A chat with Erica Dorfman, VP of Treasury & Payments at Brex
Navigating the pandemic, consumer vs corporate credit, role of capital markets, alignment between finance & other teams, and more
Sar : You worked at traditional financial institutions before you started working at fintech companies like Tally and Sofi. Whether it’s Hollywood or Wall Street, Silicon Valley is always in a race to figure out how those worlds work before they figure out technology. What were the cultural differences between the two worlds?
Erica : From my experience, the primary cultural differences come from being able to act quickly. Traditional finance businesses tend to move more slowly, whether due to process, more cumbersome tech to build on, or regulatory requirements. Executing and building quickly on new ideas is the hallmark of successful startup companies, and that creates an entirely different working environment. Flexibility and creativity become incredibly important, along with working collaboratively across very different parts of the organization. Personally, what I have enjoyed most about working on the operating side versus the advisory or investing side is the sense of being part of a team and really building towards a goal – even when you are working in different areas, everyone wins when any individual project is successful. It’s incredibly fun.
Sar : You are the VP of Treasury & Payments at Brex, which includes the Capital Markets team, which you previously co-headed at SoFi. Can you walk us through what your role entails and how it ladders up to the mission of companies you have worked at? A 101 on the distinction between Capital Markets and Treasury would be helpful too! I think most readers would be familiar with the Financial Planning and Analytics function at a company.
Erica : Companies that have a lending component to them often require outside capital in the form of debt in order to more efficiently manage their balance sheet. The Capital Markets team is responsible for working with external investors and banking partners on different funding sources and strategies. It typically sits inside the Finance team, but separate from the FP&A team, which is responsible for working across the organization to come up with projections and analyze business performance. Treasury is a separate function that is responsible for managing how and where the company’s funds are stored – sometimes this sits in FP&A, sometimes in Accounting, and for us, it covers liquidity management and sits together with Capital Markets.
Sar : Brex started out as a corporate card for startups and later introduced vertical products to serve categories like ecommerce brands and life sciences. Cash management was launched around this time last year. Now, Brex has expanded its vision to become the financial OS for the next generation of businesses. Can you explain the evolution of what you guys have been working on?
Erica : We’re really excited about the evolution of our offering. Brex has always been focused on being more than a payments and credit card company, even from our initial product which incorporated tools and software to help companies manage their expenses. Our goal is to enable businesses to grow. To do that, we’re expanding on what we’ve built today and giving companies a platform to better and more easily manage their business - from our payments, credit, and cash management solutions, to spend management, billing, and visibility. Finance teams historically have had to bounce around numerous tools and services to get their job done and have visibility into their company. Brex is building so that companies can come to one place and experience everything seamlessly, giving teams time back to focus on managing their business.
Sar : There’s a wave of startups trying to build software for FP&A teams. You brought up how finance teams have to use fragmented systems to do their work. Do you believe Brex’s evolution of offerings means who you are building for is slowly changing from corporate card users across an organization to a functional team?
Erica : It’s a really exciting space right now. At Brex we’ve always built our product both for the users of the card, and for the finance teams managing them on the company side. Take for example one of our features at launch, text receipt matching and capture. While this is great for the card user, saving them time from having to manage receipt submission and approvals, it’s also a huge benefit for the finance team because adherence to policies increases, and it automates much of the wrangling that previously existed when matching charges to receipts, which is required for audits and reconciliations. Brex’s software on the Cash side and controls and expense management on the Card side tend to be more focused on the finance teams, enabling them to work more efficiently to schedule payments and monitor their business. So I would say it’s more of a continuation of what we’ve been building from the start.
Sar : When the pandemic hit and a large swath of companies saw customer demand fall off a cliff, you guys had a front row seat to what was going on in real time in the broader economy. Can you give us a glimpse into what it was like internally back in March and April?
Erica : It was definitely concerning to see the potential impact of the pandemic in March and April, there was so much uncertainty around how people and businesses would adapt. Brex was extremely well positioned from a capital perspective – we had just completed a large equity round and had significant capacity on our borrowing facilities. When it became clear that the pandemic was going to be more than a passing week or two, we went into action mode and deployed resources across the company to do whatever we could to be proactive. Our chief concern was making sure that we were able to support our customers with continued credit in a sustainable way. We accelerated a number of projects with the product, data, and engineering teams that magnified the impact of our operations and servicing groups through automation, for example adding more live connections into underwriting data for our ecommerce customers, and started working with customers as early as possible to get a sense of their needs. We saw decreases in spending from customers during the first few months of the pandemic, as everyone was adjusting to the new normal and being conservative from a corporate finance standpoint, but thankfully that recovered well by June.
Sar : What are some optimistic trends you are seeing across your customer base this quarter?
