The Exchanges

Q In your space specifically, what are the biggest deals that have happened in M and A and why are they so significant?

A Yeah. So the ones that, I've been tracking really closely. The first one that comes to mind is Capital One and Discover. Huge deal. This is not a tuck in. This like materially changes their whole business model. And the reason is because it creates the largest credit card issuer by loan volume, because it allows Capital One that is a bank and Discover is a card network similar to MasterCard, Visa, and American Express. There are four in the US. And so now they can create what you would call a closed loop system in that it's the card That now is on a network that they own. So they both get the, the interchange revenue when you swipe, but they don't have to pay the network rails for everything because they own the rails. And so the reason it's significant is that it touches on two themes. Number one, the bigger, the consolidators are getting bigger and number two, vertical integration, because now Capital One issues cards on Visa, MasterCard and Discover and Time will tell to say, hey, maybe they move all their business to themselves because why would you pay Visa and MasterCard for their rails if you own your own payment rail? So that one we're watching, or I'm watching very closely, and that was just approved. So back to my point at the beginning is that like large M&A that potentially could be anti-competitive or whatever the, like, you know, could cause regulatory problems is…

AI assessment note: “The first one that comes to mind is Capital One and Discover. Huge deal.”

Q Yeah, yeah, yeah. So Apollo is like integrated a little bit of like Crypto into their strategy and how they're thinking about flows. It's been really fun to watch. What, what are some other like broad trends that you're excited about in this space?

A So look, I think that my take is the use case will start with consumer as many new technologies start in the sense of, I thought the Shopify Coinbase announcement, uh, was super interesting, uh, last week. And then today there was another announcement about Uh, with Fiserv integrating stable coins. And so I think folks are basically anchoring that there's consumers that want to cut out merchant fees, which makes sense and make it cheaper to buy things and stable coins and USDC will make that, um, make that happen. I think the challenge on the B to B side is that, uh, first of all, you basically already have a global banking system that Is trying to cut out as many FX fees as possible if you do it in the right way. And so I'm just not sure. Of course, stable coins will become a mainstay for B to B companies, but I believe it will take a lot longer.

AI assessment note: “the use case will start with consumer as many new technologies start”

Q been down bad and that's to say the least, but I, I want to get into that a little bit more like macro wise. Like if we zoom out, of course, there's a lot of built up energy for exits and liquidity. Um, but what other kind of, like, structural dynamics are happening that's allowing this kind of new phase of M&A to take place? Competition? Regulatory? What's going on?

A So I think, and a number of your recent guests on the pod have, have touched on this actually, I think that in a world of AI and as AI starts to mature, I think a lot of the benefits actually go to what I would call not the incumbents, but like the fast moving larger companies. Like, of course there will be a few companies that start from zero and explode, but you know, companies like Salesforce, like Databricks, like Brex, like, you know, everyone, we're all using AI and we're all, uh, incorporating it into the internal tools we use into the products that we sell. And so in that world, I think that there's a desire and ability to move fast, but then look over your shoulder and spend money on someone who's building quickly because you're the one with the distribution. So this is going back to what people on your pod have cited. I think distribution is more important than ever before. And the fast moving companies that, uh, can incorporate some AI, but already have distribution, I think are in the, in the best position, but they still have to look over their shoulder to make sure, Hey, like, what are these next gen companies doing? Maybe I should take them out because the product is really interesting and I can push it through my channels. You know, it's, it's honestly like history doesn't repeat, but it rhymes. It's a little bit like when you look at generational companies, lik…

AI assessment note: “spend money on someone who's building quickly because you're the one with the distribution”

Q As we wrap up, I have just two more questions, but I'm really curious. I've been reading a lot on the finance fintech space. What is the new finance operating model?

A Yeah. So I think the new finance operating model, basically what we're seeing in our customer base is a bit of a fundamental shift in that there's a lot of uncertainty and volatility in the world. And we recently published this CFO survey of 500 large, uh, company CFOs and their views on the macro and like the way they think about their teams and their tools. And essentially finance teams are really Re-architecting their whole stack and really only wanting to work with the tools that Help them better understand their business and also work well with each other. And I think the, the second point is really important because the idea is Brex wants to be one of the systems of record for a business, but it also has to work very closely with the other systems that they use. Another huge theme, as I'm sure you're aware is the rise of AI and AI agents in Finance. Finance is a space where there are a lot of numbers and there actually are a lot of ways where agentic workflows can really help, uh, and delight the back office, uh, financial, uh, manager or CFO. And basically as a part of that, we saw that our agents, specifically our expense and accounting agents saved folks, 169,000 hours over the last six months.

AI assessment note: “finance teams are really Re-architecting their whole stack and really only wanting to work”

Q So what's the long-term vision for Brex, and how does your team fit into this?

A When I think about what we've built over the last seven years, I believe we are a generational company that was the category defining company in the space. And we've now evolved to serve not just Silicon Valley companies. So one stat that we're super proud of is now, 60% of our companies are outside of what we call like digitally native companies, which I think is a big accomplishment given how, how old we are. Um, but our goal is to be a fully autonomous finance platform. For the CFO to help them monitor their spend management and their spend workflows. And what Brex was able to do or is able to do is really break the trade off of speed and controls. We're basically allowing CFOs and finance teams to put more on their corporate cards to make them move faster because they have more controls, but they don't have to be slowed down by putting those controls.

AI assessment note: “our goal is to be a fully autonomous finance platform”

Q And what are things you should be concerned about?

A Yeah. So I think it really depends on. Scale of company. I think one of the exciting things that we're seeing with M and a this year is that a lot of these deals are at the size where you might think a banker would be involved. So once you're selling to PE, I would say absolutely use a banker, 10 out of 10 times, because that's like a tried and true method of like a data room and a management presentation and like a whole dog and pony show. But what we're seeing, especially this year is a bunch of early stage, what I would call like times where I'm sure, like, I don't think any of these Deals that I mentioned windsurf and Johnny Ives. There wasn't a banker on that because it seemed like these companies didn't have that much traction just yet from a revenue point of view, but they had a massive amount of traction from a product adoption or customers, um, or user point of view. And so it's super exciting because you're seeing these huge outcomes, even without the usual, like trusted advisors that would take you through the process. So when you think about the processes, I think that there is. Big tech that approaches you as a startup that has traction. So a lot of these AI companies that are raising right now are like, You know, 502,000,000,003 billion, all of them. I'm sure they probably have been, um, approached by like one of the big tech companies about an acquisition. And wh…

AI assessment note: “I think one of the exciting things that we're seeing with M and a”