Fast, a US-based fintech providing one-click checkout services, announced last week that it is shutting operations. Fast launched in 2019, had raised US$125mn overall and was last valued at US$580mn. It was backed by payments giant Stripe and various other leading VCs. Despite operating in the promising payments infrastructure sector and having the support of high-profile investors, the company had to shut down as it ran out of funds. In this note, we highlight four takeaways for fintechs and investors from Fast’s collapse.
1. Cash burn should be measured and targeted. Fast had raised cUS$125mn since its inception in 2019. According to news reports, its monthly cash burn was around US$10mn recently, while annual revenue was only US$600k. In addition, another news report suggests that the company was burning cash in marketing activities which had little benefit for the company. Fintechs in various geographies and sectors are investing heavily in marketing activities and hoping VCs continuously fund their high cash burn, but this may not always be the case.
2. Ability to generate revenues is an important business model validator, but fintechs do not give enough importance to this. Despite growing popularity and transaction volume, Fast earned only US$600k in revenues in 2021. Our survey indicates that fintechs are generally focused on expanding their customer base and transaction value, while revenue and profit growth rank at the bottom of the targeted KPIs list. We think fintech investors are increasingly giving more importance to the financial metrics including revenue generation ability and path to profitability.
3. High-profile investors may not necessarily be a strong validation of the business model. Fast was backed by payments giant Stripe and had raised US$125mn since its inception. Despite this, the company failed just a few years after starting. This, in our view, highlights that these big-ticket funding rounds and high-profile investors alone do not necessarily indicate a robust and sustainable business model.
4. The startup funding scene is changing in the wake of rising global macroeconomic challenges, making it hard for cash-burning startups to sail through. As per CB Insights, global VC funding in Q1 2022 was down 19% compared to Q4 2021. Fast was in talks to raise funds since last year and indicated a target valuation of over US$1bn, but it waited too long. Investors’ risk appetite has changed this year due to rising rates and squeezed liquidity, making it more difficult for high cash-burning companies such as Fast to convince investors of the merits of pouring in more money. In addition, fintechs may also need to reset their valuation expectations due to rising interest rates and the tech sell-off in public markets since the start of this year.
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