Introduction:
In 2022, Fundid, a business finance startup, raised $3.25 million in seed funding from notable investors. However, the company faced significant challenges that ultimately led to its closure. Founder Stefanie Sample cited rising interest rates and the actions of VCs and partners as the primary reasons for Fundid’s demise. This article explores the journey of Fundid, delving into the factors that contributed to its downfall and the personal experiences of Sample.
The Genesis of Fundid:
Before starting Fundid, Sample had extensive experience as a franchise business owner. Owning multiple profitable businesses, she witnessed the difficulties faced by companies like hers in accessing capital. Motivated by this firsthand experience, Sample launched Fundid to provide lending solutions and finance resources, primarily targeted towards women business owners. Rather than being a traditional bank, Fundid opted for a debt facility partner to underwrite its operations, pre-negotiating secured overnight financing rates (SOFR).
The Impact of Rising Interest Rates:
Fundid’s troubles began when the Federal Reserve increased interest rates 11 times between spring 2022 and the end of 2023. As a result, the debt facility partner informed Sample that the numbers no longer worked due to the changing interest rate environment. The cost of capital would outweigh the fees Fundid could charge, rendering the business model unsustainable.
Tough Decisions and Winding Down:
To keep Fundid afloat, Sample realized they needed to put up more collateral due to the shifting landscape. An investor offered assistance but at the cost of significant equity in the company. Sample recognized that this investment would ultimately result in losing control of Fundid and decided against it. Over the summer of 2023, she made the difficult decision to wind down the company. Despite raising $2 million during this time, Sample chose to return the money as the existing business model was no longer viable.
Losing Faith in Venture Funding:
Sample’s experience with Fundid led her to lose faith in the traditional venture funding path. She felt disgruntled by how much ownership she had already lost and how much more she could potentially lose if she continued down this route. Conversations with other female founders revealed similar concerns, with many having given up a significant portion of their companies during the seed stage. The data supported these observations, showing that female founders received a smaller share of venture fund dollars compared to their male counterparts.
The Emotional Toll and Fresh Start:
The closure of Fundid took an emotional toll on Sample. She experienced burnout and panic attacks, realizing that the venture landscape was not conducive to her goals as a female founder. Sample decided to write a postmortem post about Fundid’s journey, acknowledging both the company’s failure and the disappointment it brought to small businesses in need of capital innovation. Despite the setbacks, this experience motivated Sample to launch a new investment company called Pailor Capital. She believes that buying existing profitable businesses is a better way to support women in finance and make a significant impact on gender equality.
Conclusion:
Fundid’s story serves as a cautionary tale for startup founders, highlighting the challenges they may face in a rapidly changing financial landscape. Rising interest rates, coupled with the complexities of venture funding for female founders, ultimately led to the winding down of Fundid. However, Sample’s resilience and determination have sparked a new endeavor focused on empowering women in business through Pailor Capital. This fresh start represents a shift towards a more sustainable and impactful approach to supporting women entrepreneurs.