Brex Startup Review

Startups are in a challenging position going into 2023. The macro landscape has shifted significantly, and the global economy — particularly in sectors sensitive to interest rates — is in the midst of a retraction. For startups, that means the bar for funding is higher, but there are green shoots: deals are still closing and exits are still happening — startups just need to adjust their approach, and this report shares insights to help them sharpen focus as 2023 unfolds.

Deal activity — the number of successful funding rounds in a quarter — trended downward in Q4, with a decline of 35% year over year (Figure 1). Funding size for early-stage deals also showed signs of pressure in Q4, with the average amount back to 2020 levels, although still higher than in 2017, 2018, and 2019. Over the last four quarters ending December 31, 2022, funding for startups overall was down. However, we see a bright spot: seed-round funding amounts did not see any decrease (Figure 2).

We’ve also observed a correlation between the annual change in funding sizes and NASDAQ returns in later-stage VC deals (Figure 3), which suggests that we may keep seeing a negative impact of the stock sell-off on the VC market.

Despite the headwinds, we're entering an exciting new era for startups. The status quo of 2018 has evaporated. Back then, almost every startup had to be founded in Silicon Valley to be close to funding sources and the skilled employee base it needed to succeed. But in 2023, that’s no longer the case — and our data backs that up. Since the first quarter of 2019, we’ve seen sustained growth in our startup customers that are not based in Silicon Valley (Figure 4). We're seeing that the departure from Silicon Valley is not landing in one or two new hubs, but rather in many cities around the U.S., highlighting the dissolution of geographical boundaries for tech growth.

We’re also seeing a change in the levers companies pull to fuel growth — this includes ad spend. In the past, a significant portion (50%+) of ad spend was tied up in the largest players in social media, like Meta. The rise of new ad players, as well as the changing Big Tech landscape, is creating new, more cost-effective opportunities to acquire customers — so while ad spend is down, startups may now be getting more bang for their buck with new players in the industry. We explore this later in the report.

In 2023, startups are under pressure to demonstrate a path to profitability, especially in the early stages. Even as they dream big, we recommend that startups aim to have at least six months of runway in this macro environment to 1) give employees confidence in their jobs and 2) more broadly be prepared for anything that comes their way.

Startups are savvy, so they’re preserving their runway by increasing their efforts to make do with the money they have, focus their spending, and place bets where they can be certain they’ll see growth.

Since the beginning of 2022, we’ve seen decreases in spending in advertising and marketing, as well as in electronics and business expenses, indicating companies are adjusting or lowering budgets — especially on items that may be easier to cut (Figure 5).

Some startups are also moving the timelines for their spend or shifting investments around to make them work harder.

However, the average spending for early-stage companies has been relatively flat in the past six months, which indicates that they are more likely to keep their foot on the gas pedal, while later-stage companies are becoming more conservative in this environment (Figure 6).

Meta’s strong grasp on startups’ advertising dollars is getting weaker as we enter 2023. Over time — across all funding rounds — we have seen less ad spend going to Facebook and more going to Google and Amazon from early 2020 until the end of 2022 (Figures 7-9).

The rise of new social platforms that cater to different populations has given companies more choices about where they place their growth bets — and those choices are determined by their business strategy.

For example, when comparing Q1 of 2022 to Q4, we see an increase in advertising spend on TikTok ads for all three funding round segments. In fact, the biggest growth we see is late-stage companies’ investment in TikTok, which was close to 0% at the beginning of the year, and now sits at 4.97%.

Across the board we see a large increase in TikTok ads spend, likely because this is an emerging platform with tremendous popularity, and their advertising offering continues to improve. It’s possible that this may continue to evolve as TikTok is now under much greater regulatory scrutiny, and faces a chaotic year ahead due to bans at government agencies and universities.

Finally, on Pinterest, we see early and seed companies lowering their spend by 38–46%, yet late-stage companies have decided to invest more of their marketing dollars in Pinterest with a 40% growth in share.

The unstoppable promise of startups.

Regardless of what’s happening in the macro environment, startups by their very nature are scrappy. They’re challenging the status quo in meaningful ways. They operate not based on how the world is today, but how the world will be in two, five, or ten years in the future — and they anticipate how to build for that world.

The promise of the future transcends any temporary economic situation, and indeed, there are still seed deals happening even in this unpredictable economy. The choices that founders make today set their companies up for success tomorrow and beyond. The key is to spend and invest wisely, and make the right choices now to build that future faster and more sustainably.