Erica : Spend and engagement with our Cash product are probably the two most optimistic trends for me. On spend, customers are performing well from a credit perspective, and are continuing to increase their budgets for advertising, software etc. - that is a great trend to have continued, especially in these times. We are building overall to make sure that Brex is able to scale with our customers, so seeing companies do this is great. For Cash, we have released a lot of features this year, with the goal of giving customers a product that does everything that a traditional bank account can do and more. Seeing utilization of features that exist across banking products, like scheduled payments, is great, but I’m especially optimistic about customers adopting our more innovative solutions through Cash, like instant payouts for ecommerce customers. That has been fun to watch customers use and get excited about.
Sar : You served as Head of Finance at Tally. You went from building credit products for consumers to building credit products for companies. What are the similarities and differences between those two experiences?
Erica : In a lot of ways, companies act like consumers, particularly for smaller companies, and share similar needs when it comes to looking for an easy to use, automated, and value added financial experience. Brex approaches our business customers much more like a consumer company – we are aiming to enhance the experience and output of the individuals and teams running finance. Companies tend to be more conservative on planning and risk because their capital is often from outside investors and there are other individuals, like employees and customers, who could be impacted. Companies also have a longer list of formal financial management needs, like monthly cash reconciliations, and use data differently than consumers, for example linking different spend to accounting software and tracking expense categories to map with metrics like CAC or payback period.
Sar : What do you think is under-appreciated about the mechanics of setting up lending business by software companies?
Erica : As the industry has expanded, the impact of tech serving fintechs has probably been underappreciated. For example, software providing more automated KYC checks, improving data linking (like Plaid), and enabling fraud detection, all automate pieces of customer onboarding that would have previously been manual or required in-house software development and risk algorithms. It is a lot easier to get a lending business off the ground today than it was in 2010, and you can see that just in the sheer number of companies launching with lending products. This doesn’t mean it’s easy, and I think the challenge can often be what to do once you have the capacity to lend - getting the partner or debt capital to scale can sometimes be harder than getting the equity to launch. When going through due diligence with credit investors and banks, companies are tasked with comparing their performance to the overall market and to borrowers with similar loans or in similar industries. This can be difficult if you’re trying to innovate on new underwriting data or risk evaluation mechanics. It can take longer than expected to get these agreements finalized and to get partners comfortable with taking on a new form of credit risk.
Sar : Compared to other early stage companies, finance teams are less detached from the other teams at fintech companies with lending products because of the risk, capital and compliance requirements. How do you make sure there is a strong alignment across product development, sales, marketing and finance functions? Sales and Finance teams are often in conflict because they are optimizing for different metrics and priorities. Sales cares about quotas while Finance cares about cost of capital, payback, CAC, defaults. The cost of not having cross functional alignment is often higher at fintech companies than at traditional software companies.
Erica : That is a great point around finance teams at a fintech, it can often work to your advantage. For us, we have a captive user testing base in our Accounting team which is amazing. They frequently work with our product and engineering teams on development. On goals and potential conflicts, I think this is applicable for almost all companies, and certainly every team has their own areas of focus. For us, setting objectives and goals as a company enables teams to work well together because everyone understands and is aligned on the overall target. We have check-ins on progress that include all of the stakeholders, so if, for example, we are hitting targets on adding more customers, but are missing on losses or cost of acquisition, that isn’t a win for the company, and the conversation and discussion happens with all of the groups together. It’s not great if we’re over or under performing on any individual goal because they are actually intended to work together in balance, so making sure that everyone agrees on the targets upfront is an important part of getting to the right outcome when we’re executing.
Sar : You strike me as a finance person with great product instincts. Are you guys intentional about cultivating a culture where the people who deal with what technologists often consider boring work build better product instincts over time? Is that a consideration in hiring? It is very common to see a cultural divide where a finance team is just thinking in numbers and is unable to use similar instincts and language as the rest of the org that does the building and marketing.
Erica : We really value working cross functionally and internal mobility, actually the product team has a lot of individuals who have been in other parts of the organization - from business development, to operations, to finance. We try to hire people who are thoughtful team players, and that often means they are really excited to think about ways to improve our product and customer experience, regardless of which team they’re on. We actually just finished our annual internal hackathon, where teams come together across the organization, and a few of the winning teams had contributors from accounting and risk.
Sar : Whose work do you admire at other companies in a similar role? Any advice for people with traditional finance backgrounds looking to jump into startups wanting to do what you are doing?
Erica : There are a lot of strong individuals in the space – I really admire teams working on innovative products like those at Divvy Homes. The best advice I can give is to do research on what areas of fintech you’re most excited about, and then get in touch with people at the companies in that space. The biggest transition can be what stage of business you’re joining, and what the role entails – it’s often very different from traditional finance – so talking to people at these companies about their experience is helpful.
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