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TechBrunchTechBrunch

Fintech Fundid shut down due to interest rates and tight cap table

TechBrunchBy TechBrunchApril 23, 20247 Mins Read
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Downsizing a startup can be bittersweet for founders. In Fundid's case, rising interest rates decimated the business finance startup. But venture capitalists and partners are also hurting it, says founder Stephanie Sample.

TechCrunch profiled Sample in 2022 when it raised $3.25 million in seed funding backed by fintech investors Nevcaut Ventures, The Artemis Fund, and Builders and Backers.

Prior to joining Fundid, Sample spent more than 10 years as the owner of more than 10 profitable franchise businesses in Montana. She owns 12 Taco Bell locations, and is the former owner of two Envy franchises, as well as three of her other companies, all of which are profitable. Through her experience, she saw firsthand how difficult it is for businesses like hers to access capital.

She launched Fundid, which offers financial resources such as credit card loans to build businesses and a grant matching tool marketed primarily to women business owners.

Because Fundid is a fintech company, not a bank, it decided to hire a debt facility partner to take on the work, Sample explained. She found a partner and pre-negotiated a secured overnight financing rate (SOFR). This is the interest rate that banks use to price dollar-denominated derivatives and loans.

But between spring 2022 and the end of 2023, the Federal Reserve raised interest rates 11 times. Just before Fundid launched its first card product, a debt facility partner went to Sample with bad news.

“The numbers worked because interest rates were originally at zero,” Sample told TechCrunch. “We were really in trouble when interest rates went up. Our debt facility was based on SOFR+, so the numbers didn't work.”

The cost of capital is such that the cost of capital is so high for the funded compared to the fees that the funded may charge, that the funded essentially ends up paying the customer to use the product, and the The numbers will never waver,” Sample said.

difficult decision

“Due to the changing environment, we needed to post more collateral” for Fundid to continue operating, Sample said.

Investors were going to help with this, but that would mean giving up more stake in the company, Sample said. She even told investors it might have been the wrong investment, she remembers.

“Given the cost of capital and warrants, he would have taken over our entire company just to keep us going,” she added. “The interest rate market was an opportunity for people around us to take advantage of us, but in our case the business model didn't work anyway. “So what are we doing? ?”It was that kind of feeling. ”

Therefore, Sample has decided to wind down Fundid over the summer of 2023. The decision became even more difficult in the summer of 2023, when Fundid was able to raise $2 million just as credit cards were being taken off the market.

Raising capital while considering bankruptcy isn't talked about enough, Sample said. Despite her thoughts, Fundido's board still encouraged her to continue and receive her additional capital. Her investors told her they believed in the sample and her ability to figure it out, develop a new product, or start an entirely new company.

They wanted her to change direction. But with all the money invested in building the credit card, Fundid couldn't afford to stay in the current market. Additionally, the cap table would have been “too messed up to try something new,” Sample said.

But Sample had other ideas.

“I was so burnt out at the time that I was having panic attacks,” she said. “I took a step back. That was the moment I said to myself, 'This is what happens to women in venture.' They have already occupied more of my capital table and now they want me to set up a completely new company on top of the existing capital table. And they talk to me as if I'm an idiot. ”

So Sample canceled the raise and refunded the money. That was in August 2023. Then came the phase she had been dreading. She had to lay off her five-person team and did so in November.

It was the first time she had fired an employee, and Sample remembers sitting at a coffee show and crying with her employees. Sample said it wasn't because Fundid had passed away, but because “we all loved working together. It was a heartbreaking day.”

Venture road junction

She also said that she lost faith in the venture path during this period. In 2023, the company was achieving all metrics in a timely manner. However, as financial markets changed, investors began to actively work with Sample to find a path forward. She described it as “constantly suffering from whiplash.”

She also became frustrated with how much of Fundid's ownership she had lost and the potential for continued losses if she continued down the venture-funding path. Sample spoke with friends of other female founders who, like her, had raised money at the seed stage and had already parted ways with her 30% of the company.

As a general rule, seed investors typically want 10% to 20%. Numbers of 25% or 30% are not uncommon, but this is considered high for early rounds.

However, she felt at a disadvantage as a female founder and struggled to obtain competitive term sheets. The data supports her perception. According to Pitchbook, female founders received less than 19% of all venture funding in 2022. In 2023 she was 23%.

Pitchbook research shows that far fewer women-founded businesses receive annual support (fewer than 1,000 by 2023, compared to tens of thousands for men), and deal and valuations are also lower. It is shown.

“In the venture world, the goalposts are always moving and the rug being pulled out from under you,” Sample says. “As a female founder, you have to sacrifice a lot to be in the 2%. We end up paying ourselves less and accepting worse term sheets. The other thing is, even though it's already so hard to get capital, the world is telling me to be grateful. I just wanted to build a real company. However, I was dissatisfied with the system.”

Fresh start

The whole experience inspired Sample to write a post-post about Fundid's journey, which she shared with TechCrunch. In it, Sample writes, “Funded may have failed as a company, but it acknowledges that even more so, it has failed small and medium-sized businesses that need to innovate in the capital markets.” In it she wrote: To be honest, no. ”

In retrospect, I should have “just stuck to my guns” when I didn't get a credit card because I was definitely going to start my next company with my tech co-founder instead of taking money from friends and family. she said. “As the founder and CEO, I am the decision maker. This is my fault,” Sample wrote.

Fundid's official closure date was April 1st. After taking some time off and learning how to play the ukulele, Ms. Sample said her experience at Fundid made her want to get back into what she affectionately calls “the real business.” He said he felt strongly about it.

She has now launched a new investment firm called Paylor Capital, which grew out of her work helping women fund their businesses. She feels a better way to do that is to buy existing profitable companies. She is also looking to acquire existing businesses.

“My existing investors have been great. This reflects my search for new investments in markets where fintech, lending and cards are no longer desirable,” she wrote in a post-mortem. .

Paylor Capital has made seven investments so far this year, all aimed at helping women find, acquire and grow existing businesses.

“If you really want to impact gender equality and business, you're better off encouraging women to go out and buy existing profitable businesses,” Sample said. “Then their influence as CEO essentially jumps the ladder.”



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