been stuck with Amex for a very long time at Kruze Consulting because the rewards are good. So, the founders-
Healy: I think you should tap the brakes there for a second.
Scott: Yeah.
Healy: Amex is a good card for a traditional small business that’s owned by a person because you get travel rewards that you use on your vacations, right? If you’re a venture capital funded startup, your fiduciary duty is not to your significant other who you’re going to take to Maui for a week and stay at a nice hotel. Your fiduciary duty is to your board and your shareholders, right?
Scott: Well, yes, but I crack up when you say tap the brakes on that because as a director of FP&A you’re not doing as much as the accounting like a lot of us are doing and the bank feed from Amex is insanely bad. And the ability … Their console login where you can see all your clients is insanely bad. So up until this moment … This is why I kind of say the bad relationship thing because no one had an option. You basically were stuck using Amex for almost all your clients.
Healy: Right.
Scott: Brex comes on the scene 18 months ago and we recognize that pretty quickly the console is easy to use. The data feed into QuickBooks that makes reconciling everything is super clean, super easy. It’s so good that our automations that we’ve built recognize 85% of the transactions without a human touching it. Like, just think about the savings on that. And again, I’m tooting our own horn a little bit. We built this automation, but it’s so much better than Amex breaking constantly, not being able to sync QuickBooks, not being able to get your statement. So that’s why I’m so enthusiastic about Brex. It’s made a considerable benefit to our accountants, and then by definition our clients. It’s just so much better.
Healy: Right. So obviously Brex is better for accountants because it makes the accounting so much better. Full stop. The UX and APIs are superior to anything else in the market, especially American Express right now. And then I was talking about the rewards, which accrue to the business as opposed to the cardholder.
Scott: Very true.
Healy: Which I think should matter to a company that’s raising venture financing because you should care about the business. You shouldn’t be running that venture finance business to get your own travel points. But I think we’re skipping the most important thing for most startup founders, which is the personal guarantee and the credit line. And yeah. Scott, you’re nodding at me. Tell our podcast listeners where I’m going with this.
Scott: For those who don’t know, personal guarantee means you have to sign with your own assets. So even though you’ve raised a bunch of venture capital, and you’re working with Kruze Consulting, and you’re the best in the business, the CEO still has to sign a piece of paper with Amex or a traditional bank that says, “I personally guarantee this credit card.”
Healy: Yeah. So, startup goes out of business. There’s 100 thousand dollars left on the credit card. Amex comes after the founder-
Scott: I’ve lived this twice. The day before one of our clients was going to get foreclosed on I casually mentioned, “You don’t have any credit card balances, do you?” And the CEO, we’re on the phone. And they’re like, “Holy shit. We have 25 thousand dollars on Amex that’s personally guaranteed.”
Healy: Pay that off.
Scott: We paid it that moment, but if I hadn’t have … It’s a fluke. I’m saying this doesn’t make me look good. Like, I can’t believe I even thought of it. Those founders would have not only lost their company, their company was going down, but would have owed 25 thousand dollars.
Healy: Yeah.
Scott: It’s a huge deal.
Healy: So hopefully none of our listeners are doing this, but remember the Fire Festival thing?
Scott: Oh. Yeah, yeah.
Healy: There were two documentaries and I only saw one of them, but the one founder who was theoretically not involved in the fraud ended up with a quarter of a million-dollar Amex bill that he had to-
Scott: Personally guarantee.
Healy: … Personally guarantee. Yeah. So, I think he had to go to his parents to help him pay it, but-
Scott: Now, in the lead up you mentioned that two of the kind of incumbents are responding.
Healy: Yeah. But I think there is one other Brex thing, which is pretty awesome.
Scott: Oh. Hit me.
Healy: Which is the size of the credit line.
Scott: Yeah.
