Finishing boot it can be bittersweet for the founders. In Fundid’s case, rising interest rates killed the startup funding business. But VCs and partners are hurting it, too, 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.
Prior to Fundid, Sample spent over 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. Through this experience she saw firsthand how difficult it was for companies like hers to access capital.
She launched Fundid to offer credit card lending for business development, as well as financial resources such as a grant matching tool, available primarily to female business owners.
Because Fundid was a financial technology company and not a bank, it decided to have a debt facility partner to take over its operations, Sample explained. He found a partner and pre-negotiated secured overnight funding rates, or SOFRs. This is an interest rate that banks use to price derivatives and loans in US dollars.
However, between the spring of 2022 and the end of 2023, the The Federal Reserve has raised interest rates 11 times. Shortly before Fundid launched its first card product, the debt facility partner went to Sample with some bad news.
“The numbers worked initially because the interest rate was nothing,” Sample told TechCrunch. “When interest rates went up, that really screwed us over 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 shake out,” he said Sample.
Difficult decisions
To continue, Fundid “needed to provide a lot more collateral because of the changing environment,” Sample said.
An investor was going to help with that, but that would mean giving up more equity in the company, Sample said. He remembers even telling the investor it would be a bad investment.
“The cost of capital and warrants would have taken our entire company – just for us to exist,” he added. “The rate market became this opportunity for everyone around us to take our company and then the business model just didn’t work for us anyway. It was like, ‘So what do we do?'”
So, in the summer of 2023, Sample decided to close Fundid. The decision was made more difficult when Fundid was able to raise $2 million in the summer of 2023 just as it was pulling the credit card off the market.
Raising capital while thinking about going dark is something Sample said doesn’t get talked about enough. Despite her thoughts, Fundid’s board encouraged her to go ahead and take the additional capital. The investors told her they believed in Sample and her ability to figure it out or create a new product or start a brand new company.
They wanted it to spin. However, all the money was invested in creating the credit card which Fundid could not afford to keep in the current market. Plus, the capital board would be “too messed up to try anything new,” Sample said.
However, Sample had other ideas.
“I was so burnt out at the time I had panic attacks,” she said. “I took a step back. There was a moment when I said to myself, “this is what happens to women in business.” They already took more than my cap and now they want me to create a brand new company on the existing cap table. And they talk to me like I’m an idiot.”
So Sample canceled the increase and gave the money back. That was in August 2023. Then came the part he dreaded: He had to fire the five-person team, doing so in November.
This was the first time she had fired employees, and Semple remembers sitting in a cafeteria and crying with them. Not because Fundid was dead, but because “everyone loved working together so much. It was a heartbreaking day,” Sample said.
A fork in the road of the venture
She also said that during this time she lost faith in the path of the venture. In 2023, the company was hitting all of its metrics on time. However, as the financial market changed, investors were actively working with Sample to find a way forward. He described it as “whipping all the time.”
She also became unhappy about how much of Fundid’s ownership she had lost and could continue to lose if she stayed on the venture capital path. Sample spoke to other seed-stage female founder friends who had already given up 30% of their companies — similar to her.
As a general rule, seed investors usually want 10%-20%. While 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 find competitive term sheets. The data supports her notion. In 2022, female founders earned less than 19% of all venture capital dollars that year, Found PitchBook. In 2023 it was 23%.
Far fewer companies founded by women are backed annually (fewer than 1,000 in 2023, compared to tens of thousands for men), and deal amounts and valuations are also lower, PitchBook research shows.
“With the venture landscape, the goalposts are always moving or the rug is being pulled out from under you,” Sample said. “When you’re a female founder, you have to sacrifice a lot to be among the 2%. We end up paying less and accepting worse term sheets. The other part is that it’s already so hard to get capital, yet people tell you to be grateful. I just wanted to build a real company and I was disappointed by how it all worked out.”
A new beginning
The whole experience inspired Sample to write a posthumous post about Fundid’s journey, which he shared with TechCrunch. In it, Sample wrote that “Fundid may have failed as a company, but more than that, we recognize that we failed the small businesses that need capital markets innovation.” In it she wrote: “Would I do it again? Honestly, no.”
In retrospect, she said she would definitely build the next company with a technical co-founder, wouldn’t take money from friends and family, and should have “stuck to her guns” when it came to not releasing a credit card. “As the founder/CEO, I am the decision maker. this is my fault,” Sample wrote.
Fundid’s official closing date was April 1st. After taking some time off — and learning how to play the ukulele — Sample said the Fundid experience, however, made her want to get back to what she fondly calls “real business.”
Now he started a new investment company called Pailor Capital This comes from her work helping women fund their own businesses. A better way to do this is to buy existing profitable companies, he believes. It also buys an existing business.
“My existing investors are fantastic, this is a reflection of looking for new investment in a market that decided fintech, lending and cards were no longer desirable,” she wrote in her obituary.
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 go out and buy existing profitable businesses,” Sample said. “Then their impact as CEO essentially skips the ladder.”
