Capital One to acquire Brex for $5.15 billion

Capital One has announced plans to acquire Brex for $5.15 billion in cash and stock. The transaction represents a significant valuation haircut from the startup’s previous private-market valuation of $12.3 billion, which was set during its 2022 Series D-2 round—a specific round of venture capital financing. Capital One expects to close the deal in the second quarter. The acquisition will provide the bank with Brex’s tech platform, its client roster, and a newly secured European Union (EU) license. Additionally, Brex reportedly oversees $13 billion in deposits at partner banks and money-market funds, which will transition to Capital One.

The exit comes as Brex’s primary competitor, Ramp, has experienced rapid valuation growth. Ramp has raised $2.3 billion in total equity financing, with its valuation climbing from $13 billion in March to $32 billion in November. Ramp also announced it had surpassed $1 billion in annualized recurring revenue—a metric used to measure subscription-based revenue—and secured more than 50,000 customers. Meanwhile, Mercury, another competitor, reached a $3.5 billion valuation after a $300 million raise, reporting $650 million in annual recurring revenue.

Despite the steep discount for later-stage investors, early backers are positioned for significant gains. Ribbit Capital, which led Brex’s $7 million Series A funding round following its 2017 founding by Brazilian entrepreneurs Pedro Franceschi and Henrique Dubugras, is likely staring at a very handsome return. Micky Malka, a Brex board member and founder of Ribbit Capital, stated: “We’re excited for the team, which was one of the youngest YC teams at the time. I’ve known [the founders] since they were 16. Capital One will be a great partner, and their ability to scale [as part of the bank] is good for America.”

However, Brex’s path to acquisition included several notable stumbles. In 2019, the company made a “questionable detour” by purchasing San Francisco’s South Park Cafe, a timing decision that proved “spectacularly lousy” when the pandemic forced widespread closures. Later, in 2022, Brex generated “considerable ill will” through a “tone-deaf” decision to drop tens of thousands of small- and medium-sized business customers to focus on enterprise clients and its software tools for managing corporate expenses.

While early investors are seeing returns estimated at somewhere in the neighborhood of a 700-fold multiplier on their initial capital, the outcome is different for later-stage backers. Investors who entered during subsequent rounds at valuations of $7.4 billion or higher will face a loss on their principal, though the acquisition provides them with liquidity in a challenging market.

Why it matters

Capital One’s acquisition of Brex for $5.15 billion marks a significant exit for early investors despite a valuation that is less than half of the company’s previous peak. The deal provides Capital One with an established tech platform, a substantial deposit base, and a newly secured EU license to expand its corporate banking footprint.