Healy: So, we have had customers, Amex or whatever traditional credit card companies, looking to the founder to back the credit card offer a very limited credit range. For example, the credit line is 25 thousand dollars. Some of our clients as they grow may spend that every few days on AWS. You might spend that on Google Ads in an extremely short period of time. So that means you’re constantly dealing with this sort of rote administrative task of paying off the credit card bill every couple of days. So-
Scott: I know founders that used to log in every day and prepay the credit card so that they could keep it open.
Healy: Yeah.
Scott: It’s that ridiculous.
Healy: So Brex will look at the cash balance that you have raised from venture capital funds, they’ll look in your bank and they will base the credit line off of that, which hopefully lets you leave that line open and not spend five minutes every day worrying about whether or not your Facebook ads are about to get turned off.
Scott: It’s crazy. So yes. That’s a huge benefit of Brex. So, we’re talking a lot about Brex, but there are some competitive responses in the marketplace from other big folks.
Healy: Well, which big folks-
Scott: You cover this.
Healy: Right, right. So, there are three major players … Actually, even four if you count Expensify. They are reacting here. So, there are two startup-y types, Expensify and Stripe have reacted announcing their own credit cards. Neither of which you can quite get yet, but both of which will have features that are comparable to Brex in certain ways. At least so we’ve been told. And then two incumbents, Silicon Valley bank now has their innovators card and American express has announced that they will be launching a corporate card for startups with the key thing with that card being the lack of the personal guarantee in a more reasonable credit line. I’ve been on their website, and again this is November of 2019. I’ve been on the Amex website looking at this and it says it will launch in fall of 2019 so it should have launched, but I don’t know that it has. And when I look at what they’re listing for the rewards, it’s traditional lounge access, access to concerts. So, it is focused again … I know I’ve already kind of … Beating a dead horse here, but it’s focused on the individual card holder as opposed to the business. And I’m a proponent of letting those rewards accrue to the business.
Scott: Yeah.
Healy: Stripe has got rewards that accrue to the business that are pretty neat. I’m not as familiar with Expensify yet. I haven’t read as much. And then Silicon Valley Bank theoretically can offer some discounts on AWS and things like that. So, I think that’s pretty neat. And again, no personal guarantee as far as I know on any of these cards and more attractive credit lines for funded companies.
Scott: Yeah. I remember a couple anecdotes. I remember talking about 40 SVB bankers about this time last year and we were talking about bank market share and things like that. And they asked me about the credit card and I was like, “Your credit card business is doomed because your support is terrible.” The bank feed on SVBs credit card was different than the bank. And so, it’s nice to see them reacting. I do think it could be too late. Or maybe not. Maybe they’ll just blow the doors, but I feel like Brex has kind of captured the hearts and minds of a lot of companies. The interesting thing about Expensify, David Barrett told us … David Barrett’s the founder of Expensify. Expensify started off as a virtual credit card company. He took it all around … He built the prototype, he took it around. No one wanted to use a virtual credit card. He offhandedly mentioned expense reports a couple of times, people jumped all over that. He pivoted the company, became Expensify. Expensify-
Healy: Ahead of the time there basically.
Scott: Yeah, he was totally ahead of the time. We love Expensify. We’re definitely going to give their credit card a shot because that company has been a foundational piece for us.
Healy: That is an everyday app for me. I do love Expensify. I use it for my personal life and any of my business. I love that app.
Scott: It’s amazing. Probably American Express should buy Expensify and then bundle everything together and solve the problem and go home.
Healy: That would make a lot of sense. Another card we’re not talking enough about is the Stripe card.
Scott: Yes.
Healy: Because they have a huge install base with startups and thinking through the strategy … I mean, this could be a nice segue into the Brex cash strategy and the Stripe. It’s interesting how these companies are attempting to be sort of round tripping with the money. Like, “We’re going to get your revenue, we’re going to pay your credit cards, and you’re going to keep money with us.” I mean, they’re becoming legit financial services and-
Scott: Oh, big time.
Healy: … It’s pretty cool.
