Capital One acquires Brex for a steep discount to its valuation, but early believers are laughing all the way to the bank

There is a feeling of schadenfreude in Silicon Valley when a unicorn stumbles. So when the WSJ broke it news Thursday afternoon that Capital One will acquire Brex for $5.15 billion in cash and stock (Capital One issued official release confirming the details 30 minutes later), you could practically hear the collective laughter from Sand Hill Road in San Francisco’s South Park. That number represents less than half of Brex’s last private market valuation of $12.3 billion from its 2022 Series D-2 round.

Before everyone sharpens their knives, consider that for the VCs who backed Brex at its inception, the sale is a triumph.

Micky Malka’s Ribbit Capital, which led Brex’s $7 million Series A just after it was founded in 2017, is likely looking at a very handsome return. When reached by phone this afternoon, Malka declined to offer specifics, but as a Brex board member from the start and the company’s largest shareholder, he was unexpectedly excited about the deal: “We’re excited about the team, which was one of the youngest teams at YC at the time. I knew it. [the founders] since he was 16 years old. Capital One will be a great partner and their ability to scale [as part of the bank] it’s good for America.”

Indeed, that early bet — Ribbit was joined by Y Combinator, Kleiner Perkins, DST Global and individual investors including Peter Thiel and Max Levchin — has multiplied some 700 times. Even allowing for dilution in later rounds, the early stakes are walking away with the kind of profits that have long made venture capital seem such an attractive asset class to outsiders.

However, the sting of this valuation haircut is more pronounced when you consider what happened to Brex’s main rival, Ramp, during the same period. Just as Brex lost momentum several years ago, Ramp started to tear up. The competitive fintech expense management has so far raised $2.3 billion in total equity funding and seen its valuation grow from $13 billion in March last year to $32 billion by November consecutive funding rounds.

You could argue that if these types of papers win at a dizzying number of funding events it means that much (this is certainly not always the case). However, assuming Ramp presents a true image to the world, the appeal is undeniable. The company announced last October that it had surpassed $1 billion in annual recurring revenue and secured more than 50,000 customers. The contrast is probably most poignant for Brex’s later-stage investors, who have watched a competitor hug them several times while waiting for an exit.

The Capital One deal comes at a turning point for Brex. Just five months ago, the company announced that it had secured a license to operate in the European Union. As CEO Pedro Franceschi wrote in a blog post at the time, the move allowed Brex to “directly issue credit and debit cards and offer its spend management products to any business in all 30 EU countries without requiring solutions.” Previously, the company could only work with EU companies that maintained a presence in the US, a significant limitation for an aspiring global player.

For Capital One, the timing is as good as it gets. The bank, which already swallowed Discover Financial in a $35 billion deal last May, it gains Brex’s technology platform and client roster — reportedly including TikTok, Robinhood and Intel — as well as direct access to European corporate banking clients through its newly issued EU license. (TechCrunch has contacted Brex for more information.)

The $13 billion in deposits that Brex reportedly oversees in partner banks and money market funds also apparently sweetened the pot.

The founders, Brazilian entrepreneurs Pedro Franceschi and Henrique Dubugras, dropped out of Stanford as freshmen to launch Brex in 2017 after being accepted into YC’s 2017 winter “batch,” initially pitching a virtual reality idea. But they will inevitably return to the payments they had sold—at age 16—a payment processor startup in Brazil that had raised $30 million and was later acquired for more than $1 billion by one of its strategic investors.

Dubugras stepped down from day-to-day operations in 2024 to serve as chairman of the board. Franceschi will remain CEO after the acquisition.

As with almost any startup, Brex’s path has not been without its stumbles. There was one dubious bypass in 2019, when the then-23-year-old co-CEOs, who had never run a restaurant, bought San Francisco’s beloved South Park Cafe. The couple had envisioned Brex card members dining before heading upstairs to an exclusive lounge, a timing decision that proved spectacularly abysmal when COVID-19 shut down most of San Francisco for more than a year.

Then in 2022, as the macro picture darkened and VCs began to demand real profitability from their portfolio companies, Brex made a decision that generated significant ill will. abandoned tens of thousands of small and medium-sized customers by telling them their accounts would be closed unless they had “professional” funding from VCs, angels or accelerators.

The move, designed to focus resources on higher-margin enterprise customers and a nascent SaaS business, struck many as tone deaf. The company that had built its reputation serving unbanked startups was suddenly showing its champions the door (that’s how the move was perceived at the time).

The strategy may be what Brex put in place for this exit. By focusing on enterprise customers with deeper pockets and predictable revenue streams, the company stabilized its business model even as Ramp ramped up its fundraising. (Mercury, another competitor, also doubled its valuation to $3.5 billion in a $300 million raise last March. To steal some of the attention 2025 has given to Ramp, Mercury most recently shared with Fortune that it had reached a 650 million dollars in annual recurring revenue.)

Capital One said it expects to close the deal in the second quarter. For Brex’s later-stage investors, including TCV, GIC, Baillie Gifford, Madrone Capital Partners, Durable Capital Partners, Valiant Capital Management and Base10, who invested in valuation of $7.4 billion or higher, the output may not be quite what they were hoping for, but they’re still wet, which, in today’s climate, counts for something.

Pictured above: Brex co-founder and CEO Pedro Franceschi