5/26/23, 5:00 pm: The fourth paragraph of this story has been updated with new information obtained after publication.
As the venture capital funding market remains depressed and interest rates hover at 15-year highs, more fintech startups are going through dramatic upheavals. This month alone, two venture-backed fintech startups have announced new owners and one has shut down completely. On Wednesday, a fourth struggling fintech, Plastiq, filed for bankruptcy protection, and a bargain-price acquisition is in the works. Three of those four–Plastiq and recently sold Rize and Ribbon–appeared on Forbes‘ February 2023 list of 25 struggling fintechs that were likely to be acquired or shut down.
Plastiq is a San Francisco-based lending and payments startup that allows small businesses to pay their bills with a credit card. It filed in Delaware to continue operating under Chapter 11 of the federal bankruptcy code. According to its court filings, it has missed $2 million in interest payments on a $43 million loan, despite receiving multiple due date extensions. It also owes substantial amounts to other companies–$3.3 million to credit card company Brex, $2 million to Deloitte and $157,000 to Brex competitor Ramp, among other unpaid bills.
Initially, the pandemic was a boon for many fintechs, since the spike in online transactions boosted revenue for the startups facilitating those payments, including Plastiq. It hoped to go public through a special purpose acquisition company (SPAC) in early 2021, but the SPAC backers reneged. A few months later, it hired investment bank Qatalyst Partners and received an indication of interest from an acquirer at a $550 million valuation. That deal never happened.
Updated: Plastiq hit a valuation of $940 million in a January 2022 fundraise, according to PitchBook. Then in a surprising move in September 2022, Plastiq acquired Nearside, a digital bank for small businesses, for an announced price of $130 million (the bankruptcy filing says it was bought for about $60 million, almost entirely in stock, and the reason for the discrepancy is unclear). Plastiq received the tens of millions in cash that Nearside had on its balance sheet from the deal. That was a decent get in a tough funding environment and since, as of June 30, 2022, Plastiq had no cash on its balance sheet, aside from $8.7 million in “restricted cash”). Then just two months later, Plastiq shut Nearside down. The bankruptcy filing says Plastiq made the decision because Nearside “lacked the technology, security and controls” to sell to Plastiq’s customers, though a former Nearside executive disputes this fact and believes that Plastiq was probably only interested in Nearside for its cash from the outset.
Plastiq hit a valuation of $940 million in a January 2022 fundraise, according to PitchBook. Then in a surprising move in September 2022, Plastiq acquired Nearside, a digital bank for small businesses, for about $60 million, which Plastiq funded with $57 million in its own stock. Plastiq received the $22 million in cash that Nearside had on its balance sheet from the deal, a decent get in an increasingly difficult funding environment. But it quickly realized that Nearside “lacked the technology, security and controls” to sell to Plastiq’s customers, according to the bankruptcy filing. Plastiq shut Nearside down just two months later.
Plastiq laid off 85 employees and contractors in February 2023, and it had to pause its payment services briefly in March when Silicon Valley Bank collapsed, since it had accounts there and was relying on SVB’s
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Beyond Plastiq, some other fintechs that provide banking-as-a-service technology, or software that aims to make banking operations faster and cheaper for other companies, have been struggling. The once-hot category attracted too many startups–it became overcrowded, and demand wasn’t big enough to support all of them. Earlier this week, nine-year-old New York company Rize, which also appeared on Forbes’ list of struggling fintechs, was acquired by regional bank Fifth Third. Rize’s tech helps other companies–especially other fintechs–offer checking and savings accounts, brokerage accounts and money transfers to their customers. Fifth Third declined to disclose the price, but given that Rize had only around 20 employees remaining (a fraction of those it previously employed), the purchase price was likely below its last fundraising valuation, which was $38 million in September 2021, according to PitchBook.
Tom Bianco, general manager of embedded payments at Fifth Third, says he was particularly excited by Rize’s talent and the “synthetic ledger” technology it had built, which helps other companies offer payment services and deposit accounts to their customers. He says Rize’s entire team of 20 will join Fifth Third, and no layoffs of Rize’s remaining employees are planned. But when asked about whether Rize will be able to continue to serve its current clients, he declined to comment.
Real estate fintechs have also been hard hit. Ribbon offered homebuyers the ability to make all-cash offers, an in-demand service when the real estate market was booming and individual homebuyers were competing with investors. But as interest rates rose, Ribbon’s lenders pulled back funding, ultimately causing Ribbon to pause all new business. Last fall, it laid off 85% of its staff. On May 8, 2023, EasyKnock, a startup that buys homes and rents them back to consumers who need cash, announced that it acquired Ribbon. An EasyKnock spokesperson declined to comment on the acquisition price, saying only that it was a combination of cash and equity, but it was likely very low.
EasyKnock says it plans to “relaunch” Ribbon’s products in the third quarter of this year. The spokesperson added, “All existing Ribbon team members are providing services to EasyKnock during an interim period as we work to integrate the businesses, after which many may be offered full time positions at EasyKnock.”
Daylight, a digital bank aiming to serve LGBTQ consumers, also announced it was shutting down on Tuesday. The startup’s challenges were recently recounted in a New York Magazine article, which detailed an employee-led lawsuit against the company.
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