Welcome back to The Interchange, the weekly TC series that looks at the latest — and what’s ahead — in the global fintech industry. It’s an incredible time to be a financial technology journalist. Besides the fact that over 20% of all venture dollars last year went into fintech startups, I am particularly excited about the myriad ways that this technology is helping boost inclusion all over the world. While the pandemic sucked on 1,000 different levels, one silver lining is that consumers and businesses have forced more fintech to exist, and that’s a good thing.
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Top Story
The Better.com saga continues
This week started with the discovery of an S-4 filed by Aurora Acquisition Corp., the company that planned to merge with Better.com via a SPAC (special purpose acquisition vehicle). The filing revealed that Better.com swung to a loss of more than $300 million last year, a sharp turnaround from its profitable 2020.
Aurora’s filing says that Better’s financial performance “deteriorated” as a result of numerous factors, including fluctuating and increasing interest rates, the continued impact of the reorganization of its sales and operations teams in the third quarter of 2021, continued investments in its business (including investments to expand its product offerings) and the effects of “negative media coverage” following, and severance costs associated with, a series of mass layoffs that began on December 1, 2021.
Well before Better.com garnered negative media coverage due to the manner in which CEO and co-founder Vishal Garg callously laid off 900 employees, the controversial executive made headlines for being the target of multiple lawsuits by PIMCO, Goldman Sachs and other investors involving entities he controlled. In fact, the ongoing litigation is considered to be a risk factor for the company, according to the filing, in that it could divert Garg’s attention from its business “regardless of the outcome,” as well as inflict damage to, “or negatively affect,” its reputation. (Shocker!) For example, Garg is involved in ongoing litigation that involves accusations that he “breached his fiduciary duties to another company he co-founded, misappropriated intellectual property and trade secrets, converted corporate funds and failed to file corporate tax returns.”
In another action the filing goes on to detail, plaintiff investors in a prior business venture claim they did not receive required accounting documentation and that Garg misappropriated funds that should have been distributed to them.
Indeed, these lawsuits carry even more weight, in that Garg’s control of Better.com if it ever goes public will depend on their outcome. Earlier this year, Axios’ Dan Primack wrote: “SoftBank, in its apparent zeal to invest, promised to give Garg the 1.9% voting rights tied to its original investment, ‘contingent on the final settlement of certain legal proceedings (which has not yet occurred).’ ” In other words, if Garg is able to make the lawsuits “go away,” he will gain more power. Or as Dan writes, “This deal is set to create a public company CEO who could be rewarded for settling acrimonious litigation,” despite having been sidelined for other bad behavior.
But one important detail was left out, as Fortune reported last week. When SoftBank ponied up $750 million in November, it was Garg — not the company as a whole — who assumed responsibility for compensating the Japanese investment conglomerate for any losses. Specifically, the S-4 states: “The Better Founder and CEO, in his personal capacity, has agreed to enter into a side letter with SoftBank, pursuant to which he may be liable for realized losses or receive payments in certain circumstances from SoftBank in connection with the Post-Closing Convertible Notes, which could divert the resources and attention of the Better Founder and CEO from our business and have a negative impact on his personal financial situation.”
Notably, the amount of losses covered by the side letter is uncapped, and Garg alone “remains responsible for all such losses, which could require him to, among other things, sell a significant portion of his holdings in Better Home & Finance common stock, which could negatively impact the trading price of Better Home & Finance common stock.”
Whoa. That’s an enormous amount of responsibility for one person to take on, and indicates a certain level of arrogance, er, confidence on the part of Garg.
In response to details of the arrangement being made public, Garg apparently sent an email this past week to all current Better employees, acknowledging personal responsibility for the $750 million cash infusion provided by SoftBank last November. In the email, he admitted that he “personally guaranteed” SoftBank $750 million of the $1.5 billion that SoftBank had agreed to invest back in November of last year because he “wanted the capital to build our dream,” knowing “the world was about to get ugly.”
“I might be foolish,” he wrote, “but I believe in us. I believe in you.”
Meanwhile, numerous employees who work outside of the company’s New York headquarters have shared with TC that they are having trouble collecting unemployment benefits because the online mortgage lender failed to pay the appropriate taxes. So, in other words, Better.com continues to screw over its employees even after laying them off.
Last but not least, multiple sources also have shared that Better.com over the past week or so offered its workers in India the option to leave under a voluntary separation agreement. Apparently, more workers put their hands up — a reported 90% of 2,100 — than the company expected and it had to put a cap on how many workers could leave. From what I hear, it was mostly “closers and analysts” who were allowed to leave and about 920 workers total had their resignations accepted. One individual shared an email from HR India turning down their request saying that the worker was “part of a mission-critical team” at Better.com. A separate email from a “Joel” that went to the company’s operations team outlining a structural reorganization said the need to offer voluntary separation to the company’s India employees was due to recognition that “there are declines ahead and responding to these to ensure Better is positioned for profitability remains essential.”
