Key Points:
- Bankruptcies have been on the rise for smaller businesses, including digital disruptors.
- 63% of tech startups fail, and 75% of VC-backed FinTechs fail.
As 2023 comes to an end, bankruptcy filings have been on the rise for both small businesses and digital disruptors. While the pandemic brought relief in terms of financial support, the end of this relief has left many businesses drained of cash. In the United States, bankruptcies have been increasing, and Germany has seen similar trends. Even digital disruptors have fallen victim to bankruptcy, with 63% of tech startups and 75% of VC-backed FinTechs failing. However, it is important to note that bankruptcy does not always mean the end of a business, as it can provide breathing room for restructuring.
Several notable digital disruptors have filed for bankruptcy in 2023. Plastiq, which raised over $142 million in funding, owed more than $50 million to creditors. Embedded finance firm Railsr was sold to a consortium of global investors after going bankrupt in March, and it had previously raised $24 million in financing. Insurtech Vesttoo also filed for bankruptcy over the summer and was embroiled in a scandal involving fake collateral.
The struggles of the FinTech industry are not limited to the United States and Europe. India, once considered a FinTech haven, has seen its valuation of Byju plummet from $22 billion to $5 billion. Stricter capital rules in the financial services sector have caused several FinTechs to shut down, and VC funding for FinTechs has been scarce. Funding for FinTechs has decreased by nearly 50% year on year, and the public markets have not provided much relief either. Only a handful of FinTechs trade above their offer prices.
Overall, the path to viability for FinTechs and digital disruptors is proving to be challenging. Bankruptcies are on the rise for both small businesses and digital disruptors, and the struggles extend beyond the United States and Europe. Funding for FinTechs has decreased significantly, and the public markets have not been favorable. However, bankruptcy does not necessarily mean the end for these businesses, as it can give them an opportunity to restructure and potentially find a path to viability.
