Fintech Fundid was closed due to interest rates and a stretched cap table

Winding down a startup can be bittersweet for founders. In Fundid’s case, rising interest rates killed the corporate finance startup. But venture capital funds and partners are also affected, says founder Stefanie Sample.

JS 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 owned over a dozen profitable franchise businesses in Montana for over a decade. She owns twelve Taco Bell locations and was the previous owner of two Massage Envy franchises, as well as three other businesses, all of which are profitable. Through that experience, she saw firsthand how difficult it was for companies like hers to access capital.

She started Fundid to offer credit card loans for business building, as well as financing tools such as a grant matching tool, marketed primarily to women entrepreneurs.

Because Fundid was a fintech company and not a bank, it decided to have a debt facility partner to underwrite its operations, Sample explains. She found a partner and pre-negotiated guaranteed overnight financing rates (SOFR). This is an interest rate that banks use to determine the prices of derivatives and loans denominated in US dollars.

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

“The numbers originally worked because the interest rate was nothing,” Sample told JS. “When rates went up, that really let us down because the debt 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 get out of hand,” Sample said .

Difficult decisions

To continue, Fundid had to provide “a lot more collateral because of the changing environment,” Sample said.

An investor would help with this, but that would mean giving up more shares in the company, Sample said. She remembers 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 over our entire company – just to survive,” she added. “The interest rate market became an opportunity for everyone around us to take over our company, and then the business model didn’t work in our case. It was like, ‘Well, what are we doing?’

That is why Sample decided to phase out Fundid in the summer of 2023. The decision was made more difficult when Fundid was able to raise $2 million in the summer of 2023, just as it was taking the credit card off the market.

Raising capital while thinking about going dark is something Sample says isn’t talked about enough. Despite her thoughts, Fundid’s board still encouraged her to go ahead and withdraw the additional capital. Investors told her they believed in Sample and her ability to figure out whether to build a new product or build a brand new company.

They wanted her to turn. However, all the money was invested in building the credit card that Fundid could not maintain in the current market. Additionally, the cap table would have been “too cluttered to try anything new,” Sample said.

Sample, however, had other ideas.

“I was so burned out at that point that I started 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 go into business.’ They’ve already taken more of my vanity and now they want me to build a brand new business on the existing vanity. And they talk to me like I’m an idiot.”

So Sample withdrew the raise and returned the money. That was in August 2023. Then came the part she was dreading: she had to fire her team of five, which she did in November.

This was the first time she fired employees, and Sample remembers sitting on a coffee show and crying with them. Not because Fundid was dead, but because they “all enjoyed working together so much. It was a heartbreaking day,” said Sample.

A fork in the business road

She also said that during this time she had lost confidence in the entrepreneurial path. In 2023, the company met all its metrics on time. However, as the financial market changed, investors actively worked with Sample to find a path forward. She described it as if she had “whiplash all the time.”

She also became dissatisfied with how much of Fundid’s ownership she had lost, and could continue to lose if she stayed on the fundraising path. Sample spoke with other friends of the founders who were in the start-up phase and had already given up 30% of their company – just like her.

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

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

Far fewer female-founded companies are backed annually (fewer than 1,000 by 2023, compared to tens of thousands for men) and deal sizes and valuations are also lower, Pitchbook’s research shows.

“In the corporate landscape, the goalposts are always moving or the rug is being pulled out from under you,” Sample said. “As a female founder you have to sacrifice a lot to belong to that 2%. We end up paying ourselves less and accepting worse term sheets. The other part is that it’s so hard to get capital, yet the world tells you to be grateful. I just wanted to build a real business, and I became dissatisfied with how it all worked.”

A fresh start

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

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

Fundid’s official closing date was April 1. However, after taking some time off — and learning to play the ukulele — Sample said the Fundid experience has pushed her to return to what she affectionately calls “real businesses.”

She has now launched a new investment company called Pailor Capital, which stems from her work helping women finance their own businesses. She believes a better way to do that is to buy existing profitable companies. She also buys an existing company.

“My existing investors are fantastic, this is a reflection of seeking new investment in a market that decided fintech, loans 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 in gender equality and business, we better encourage women to take over existing profitable companies,” Sample said. “Then their impact as CEO actually skips the ladder.”