Liquidation of a startup can be bittersweet for founders. In Fundid’s case, rising interest rates killed the corporate finance startup. But venture capital firms and partners have also done it poorly, says founder Stefanie Sample.
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.
Before joining 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 former owner of two Massage Envy franchises, as well as three other companies, all of which were profitable. It was through this experience that she saw how difficult it was for businesses like hers to gain access to capital.
She launched Fundid to offer loans through a business start-up credit card as well as financial resources such as a grant matching tool, marketed primarily to women business owners.
Because Fundid was a fintech company and not a bank, it decided to have a lending partner to guarantee its operations, Sample said. She found a partner and pre-negotiated guaranteed overnight financing rates, or SOFR. This is an interest rate that banks use to price derivatives and loans denominated in U.S. dollars.
However, between spring 2022 and the end of 2023, the Federal Reserve raised interest rates 11 times. Just before Fundid launched its first card product, the credit partner came to Sample with some bad news.
“The numbers originally worked because the interest rate was nothing,” Sample told TechCrunch. “When rates went up, that really put us in trouble because the credit facility was based on SOFR plus, so the numbers didn’t work.”
The cost of capital would cost Fundid so much compared to the fees Fundid could charge, that Fundid would essentially pay its customers to use its product, and “then the numbers would never move,” Sample said.
Difficult decisions
To continue, Fundid “had to provide a lot more collateral because of the changing environment,” Sample said.
An investor was going to help, but that would mean giving up more equity in the company, Sample said. She even remembers telling the investor that it would have been a bad investment.
“The cost of capital and warrants would have caused him to take our entire business – just for us to exist,” she added. “The interest rate market became an opportunity for everyone around us to take over our business, and the business model didn’t work in our case anyway. It was like, “Well, what do we do? »
So, in the summer of 2023, Sample decided to terminate Fundid. The decision was made more difficult when Fundid managed to raise $2 million in the summer of 2023, just as it was removing the credit card from the market.
According to Sample, there isn’t enough talk about raising capital while thinking about going bankrupt. Despite her thoughts, Fundid’s board still encouraged her to continue and take the additional capital. Investors told him they believed in Sample and his ability to figure it out, create a new product, or create an entirely new company.
They wanted her to pivot. However, all the money was invested in creating a credit card that Fundid could not afford to maintain in today’s market. Plus, the cap chart would have been “too messed up to try something new,” Sample said.
However, Sample had other ideas.
“At that point, I was so exhausted I was having panic attacks,” she said. “I took a step back. It was a moment where I said to myself, “This is what happens to women who venture out.” They’ve already taken more of my cap table and now they want me to build a whole new company on top of the existing cap table. And they kind of talk to me like I’m an idiot.
So Sample canceled the increase and returned the money. It was August 2023. Then came the period she dreaded: she had to lay off her team of five people, in November.
It was the first time she had laid off employees, and Sample remembers 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.
A fork in the road to adventure
She also said that during this time she lost confidence in the path of adventure. In 2023, the company achieved all its indicators on time. However, as the financial market evolved, investors actively worked with Sample to find a path forward. She described it as having “whiplash all the time.”
She also became unhappy with the share of ownership of Fundid she had lost and could continue to lose if she remained on the path of venture fundraising. Sample spoke to other founder friends who were at the seed stage and had already given up 30% of their companies – like her.
As a rule of thumb, seed investors usually want 10-20%. Although 25%, even 30% is not uncommon, it is considered high for these early rounds.
But she felt that as a founder, the odds were against her and she struggled to obtain competitive term sheets. The data confirms his perception. In 2022, female founders received less than 19% of all venture capital funding dollars that year, Pitchbook found. In 2023, it was 23%.
Far fewer women-founded companies are backed each year (fewer than 1,000 in 2023, compared to tens of thousands for men) and deal sizes and valuations are also lower, according to the Pitchbook study.
“In the venture capital landscape, the goalposts are always moving or the grass is pulled out from under you,” Sample said. “When you are a female founder, you have to make a lot of sacrifices to be part of the 2%. We end up paying ourselves less and accepting worse terms. The other part is that it’s already very difficult to get capital, and yet the world is telling you to be grateful. I just wanted to start a real business, and that made me unhappy with how it all worked.
A new start
The whole experience inspired Sample to write a postmortem article 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 recognize that we have failed small businesses that need innovation in the capital markets.” She wrote: “Would I do it again? Honestly no.”
Looking back, she said she would definitely start the next company with a technical co-founder, wouldn’t take money from friends and family, and should have “sticked to her guns » when it came to not running a credit card. “As the founder/CEO, I am the decision maker; It’s my fault,” Sample wrote.
Fundid’s official closing date was April 1. After taking some time off — and learning to play the ukulele — Sample said the Fundid experience, however, made her want to return to what she affectionately calls “real business.”
She has now launched a new investment company called Pailor Capital, which stems from her work helping women finance their own businesses. A better way to do this is to buy existing profitable businesses, she believes. It also buys an existing business.
“My existing investors are fantastic, this reflects my search for new investments in a market that has decided that fintech, loans and cards are no longer desirable,” she wrote in her post-mortem.
Pailor Capital has made seven investments so far this year, all aimed at women to find, buy and grow existing businesses.
“If we really want to make a dent in gender equality and in business, we better encourage women to buy into existing profitable businesses,” Sample said. “Then their impact as CEO jumps up the ladder.”
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