I’ve also had multiple sources tell me that the company let go of a number of midlevel managers in the U.S. — many believed to be underwriting managers.
The saga continues.
I reached out to Better.com for comment but had not heard back at the time of writing.
Weekly News
Terry Angelos has left his role as senior vice president and global head of fintech at Visa after seven years to become CEO of fractional investment trading startup DriveWealth. I caught up with Terry about the move and he told me this is not his first time running a startup. He initially ended up at Visa through the acquisition of a company he co-founded called TrialPay.
Via email, he told me: “Over the last 7 years running Fintech, Crypto and Loyalty at Visa, we have been focused on how Fintech companies innovate on Visa’s global payment rails. At DriveWealth, we will focus on becoming the default investment rail. There are over 1B people who now access payments and financial services via digital wallets (like Cash App, Toss, Chipper Cash) and neobanks (like Revolut and GBM in Mexico). Those apps are increasingly adding an ‘investment button’ that enables consumers to purchase US Equities. DriveWealth pioneered fractional investing (eg: I can buy $5 of Apple) and is the leading choice to power these apps.
“DriveWealth’s vision is to enable every person with a phone to be an investor and I’m excited to join the team to bring this mission to life. We have an opportunity to create meaningful change in the financial lives of millions by becoming the investment rail on which wallets and fintechs can innovate. For too long, many people in the U.S. and abroad haven’t had the ability to open a brokerage account due to traditional barriers like whole shares and high minimums, but DriveWealth’s fractional share model and APIs can enable everyone to affordably access these assets.”
At its I/O developer conference, Google last week launched Google Wallet, a new Android and Wear OS app that will allow users to store things like credit cards, loyalty cards, digital IDs, transit passes, concert tickets, vaccination cards and more. Frederic Lardinois gives us all the details here.
Robinhood introduced a “revamped” brokerage cash sweep program that will allow users to earn 1% interest on cash sitting uninvested in their accounts. The news comes just after the company announced that it was introducing a stock lending feature. After a tough quarter that saw Robinhood lay off 9% of its staff and reach all-time lows on its stock price, the company is rolling out new features rapidly as part of a push to diversify its revenue streams and grow its user base. Anita Ramaswamy gives us details on the cash sweep program here.
Spend management decacorn Brex announced this week it would be integrating Deel into its new Brex Empower platform “to support international payroll, benefits, taxes, and compliance.” Deel, known for providing global payroll and compliance, is one of the first customers to use Brex’s global capabilities across 7,500+ customers in 150+ countries. Speaking of Deel, the startup reportedly raised $50 million at a $12 billion valuation. More on that here.
Digital bank Current launched an application programming interface (API), a product that it said will help facilitate seamless integrations and embedded banking experiences for its customers. Plaid is Current’s first partner on the product, which the two companies say will give Current’s customers access to more than 6,000 apps and services powered by the data aggregator’s network.
Ali Heron, Petal CTO
There are myriad startups in the BNPL market, but the public ones have seen a sharp decline in prices in recent months. Alex Wilhelm takes a look at what happened to Affirm’s and Upstart’s stocks and what it means for the sector as a whole.
Payments giant Adyen announced an expansion to its partnership with BNPL giant Afterpay, going from including Afterpay as a payment option for merchants to now processing those payments for Afterpay across several markets including Australia, New Zealand, Canada, Europe, U.S., and the U.K. Adyen said that its global reach and focus on enterprise businesses as an acquirer provides Afterpay “with the capability needed for its fast growing business.”
More on the topic of BNPL — Visa announced a new installments partner program, Visa Ready for BNPL, which the credit card processing giant said will fast-track implementation and scalability of Visa’s BNPL offering by enabling fintechs and select issuers “to easily and quickly” integrate Visa’s solutions. With more than 20 partners already live, Visa says the program enables tech companies that would like to have their own BNPL solution reach Visa’s “vast network” of clients.
In just over three years, one-click checkout startup Bolt has seen its valuation surge to $11 billion from $250 million. The New York Times takes a look at allegations that founder Ryan Breslow may have “stretched the truth” about how well the business was doing.
Brazil-based Nubank, now one of the largest digital banks globally, has entered the cryptocurrency trading market. The company launched in Brazil an exclusive in-app crypto trading experience, offering Bitcoin and Ethereum trading starting at an investment of BRL $ 1.00 (~US $0.20).
Petal, which offers two Visa credit card products aimed at underserved consumers with little to no credit history, has named Ali Heron as its chief technology officer. Heron joined Petal last year as head of engineering and has over two decades of experience in technology and finance, including 10 years at Microsoft serving in engineering and product roles. The move is said to be part of the company’s intent to diversify its team.
Funding and M&A
There’s been talk throughout the venture ecosystem of a funding slowdown, but AI-powered fintech platform Tifin seems to be a clear exception. The startup, based in Boulder, Colorado, aims to match investors with investments in the wealth and asset management industries, raised a $109 million Series D round, less than a year after its Series C last October. The round brings the company’s valuation to $842 million, nearly doubling the $447 million it was valued at after its Series C.
