Solid Files for Chapter 11 Bankruptcy Amidst Financial and Legal Struggles
Solid, a banking-as-a-service (BaaS) startup formerly known as Wise, has officially filed for Chapter 11 bankruptcy protection. The filing took place on April 7 in the United States Bankruptcy Court for the District of Delaware.
Background of the Company
Established in 2018, Solid quickly garnered attention in the fintech arena, securing nearly $81 million in funding from notable investors like FTV Capital and Headline. By August 2022, the company had achieved a valuation of $330 million, following a $63 million Series B funding round led by FTV Capital.
Business Operations and Market Position
Headquartered in Palo Alto, Solid specializes in providing banking, payments, cards, and cryptocurrency services through user-friendly APIs aimed at fintech and vertical SaaS companies. The organization once referred to itself as “the AWS of fintech” and reported a tenfold increase in revenue, a doubling of its customer base to 100, and profitability as of August 2022. However, recent developments have led the company to consider restructuring or selling its business, as detailed in the bankruptcy documents.
Insights from Leadership
Co-founder Arjun Thyagarajan expressed optimism regarding the Chapter 11 restructuring, stating, “After considering all options, we’ve decided that a voluntary Chapter 11 restructuring is the best course. We’re optimistic that the court-supervised sale process will attract the right buyer, leading to a positive outcome for the company, customers, and shareholders.” The company plans to maintain its operations during this process.
Legal Challenges and Financial Situation
Solid has faced significant litigation difficulties that have contributed to its current predicament. In 2023, the company was sued by FTV Capital, its Series B investor, seeking the return of a $61 million investment. FTV’s suit accused Solid’s co-founders, Thyagarajan and Raghav Lal, of misrepresenting key business metrics. In response, the co-founders filed a countersuit, labeling FTV as “an aggressive private equity firm” that resorted to fabricated claims after its investment became unprofitable.
The bankruptcy filings indicate that the litigation was resolved in April 2024, with a settlement reached between the parties. However, as of the date of the bankruptcy petition, Solid reported a total unsecured trade debt of approximately $760,000, only $7 million in cash assets, and limitations on current revenue, with approximately $2 million held in non-liquid reserves. The company has reportedly reduced its workforce to three employees.
Bankruptcy Filing and Industry Context
Solid’s Chapter 11 filing falls under Subchapter V, which offers shorter timelines for restructuring plans and enhanced flexibility in negotiations with creditors. This move places Solid in a growing trend where other BaaS startups, such as Synapse, have also targeted bankruptcy as a means of asset restructuring. Synapse’s journey included a failed $9.7 million asset sale to TabaPay.
Crisis Among Partners
Evidence of a challenging environment in the fintech sector includes the relationship between Solid and its banking partner, Evolve Bank & Trust, which has recently seen its partnership with other firms, like Mercury, come to an end. The consequences of these partnerships are echoed in the bankruptcy filings, with Solid’s largest unsecured creditors comprising major entities like Amazon (AWS), Visa, Plaid, and regulatory consulting firms.
Conclusion
The unfolding situation at Solid presents a complex intersection of financial, operational, and legal challenges. As the company navigates this restructuring process, stakeholders are keenly observing for potential outcomes that may arise from this pivotal moment. Further developments are likely to emerge as the court-supervised sale process progresses.
