The earliest-stage startups are getting plenty of help abroad
When you’re just getting off the ground, you have to take advantage of every possible opportunity — even if it means looking abroad for help.
Often times, when you’re still a small startup and can’t bring on resources full time, it makes sense to utilize contractors for tasks like design, branding, engineering, legal and accounting services. Many of these contractors are based overseas. There is a growing pool of labor abroad eager to work on the problems that startups in the U.S. are trying to solve. They just don’t have to worry about the cost of living in a city like San Francisco or New York. That means startups that are cash-strapped and trying to be judicious about their spending can find opportunities to work with contractors abroad.
Using a foreign contractor can be both efficient and cost-effective, but it carries a lot of additional challenges when you’re trying to figure out how to pay people for their work. You can’t just send them a typical ACH transfer, and a check isn’t really an option. You can, however, wire funds internationally. That too carries a lot of challenges with it.
More than 5% of all Brex customers initiated an international wire in May, with small, early stage startups accounting for the majority of that. In fact, 7.7% of our pre-seed customers initiated an international wire transfer in May, with these transfers accounting for around 10% of the transaction volume between wire and ACH. That proportion drops off rapidly as companies get bigger and bigger.
You could, if you really wanted to, skip the wire transfer. You could send a check, a giant pile of cash (you probably shouldn’t do this), a bank draft, a money order, or other options. But these are either very slow or very risky — something smaller companies in most cases can’t afford. You can’t really escape the need to initiate a wire transfer abroad if your operations touch anything abroad.
It might seem at first like a small percentage of the overall volume. But when you start talking about the hundreds of thousands — or millions — of dollars in transaction volume, that’s not a trivial amount of money. There are a lot of reasons you’d like to find help abroad, especially as you’re just getting started.
- Customer service: You’re going to have trouble providing 24/7 customer support when your company consists of four employees huddled around a table in the living room.
- Engineering contractors: The Bay Area isn’t the only home for talented engineers. But when you’re looking abroad in places like Europe, you might find a talented group to people to solve your problems and not have to compete with Google and Facebook salaries.
- Manufacturing and supply: Ecommerce startups in particular may find themselves handling a lot of international transactions with suppliers outside of the United States.
- Just about anything else: The United States isn’t the only country in the world, and everyone needs to get paid in some way.
Fortunately, there are more payment options today than there were for startups decades ago, which lets them avoid some of the less convenient routes. You’ll have to consider a lot of the same things you might have to with any other money transfer service: foreign exchange rates, transfer fees, speed, and limits.
There are options like TransferWise, Payoneer, PayPal, and others. Each, however, has its own unique components. Payoneer (a company we partner with — you can see details of that further down), for example, is useful when working with freelancers, digital marketers, suppliers (and more) when the friction and cost of sending an international wire does not make sense for your finance team.
International payments are still relevant as you scale. Even though international transfers as a percentage of the overall volume of money processed starts to drop off as you get bigger and bigger — and your operations become a little more sane — you still don’t want to ignore it. In fact, 10.9% of Series C and beyond startups use international wires monthly. So even though it might seem like your business is starting to level off and you can rely less on international help, you’ll probably go back to it at some point.
And the barrier for entry for many different kinds of industries, especially those with physical goods, is also getting lower with every passing year. A founder probably couldn’t imagine starting a company and immediately churning out hardware to sell through Kickstarter the year Facebook was born.
Getting a startup off the ground has never been more complex, but the tools to empower entrepreneurs to do so have also never been more robust. The cost of living in many popular cities like San Francisco in the United States is only continuing to grow. Global operations are table stakes for a lot of startups, especially those dealing with any kind of physical good.
Brex is transforming B2B payments by creating financial products that are tailored to specific industries, like startups, ecommerce, and life sciences. In 2018 Brex launched the first corporate card and rewards program specifically designed for startups. By rebuilding the credit card tech stack from the ground up, Brex is able to reimagine every aspect of corporate cards, including underwriting, transparency and approvals, to create a radically better experience for customers. Brex has raised more than $215M in funding and is backed by Y Combinator Continuity, Peter Thiel, Max Levchin and more. The company’s headquarters are in San Francisco.
We’ve also partnered with Payoneer to give new customers an extra 2% back in Brex Rewards on their first $100,000 in payments through Payoneer. After that, they will get 0.75% back.
We’re still early, and we welcome as much feedback as we can get. Also, we are hiring like crazy. Check out any openings we have!
Brex examined domestic and international wire usage for Brex customers for the month of May. Share of volume is defined as the total dollar volume of transactions for either domestic wire, international wire, or ACH, over the sum of all three. Share of customers using international wire transfer is defined as the percentage of customers in a specific funding stage that used an international wire transfer in May.
As part of its underwriting process, Brex maintains visibility into the spending of companies that use its products. Companies who asked that their data not to be shared were not used, and any company that does not wish to share its data for future aggregated analysis may request to exclude it from being shared in the aggregate.