Egyptian fintech Paymob, which enables merchants to accept digital payments online and in-store, raised $50 million in Series B funding. PayPal Ventures, the global corporate venture arm of PayPal, New York–based venture capital Kora Capital, and London-based Clay Point led the round. It marked PayPay Ventures’ first check into a MENA startup, and is also indicative of the exploding fintech scene in the region. One startup founder told me that a lot of it is being driven by government initiatives toward fintech enablement. Incidentally, I had the pleasure of serving on a Fintech Insider podcast with Aya Ibrahim, Paymob’s commercial director, and the delightful Barb Maclean. You’ll be able to tune in to that on May 16.
A few months after raising $1 billion, payments startup Checkout.com announced plans to acquire French startup Ubble, which operates a remote identity verification service. The deal should close later this year and Checkout.com isn’t disclosing the terms of the deal. With this acquisition, Checkout.com is adding a new product to its suite of financial products. For Checkout.com customers, it means they don’t have to outsource digital identity verification to another company.
Michael Broughton was the first in his family to go to college. But he almost didn’t, when he had trouble securing the necessary financing to pay his tuition. The experience stuck with him, and when he met Ayush Jain at the University of Southern California, the pair bonded over their belief that credit access should be free. They came up with the idea of helping people build credit through recurring payment forms such as digital subscriptions to Netflix, Spotify and Hulu. Jay-Z wrote the first check into their startup, Altro, which just raised another $18 million.
Image Credits: Co-founder Michael Broughton / Altro
If there’s one area that has thus far felt insulated from the global venture downturn, it’s infrastructure. Companies that offer banking as a service and help other businesses offer their own financial services and products in particular continue to rake in the dollars. The latest such company in Latin America is São Paulo–based Dock, which operates a full-stack payments and digital banking “platform” across the region, where demand for financial infrastructure that can help boost inclusion is massive. The startup has raised $110 million in a growth funding round led by U.K.-based Lightrock and Silver Lake Waterman, bringing its valuation to over $1.5 billion.
Habi, a Bogota-based proptech, closed on $200 million in a Series C funding round co-led by Homebrew and SoftBank Latin America Fund. The raise follows a year of strong growth, according to the company, which saw its revenue increase by “well over 20x” in 2021. With this latest raise, Habi says it has become the second unicorn in Colombia and the only LatAm unicorn with a female founder and CEO, according to Crunchbase.
Luxus, co-founded by two women with experience in finance and luxury fashion, is hoping to make luxury gems the next hot alternative asset class for retail and institutional investors through Reg A+. The pre-seed company will allow users to buy fractional shares in gemstones and is debuting its first offering later this month, which Anita Ramaswamy covered for TC.
Meld is hoping to solve fintech’s fragmentation problem. The startup provides a “Fintech Stack as a Service” for developers to manage the chaos of integrating with various service providers. It just came out of stealth with $8 million in seed money from Coatue — you can read more about it in Anita Ramaswamy’s article here.
The rise of digital payments has changed the nature of how people do business with each other; and open banking — a movement in banking where incumbents are finally adopting newer technology such as APIs to open their systems to modern integrations — is leading to a wave of new payment methods, all of which are hoping to become as standard as cash or paying with cards. In the latest development on this theme, a U.K. startup called Token.io has closed $40 million in funding to expand its own particular push in payments tech — account-to-account payments and accessing accounts for transactions by way of a single API — deeper into the U.K. and across Europe.
Software as a service has become the default for how organizations adopt and use apps these days, thanks to advances in cloud computing and networking, and the flexibility of pay-as-you-use models that adapt to the evolving needs of a business. Last week, a company called Paddle, which has built a large business out of providing the billing backend for those SaaS products, announced a large funding round of $200 million as it gears up for its own next stage of growth.
While (former) startups like Lemonade came along to attack the tired world of insurance, the travel insurance market is now coming in for the same treatment from the likes of SafetyWing (covered by TC here) and Battleface. In an ideal world, travel insurance would be easier to understand, would pay out quickly when things go wrong and operate almost like Apple Pay or Google Pay in its simplicity. New “whole-trip travel insurance” startup Faye — which exited stealth mode last month — hopes to bring that kind of vibe with its approach, and now it’s raised backing to do it. The startup has pulled in $8 million in a seed funding round led by Viola Ventures and F2 Venture Capital. Also participating was Portage Ventures, Global Founders Capital (GFC) and former NBA player Omri Casspi.
Infinicept, a provider of embedded payments, announced a $23 million growth equity round led by SVB Financial Group (SVB) and Piper Sandler Merchant Banking. The new capital will help the company to “further meet rising demand” for its embedded payment operations (PayOps) platform.
Well, that’s it for this week. It felt like there was even more news than normal, which proves just how much activity continues to take place in the world of fintech. Thank you so much for reading, and see you next week!