Given everything we’ve seen over the last few years, this change goes without saying, but we’ll say it anyway: employees and companies are moving all over the world in 2023. Startups are finding it easier to launch from anywhere and we’re seeing our startup customers spending in more countries than they were before.

Year over year for Q4, we see the average number of countries where our startup customers had transactions increase 12–17% depending on the funding round segment (Figure 10). Consistent with this observation, we've seen a steady upward trend in the percentage of customers receiving cards outside of the US (Figure 11) and an increase in the percentage of spend per customer outside the US. This metric is up 13% for seed companies, 23% for early-stage companies, and 11% for later-stage companies (Figure 12).

Related to the rise in distributed work mentioned above, now that employees are working around the globe, in-person events like offsites have become more important than ever. Employees are taking trips to company locations away from their home office. Conferences are also seeing a return to form after years of cancellations or virtual-only events. Add all that up, and we see that travel for work has rebounded to pre-pandemic levels.

For seed companies, the last quarter of 2022 saw 16% of funds being spent on T&E, while in Q4 of 2019 that amount was 18% (Figure 13). At early-stage startups, we see Q4 2022 and Q4 2019 at the same rate of 18% (Figure 14). The later-stage startups saw Q4 of 2022 up one percentage point with 18% compared to 17% in Q4 of 2019 (Figure 15).

Eugenie Li is a Data Scientist at Brex and works with Credit, Capital Markets, and Global Financial Services partners. Prior to joining Brex, she was a quantitative researcher at a machine learning hedge fund where she utilized data to make trading decisions. Eugenie graduated with a Master’s in Financial Engineering and a B.A. in Computer Science and Statistics from University of California, Berkeley.

Tova Simonson is a Data Scientist at Brex, supporting our Marketing and Website teams. Prior to Brex, Tova was a Marketing Data Scientist at a startup meal delivery service. Tova received her Masters in Analytics from Northwestern University and a B.A. in Economics from Scripps College.

All analysis conducted for this report that uses Brex internal customer data is anonymized and aggregated for privacy. To learn more about how we use data in anonymized or aggregated form for these trend reports, email us at privacy@brex.com.

Data parameters

Figures 1, 2, and 3 represent broader industry data on the startup market beyond just Brex customers in the analysis.

Figures 5 and 6 are analyzing Brex customers that meet the following parameters: uses Brex card, has activated within the last 180 days, and is currently active.

Figures 4, 7-15 are analyzing Brex anonymized customers that meet the following parameters: has funding round data available through PitchBook, Owler, or Crunchbase, uses Brex card, has activated within the last 90 days, and was active during the quarter that their data is used in analysis, although not necessarily currently active.

Data calculations

Figure 4 is analyzed using Brex internal customer data. It calculates the percentage of Brex’s active customer base located in Silicon Valley at each quarter.

Figures 5-6 are analyzed using Brex internal customer data. They total the amount of spend across a spending category and/or funding round and divide by the number of currently active tenured Brex card customers to obtain the monthly average.

Figures 7-9 are analyzed using Brex internal customer data. They are calculated by summing up the total dollar amount for transactions in advertising and identifying the top eight merchants to understand what percentage of the total dollar amount is spent on each merchant. The percent change in the merchant share is then analyzed and broken down for Q1 2022 compared to Q4 2022.

Figure 10 is analyzed using internal Brex customer data. It identifies how many countries each customer had transactions in each quarter. The analysis then takes the average of this value for each quarter and funding stage.

Figure 11 is analyzed using internal Brex user data. It totals up the number of physical cards sent to non-US shipping addresses and divides by the total amount of physical cards sent by Brex in that quarter.

Figure 12 is analyzed using internal Brex customer data. It is calculated using the percent of transactions that are non-U.S. based for each customer and takes the average of that percentage across a quarter and funding stage.

Figures 13-15 are analyzed using internal Brex customer data. They are calculated by taking the total T&E transaction value in a quarter and dividing it by overall dollars spent to obtain the percentage of total dollars spent on T&E.

Customer definitions

Customers labeled as “seed” in analysis are those customers who have raised seed capital. This category of customers is inclusive of those who have received angel investments.

Customers labeled as “early stage” in analysis are those customers who have raised Series A and Series B funding.

Customers labeled as “late stage” in analysis are those customers who have raised Series C and Series D funding.