Featured Article

Fintech Fundid was shut down over interest rates and a strained cap table

But the founder is already back with a better idea

Comment

Fundid founder and CEO Stefanie Sample
Image Credits: Fundid / Fundid founder and CEO Stefanie Sample

Winding down a startup can be bittersweet for founders. In the case of Fundid, rising interest rates killed the business finance startup. But VCs and partners hurt it, too, founder Stefanie Sample says.

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

Prior to Fundid, Sample spent more than a decade as the owner of more than a dozen profitable franchise businesses in Montana. She owns 12 Taco Bell locations and was the previous owner of two Massage Envy franchises, as well as three other companies that are all profitable. It was through that experience she saw firsthand how difficult it was for companies like hers to have access to capital.

She started Fundid to offer lending via a business-building credit card as well as finance resources like a grant-matching tool, marketed mainly to women business owners.

Because Fundid was a fintech company and not a bank, it decided to have a debt facility partner to underwrite its operations, Sample explained. She found a partner and pre-negotiated the secured overnight financing rates, or SOFR. This is an interest rate banks use to price U.S. dollar-denominated derivatives and loans.

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

“The numbers worked originally because the interest rate was nothing,” Sample told TechCrunch. “When the rates went up, that really screwed us because the debt facility was based on SOFR plus, so the numbers didn’t work.”

The cost of the capital would cost Fundid so much compared to the fees Fundid could charge, that Fundid would essentially be paying its customers to use its product, and “then numbers would never shake out,” Sample said.

Fundid injects first funding into providing capital, credit for small businesses

Tough decisions

To keep going, Fundid “needed to put up a lot more collateral because of the changing environment,” Sample said.

An investor was going to help with this, but that would mean giving up more equity in the company, Sample said. She recalls even telling the investor that it would have been a bad investment.

“The cost of capital and the warrants would have resulted in him taking our entire company — just for us to exist,” she added. “The interest rate market became this opportunity for everyone around us to take our company, and then the business model didn’t work in our case anyways. It was like, ‘Well, what are we doing?’”

So, over the summer of 2023 Sample decided to remove the credit card from the market. The decision was made more difficult when Fundid was able to raise $2 million the summer of 2023 just as she was pulling the credit card from the market.

Raising capital while thinking of going dark is something Sample said doesn’t get talked about enough. Despite her thoughts, Fundid’s board still encouraged her to keep going and to take the additional capital. Investors told her that they believed in Sample and her ability to figure it out or build a new product or build a brand new company.

They wanted her to pivot. However, all of the money was invested toward building the credit card that Fundid couldn’t afford to keep in the current market. In addition, the cap table would have been “too messed up to try anything new,” Sample said.

However, Sample had other ideas.

“I was so burnt out at that time that I was having panic attacks,” she said. “I took a step back. It was a moment where I told myself, ‘this is what happens to women in venture.’ They already took more of my cap table and now they want me to build a brand new company on the existing cap table. And I felt like an idiot.”

So Sample rescinded the raise and gave the money back. That was in August 2023. Then came the part she dreaded: She had to lay off her team of five, doing so in November.

This was her first time firing employees, and Sample recalls sitting in a coffee shop and crying with them. Not because Fundid was dead, but because they “all loved working together so much. It was a heartbreaking day,” Sample said.

So your startup’s runway is dwindling and fundraising is hard. What’s next?

A fork in the venture road

She also said during this time she lost faith in the venture path. In 2023, the company was hitting all of its metrics in a timely manner. However, as the finance market changed, investors were actively collaborating with Sample to find a path forward. She described it like having “whiplash all the time.”

She also became disgruntled over how much of Fundid’s ownership she had lost, and could continue to lose if she stayed on the venture fund raising path. Sample spoke to other female founder friends who were raising at the seed stage and had already given up 30% of their company — similar to her.

As a general rule, seed investors typically want 10%-20%. Although 25% or even 30% is not unheard of, it is considered high for those early rounds.

But she felt that as a female founder, the odds were stacked against her, and she struggled to get competitive term sheets. The data backs up her perception. In 2022, female founders landed less than 19% of all venture fund dollars that year, PitchBook found. In 2023, it was 23%.

Far fewer female-founded companies are backed annually (less than 1,000 in 2023, compared to tens of thousands for males) and the deal amounts and valuations are lower, too, the PitchBook research shows.

“With the venture landscape, the goal posts are always moving or the rug being pulled out from under you,” Sample said. “When you are a female founder, you have to sacrifice a lot to be among the 2%. We end up paying ourselves less and accepting worse term sheets. The other part is that it is already so hard to get capital, yet the world is telling you to be grateful. I just wanted to build a real company, and it made me disgruntled how it all worked.”

https://techcrunch.com/2023/05/10/how-do-you-know-when-its-time-to-shut-down/

A fresh start

The whole experience inspired Sample to write a postmortem post about Fundid’s journey, which she shared with TechCrunch. In it, Sample wrote that “Fundid may have failed as a company, but more than that, we acknowledge that we failed the small businesses that need innovation in capital markets.” In it she wrote, “Would I do it again? Honestly, no.”

In hindsight, she said she would definitely build the next company with a technical co-founder, not take money from friends and family and should have “stuck to her guns” when it came to not launching a credit card. “As the founder/CEO, I’m the decision maker; this is my fault,” Sample wrote.

