- The Runway Ventures
- Posts
- 💸 Fintech startup Braid shut down after 4 years
💸 Fintech startup Braid shut down after 4 years
The rise and fall of a US payment startup
Admond Lee
February 11, 2024
Read Time: 6 minutes
Hey Founders,
Welcome to The Runway Ventures, a weekly newsletter where I deep dive into startup mistakes and lessons learned to help you become a better founder.
I can’t believe our previous issue on my failed startup (Staq) has created so many waves in the startup community and received a lot of positive feedback from you.
I hope you’ll enjoy today’s issue. If you have any feedback to improve our newsletter, just reply to this email and let me know!
Let’s get to it! 🚀
🤝🏻 Join our founders community on Discord:
Building a startup is one of the toughest things you can do. Why struggle alone when you have our community to help and support you.
This is the founders community I wished I had when I first started.
Today at a Glance:
☠️ 1 Failed Startup → Braid
⚠️ 2 Mistakes → Relied too much on third-party software
🧠 3 Lessons Learned → Always prepare for the worst
🔗 The Runway Insights → The ultimate guide to fundraising for first-time founders
🤝🏻 The Founders Corner → How to find the right co-founder
☠️ 1 Failed Startup: Braid
🚀 The Rise of Braid
Braid was a consumer payments startup founded in 2019 to provide a money pool (a multi-user financial account) to help users simplify the process of pooling, managing and spending money collectively.
Braid was co-founded by Amanda Peyton and Todd Berman (who left in 2020).
Why multi-user financial accounts for money pooling? From the blog written by the co-founder (Peyton), the gap was obvious:
There are financial accounts for 1 and 2 consumers, and there are financial accounts for businesses. But there is no financial account for n consumers. Joint accounts are insufficient, outdated, often (but not always) capped at two, and not a product priority for most banks. A money pool could serve a customer base for which there was no existing product, only clunky workarounds.
The Problem — Consumers struggled to pool money, manage and spend money collectively due to the lack of multi-user financial accounts.
The Solution — Braid helped consumers pool money easily with just a link for them to collect money, manage and spend within a single multi-user financial account.
Back then, the fintech market was hot and neobanks were taking over Europe and in the US. Combined with the innovative idea of Braid, Braid raised $10 million through multiple rounds from enviable investors like Index Ventures and Accel.
And guess what? Braid’s payment volume grew ~5% a week and they went from processing less than $10K a day to having multiple $100K+ days, in the span of around five months. Braid was on track to pass $10 million in monthly volume by Q4 2022.
📉 The Fall of Braid
Suddenly, Braid’s sponsor bank’s behaviour changed in July 2022. They stopped replying to emails and ignored Braid. Because of that, Braid was in a coma from July 2022 to January 2023. This is how Peyton described the situation:
It was bleak — we were a payments company processing $0 in payment volume.
Eventually, Braid found a new sponsor bank, but they still struggled. The tech migration and integration were a pain in the arse. Besides, after relaunching Braid in January 2023, SVB imploded, the market was going down, and the interest rates were going up.
Finally, the biggest blow to Braid was when a critical third-party software informed them that they’d changed their mind on a key technical decision. It’s like you migrated your software to a new ecosystem, but all the pieces were falling apart, and this is what happened to Braid.
💊 Braid had 2 choices:
Rebuild everything from zero
Shut it all down
In April 2023, Peyton decided to shut it down as she didn’t want to raise another round without knowing what to rebuild. With that, after 4 years, Braid was gone.
Want to learn more about Braid’s downfall?
⚠️ 2 Mistakes
Mistake 1: Relied too much on third-party software
This mistake was also highlighted by Peyton on why Braid couldn’t make it. Simply said, Braid didn’t really “own” the core technology or infrastructure that they built as they used the service provided by another third-party software.
In the beginning, this made sense because Braid could focus on its core offering to its users. However, it was a huge technical risk as they faced vendor lock-in by their service provider.
If a third-party software couldn’t deliver based on your request, it poses an existential crisis to your company — which is what happened to Braid after they migrated to a new sponsor bank.