Scott: Well, Stripe has maybe the best brand in all of FinTech. Like is there a company you trust more than Stripe? I don’t think so. And they’re kind of known for their elegant products that make complicated things easy. And so, I was excited when they announced the credit card. I don’t know if … I think you and I have talked about this, but the day they announced the credit card, we had four clients sign up that … We have a lot of clients signing up on a daily basis now. All four of those clients elected to wait for the Stripe credit card instead of being put on Amex, SVB, or Brex.
Healy: It’s a super exciting offering from a company a lot of people already use and like, and I think it’s brilliant because they have the data of the revenue.
Scott: Oh.
Healy: Right?
Scott: They know how to underwrite the business, so I think they’re going to look at the credit amount in a different way than maybe Brexit. They’ll probably get cash balance too, but they’re also going to be able to look and say, “Hey, this company is doing X number of dollars every month.” We see that very clearly. They also have something cool where they can see the amount of chargebacks and weirdness.
Healy: Oh. So, they can tell sketchy a company [crosstalk 00:11:33]. For sure.
Scott: There’s a lot of sketchy companies. Like, remember all those phone ringing things that had so many chargebacks?
Healy: Yeah.
Scott: Like they’re going to be smart about this. They’re going to underwrite with data.
Healy: They’re generally known to provide decent customer service and whatnot as well, right? So, I think they’re pretty well liked.
Scott: They do.
Healy: [inaudible 00:11:47].
Scott: So, I think the battle is going to be Stripe versus Brex. I think this time next year, I think SVB, Amex, they’ll do their thing. But I think the battle in startup credit cards is going to be Brex versus Stripe.
Healy: Okay. So, we know that the personal guarantee is the table stakes. Better credit line is table stakes. What’s the thing that’s going to put one of those two folks ahead of the game there a little bit? I have a theory, but I want to hear yours.
Scott: I think for me, I think Stripe is going to leverage the brand they have in transaction processing and install base and just hit it hard. What you see Brex doing on the advertising is trying to kind of buy that awareness and buy that brand. And I think they’re doing a good job of it, but I think that’s ultimately the battle. I also think one of the rewards I saw on the Stripe notification was they’ll give you a break to process your transactions. Like your monthly revenue like we do. We use Stripe, we love it. What’s your theory?
Healy: So, I definitely think that distribution is going to matter a lot and I think Stripe has an inherent advantage there. The thing that I see Brex doing that is really smart is they’re trying to find the distribution partners, folks like us as an accounting firm, and really producing tools that we like and producing a lot of the features that the startups like at a very attractive price point. And I think that they are intelligently leveraging other partners in the distribution network. And so, building tools that the accountants are excited to get their clients to use is pretty smart.
Scott: I love it.
Healy: I really like that.
Scott: So, if I were to make you bet, who has more market share this time next year? Brex or Stripe?
Healy: That’s a great question. I think obviously Brex already has about a quarter of the market. I think Brex will maintain their leadership, although I think we’re going to see Stripe really kick off. Assuming Stripe gets out of their closed beta promptly. If Stripe gets out of their closed beta in Q1 I bet we see Brex with something like 40% market share or 50% market share at the end of the year and Stripe with 30%. And for folks like SVB, Amex really crushed down to the bottom.
Scott: Yep, I agree. I’m going to say 45% Brex, 20% Stripe. Only because of the closed beta.
Healy: Okay.
Scott: Because we can’t get the Stripe credit card right now, but I think those are numbers to watch.
Healy: Let me take a note here so we can… What are we going to bet on this?
Scott: What about a delicious bowl of soup?
Healy: Everything is a bowl of soup.
Scott: I love soup. Okay. That is our 2019 credit startup credit card wrap up. The money’s on Brex and Stripe going forward. Both awesome solutions and solutions accountants love.
Healy: Yeah, it’s an exciting time to be a funded startup using a credit card.
Scott: Thanks.
Speaker 1: (Singing). It’s Kruze Consulting. Founders and Friends with your host, Scottie Orn.

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