Fundid’s official close date was April 1. After taking some time off — and learning how to play ukulele — Sample said the Fundid experience has, however, made her eager to go back to what she affectionately calls “real businesses.”

She’s now launched a new investment company called Pailor Capital that stems from her work helping women finance their own businesses. A better way to do that is to buy existing profitable companies, she feels. She’s also purchasing an existing business.

“My existing investors are fantastic, this is a reflection of seeking new investment in a market that decided fintech, lending and cards were no longer desirable,” she wrote in her postmortem.

Pailor Capital has made seven investments so far this year, all for women to find, buy and grow existing businesses.

“If we really want to make a dent on gender equality and business we’re better off encouraging women to go out and buy existing profitable businesses,” Sample said. “Then their impact as CEO essentially skips the ladder.”

Countdown Capital winding down is not a bad omen for micro funds

More TechCrunch

Zen Educate, an online marketplace that connects schools with teachers, has raised $37 million in a Series B round of funding. The raise comes amid a growing teacher shortage crisis…

Zen Educate raises $37M and acquires Aquinas Education as it tries to address the teacher shortage

“When I heard the released demo, I was shocked, angered and in disbelief that Mr. Altman would pursue a voice that sounded so eerily similar to mine.”

Scarlett Johansson says that OpenAI approached her to use her voice

A new self-driving truck — manufactured by Volvo and loaded with autonomous vehicle tech developed by Aurora Innovation — could be on public highways as early as this summer.  The…

Aurora and Volvo unveil self-driving truck designed for a driverless future

The European venture capital firm raised its fourth fund as fund as climate tech “comes of age.”

ETF Partners raises €284M for climate startups that will be effective quickly — not 20 years down the road

Copilot, Microsoft’s brand of generative AI, will soon be far more deeply integrated into the Windows 11 experience.

Microsoft wants to make Windows an AI operating system, launches Copilot+ PCs

Hello and welcome back to TechCrunch Space. For those who haven’t heard, the first crewed launch of Boeing’s Starliner capsule has been pushed back yet again to no earlier than…

TechCrunch Space: Star(side)liner

When I attended Automate in Chicago a few weeks back, multiple people thanked me for TechCrunch’s semi-regular robotics job report. It’s always edifying to get that feedback in person. While…

These 81 robotics companies are hiring

The top vehicle safety regulator in the U.S. has launched a formal probe into an April crash involving the all-electric VinFast VF8 SUV that claimed the lives of a family…

VinFast crash that killed family of four now under federal investigation

When putting a video portal in a public park in the middle of New York City, some inappropriate behavior will likely occur. The Portal, the vision of Lithuanian artist and…

NYC-Dublin real-time video portal reopens with some fixes to prevent inappropriate behavior

Longtime New York-based seed investor, Contour Venture Partners, is making progress on its latest flagship fund after lowering its target. The firm closed on $42 million, raised from 64 backers,…

Contour Venture Partners, an early investor in Datadog and Movable Ink, lowers the target for its fifth fund

Meta’s Oversight Board has now extended its scope to include the company’s newest platform, Instagram Threads, and has begun hearing cases from Threads.

Meta’s Oversight Board takes its first Threads case

The company says it’s refocusing and prioritizing fewer initiatives that will have the biggest impact on customers and add value to the business.

SeekOut, a recruiting startup last valued at $1.2 billion, lays off 30% of its workforce

The U.K.’s self-proclaimed “world-leading” regulations for self-driving cars are now official, after the Automated Vehicles (AV) Act received royal assent — the final rubber stamp any legislation must go through…

UK’s autonomous vehicle legislation becomes law, paving the way for first driverless cars by 2026

ChatGPT, OpenAI’s text-generating AI chatbot, has taken the world by storm. What started as a tool to hyper-charge productivity through writing essays and code with short text prompts has evolved…

ChatGPT: Everything you need to know about the AI-powered chatbot

SoLo Funds CEO Travis Holoway: “Regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”

Fintech lender SoLo Funds is being sued again by the government over its lending practices

Hard tech startups generate a lot of buzz, but there’s a growing cohort of companies building digital tools squarely focused on making hard tech development faster, more efficient and —…

Rollup wants to be the hardware engineer’s workhorse

TechCrunch Disrupt 2024 is not just about groundbreaking innovations, insightful panels, and visionary speakers — it’s also about listening to YOU, the audience, and what you feel is top of…

Disrupt Audience Choice vote closes Friday

Google says the new SDK would help Google expand on its core mission of connecting the right audience to the right content at the right time.

Google is launching a new Android feature to drive users back into their installed apps

Jolla has taken the official wraps off the first version of its personal server-based AI assistant in the making. The reborn startup is building a privacy-focused AI device — aka…

Jolla debuts privacy-focused AI hardware

The ChatGPT mobile app’s net revenue first jumped 22% on the day of the GPT-4o launch and continued to grow in the following days.

ChatGPT’s mobile app revenue saw its biggest spike yet following GPT-4o launch

Dating app maker Bumble has acquired Geneva, an online platform built around forming real-world groups and clubs. The company said that the deal is designed to help it expand its…

Bumble buys community building app Geneva to expand further into friendships

CyberArk — one of the army of larger security companies founded out of Israel — is acquiring Venafi, a specialist in machine identity, for $1.54 billion. 

CyberArk snaps up Venafi for $1.54B to ramp up in machine-to-machine security

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

2 days ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’