Mistake 2: Missed the opportunity to raise money
As shared by Peyton in her heartfelt blog, Braid had processed 8-figures of payments in October 2021. One of their investors also asked Peyton to raise because of the right timing with amazing traction.
But Peyton thought they could wait for another few more months as they wanted to raise at a higher valuation with more traction. Because of this decision, Braid didn’t raise at the right time in the right market.
When Braid had issues with its sponsor bank, the company couldn’t operate for several months, causing its runway to burn without enough cash flow to sustain and pivot down the road.
🧠 3 Lessons Learned
Lesson 1: Minimise reliance on third-party software
If possible, build your core technology or infrastructure in-house to avoid contractual or technical lock-in by your vendor. This actually happened to me when I was building Staq (my previous fintech startup).
Back then, we outsourced our core technology to a freelancer and another third-party software because we wanted to focus on our core offerings with faster GTM.
⚠️ Few issues with our approach:
On Freelancer — We were at the mercy of the freelancer because we had to pay for every maintenance and new feature development. We were burning our cash and runway.
On Third-Party Software — We subscribed to third-party software and paid huge fees for every customer we onboarded. The software ate our margin substantially and our unit economics didn’t really work out.
In short, if you’re building a tech startup, try to build your core technology in-house and only outsource the non-core technology, like website development, UI/UX and marketing.
Lesson 2: Raise money at the right time
Being able to raise money for your startup very much depends on the timing and the market at the point when you’re raising.
If Peyton raised money before the issues with their sponsor bank and third-party software, Braid could have a longer runway to rebuild everything from zero or pivot to another direction.
If you’re a startup gaining traction and growing, and you see the value of getting investment to expand your business, go and raise money from investors.
Never raise money when you’re desperate for money.
Raise money when you don’t need it the most.
Lesson 3: Always prepare for the worst
Braid’s over-reliance on their sponsor bank caused their company to be in a coma for a few months when the sponsor band decided not to work with Braid.
In fintech, relationships and partnerships are keys to survivability and sustainability. This is especially true when there are so many stakeholders involved in fintech, including financial institutions, regulators, vendors and other partners.
Therefore, it’s important to be always paranoid and plan for the worst-case scenario. If a single point of failure (like Braid’s sponsor bank) could effectively bring your whole company to a halt, you should probably do everything you can to prevent that from happening.
And the solution could be working with multiple partners as a form of redundancy, building good relationships with partners, or even building the core infrastructure in-house.
In short, shit could happen, always prepare for the worst.
🔗 The Runway Insights
🤝🏻 The Founders Corner
This is the place where you can ask me any questions about building a startup. Every week, I’ll pick one question to answer.
Just reply to this email with your burning question. Let’s win together 🤝🏻
Founder’s Question:
Hey Admond, I’m currently still working full-time but want to build a startup soon. But I don’t know how to find the right co-founder. Would appreciate it if you could share any advice on this. Thanks!
My Thought:
Finding the right co-founder is probably the most important thing you can do when building a startup. After joining 2 startup incubators (Antler, Entrepreneur First), here’s what I’ve learned when it comes to finding the right co-founder:
Find someone who shares the same values and vision as you regardless of the startup ideas you both may have. Startup ideas can always change, but values and vision should stay the same.
Find someone who can complement your skills. For example, if you’re in tech and don’t like to deal with people, finding a business/sales person with domain expertise could be helpful in this case.
Find someone who is as committed as you to building a startup together. Most people say they want to build a startup, but only a few of them are committed.
Find someone whom you can work together — productively. In an early-stage startup, productivity is the measure of your traction when you’re still building the idea or product.
Productivity = Traction
🤝🏻 Join our founders community on Discord:
Building a startup is one of the toughest things you can do. Why struggle alone when you have our community to help and support you.
This is the founders community I wished I had when I first started.
That's all for today
Thanks for reading. I hope you enjoyed today's issue. More than that, I hope it has helped you in some ways and brought you some peace of mind.
You can always write to me by simply replying to this newsletter and we can chat.
See you again next week.
- Admond
Disclaimer: The Runway Ventures content is for informational purposes only. Unless otherwise stated, any opinions expressed above belong solely to the author.
Reply