Solaris raises $42M at a flat $1.6B valuation to expand in embedded finance after a rough 2022

Solaris — the German fintech that, when it was known as Solarisbank, raised hundreds of millions of dollars to build out its embedded finance platform — is today announcing more funding. The company, used by the likes of Samsung, American Express and Coinbase to provide various financial services to their customers, has picked up €38 million ($41.8 million), money that it will be using to scale up its banking-as-a-service business.

That business today covers some 400 different APIs across categories like banking and card services, payments, lending, ID verification and digital currencies (in 2021, that number was 180 APIs, so the figure has been growing).

Solaris describes the funding as the first close of its Series F. It was an inside round (i.e. all are existing investors) from BBVA, finleap, Lakestar, yabeo, SBI, Decisive and HV Capital. Solaris did not disclose how much it would like to raise in total, how those conversations are going nor the timing for the final close.

We understand, though, that the funding is coming in at a valuation of about $1.6 billion — flat with Solaris’s valuation in 2021, when it last raised outside funding. (After publishing, it told us that it also closed a little-publicized inside round last year of €40 million, a Series E.)

Previous backers in the company include a range of strategic and financial investors such as ABN AMRO, Visa, BBVA, Samsung, Lakestar, FJ Labs and many more. It has in total raised more than $441 million, according to PitchBook.

In the context of the current downturn in venture capital activity, an inside round of $42 million at a flat valuation is relatively solid.

But considering that Solaris’ last funding was announced two years ago, in 2021, and totaled $224 million, and that fundraising for this round reportedly started a year ago (per PitchBook data), it underscores the pressures that many startups are under right now to deliver returns for investors that are considerably less active (and maybe less patient for returns) than they used to be — especially when the startups they’re backing are not focused on the currently buzzy, very fuzzy concept of AI: those are a very different story at the moment.

Solaris itself has been through a number of ups and downs since that bumper July in 2021. Chief among them have been some major leadership changes. The company at the end of last year announced that Roland Folz, who had been the CEO (but not co-founder), would step away from the business; he was replaced by fintech veteran Carsten Höltkemeyer, who took over the role in April.

“After six years at the helm, it was time for a new chapter for Solaris with a core focus in 2023 on becoming more efficient, ensure maximum compliance and continue our profitable growth course,” a spokesperson said earlier today. It also used today’s news to slip in the news that Chloé Mayenobe is stepping down as chief operating officer. She had been in the role for only six months and at the company for little over a year. That role will not be refilled, Solaris said today.

Efficiency and profit are very much the operative words at the moment. Solaris flatly describes 2022 as the year that “put Solaris to the test.”

Although it made revenues of €130 million in the year and said it grew 30%, it did so at a loss of €56 million. The startup has been going through a year of cost-cutting as a result “to address the changed market conditions.” It also notes that its first-half results are showing some promise of profitability coming, although no figures were disclosed today to prove that out. It’s also been working through how to digest a hefty piece of M&A: that big round in 2021 was made in part for it to acquire a big embedded finance competitor, Contis.

“Despite the good progress we have made, we are still in the early stages of implementing our strategy. Our next milestone will be the integration of Contis in order to exploit the full potential of our technology and product platform,” Höltkemeyer said in a statement.

Now it looks like the funding and strategy are banking on something else: simplifying and rationalizing Solaris’s operations.

“This will be accompanied by further reduction of complexities and focus on our core products,” he continued. “Solaris will become a highly efficient and performance-driven company with a sustainable run-rate profitability.”

Less major but still tellingly, the banking-as-a-service startup also, in July 2022, made the notable decision to drop the word “bank” from its name to go simply by Solaris.

More generally, fintech was one of the big beneficiaries of the funding boom that started and continued through the end of the COVID-19 pandemic, and that’s no surprise.

At a time when consumers and businesses were being forced to face and embrace new, digital-first and more flexible ways of transacting with each other, fintech startups — focused on cloud services and new approaches to disrupt traditional (and old) incumbents — in many ways represented the present and future of how the world was moving. That resulted in monster rounds for a number of startups, including in Europe alone Klarna, Revolut, N26 and Mollie among many others.

The tune has definitely changed. Solaris, quoting figures from CB Insights, said that global fintech funding declined by 46% in 2022. (The figure was still a very impressive $75.2 billion in that year, so again, it’s all relative.)

Now, the big question for all of them — Europe or otherwise — is whether they will be able to deliver longer term on that promise. Today, perhaps we’re seeing a test case for that.

Updated with further details of a previous funding round, to clarify that the previous CEO was not a co-founder, and the names of the investors in this latest round.