If it is a trend, it will pass. If it is profitable, it will thrive. I know many thriving Fintech firms in Nigeria did not raise funds as start-ups. Why those who raised funds did not last? The interest rates have gone up. Venture capitalists’ interest has gone down. They are not doling out cash anymore. They are not ready for cash bonfires. Fintech House of Cards is collapsing.
On The One Hand
I have written about some bootstrapped Fintech firms. These firms have survived. They are thriving. They have become thrivers. They are climbing. They are on the ascendancy. PFS did not raise any funds. It is the leader of its genre. SystemSpecs did not raise funds. It is the leader of the specs. Parkway did not raise funds. It is the leader of the park. SecureID did not raise funds. It is the leader of its space.
Chams did not raise funds. It is the leader of the pack. Signal Alliance did not raise funds. It is the leader of the alliance. Computer Warehouse did not raise funds. It is listed on the exchange. Do not say these legacy tech firms came when fundraising was not a trend! What was the trend then? Hard work? Talent? Serendipity?
What is trending now? Good money chasing a bad business? Are crooked people getting funds? “As an industry, we should all be braced to hear about many more failures.” That is Jenny Lefcourt, an investor at Freestyle Capital. “The more money people got before the party ended, the longer the hangover,” Jenny told NYT, which chronicles the rise and fall of several once high-flying companies.
WeWork. Convoy. Olive AI. These tech firms have filed for bankruptcy. Or closed shops in recent weeks. It is part of a broader trend. Tech companies are running out of time, out of funds, and out of sight! And venture capital firms are cutting their losses.
The situation has led to what the NYT dubs a “cash bonfire,” using the example of virtual events provider Hopin; once valued at $7.6 billion, which sold its main business for $15 million.
On The Other Hand
Data from PitchBook shows approximately 3,200 venture-backed firms in the U.S. have gone out of business. Those start-ups had raised $27.2 billion. The report notes that the 3,200 figure was probably on the low side, as many businesses shut their doors quietly. Quietly.
Carta – this company provides financial services for Silicon Valley start-ups – said 87 of the firms on its platform that raised at least $10 million had shut down this year. This has been “the most difficult year for start-ups in at least a decade,” Peter Walker, Carta’s head of insights, wrote on LinkedIn.
In The Long Term
PYMNTS examined this trend this year in the monthly “Pivot to Profitability” series, a collaboration with Sezzle. “We had such a hot market for so long. It is money-chasing money. Reason had left the building,” Sezzle CEO, Charlie Youakim told PYMNTS’ Karen Webster in February. He said companies that raised $300 million to $400 million had just $20 million in revenue when the hammer came down. “It’s absurd,” he said. That is a $380 million Fintech House of Cards!
Youakim and Peter Beckman, CEO and co-founder of Treyd, spoke of the urgency among start-ups to rein in costs amid an uncertain environment.
In The Short Term
Revenue is irrelevant. Unless it is a profitable revenue. The failure expectation is part of the investment. It is a trend.
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