With the market turning around so dramatically in 2022, it’s no surprise that many startups are now believed to be on the way down.

Just this week, it was announced that Varo is raising a $50 million equity round led by Warburg Pincus at a “significantly” lower valuation. According to Fintech Business Weekly, the embattled neobank would be raising funds at a preliminary valuation of $1.8 billion. That’s less than the $2.5 billion Varo was valued at in September 2021 when it raised a massive and “overwritten” $510 million Series E.

Profitability

Last August, the startup celebrated the two-year anniversary of receiving its national banking charter — a move that made it the first-ever all-digital nationally chartered U.S. consumer bank. In an interview with TechCrunch last September, CEO and founder Colin Walsh insisted that the company “continues to see strong customer growth” and still has a “clear path to profitability.”

TechCrunch reached out to ask if Varo actually signed the term sheet for the new $50 million raise — with Warburg Pincus taking in $25 million — but the company declined to comment.

This week, The Information also reported that payments giant Stripe is still struggling to raise capital and is now believed to be targeting a valuation of around $50 billion, or $20 per share, after hitting some hurdles. Earlier this year, TechCrunch reported that Thrive Capital reportedly committed $1 billion in fresh capital to Stripe as part of a new investment in the works that would value the fintech company at $55 billion to $60 billion.

Tax

Stripe was initially thought to be seeking to raise $2 billion, but reports from The New York Times and The Information now believe that number is actually closer to $2.5 billion to $3 billion. In an unusual twist, Stripe is believed to be raising the new funding to, as The Information reported, “solve the issue of expiring restricted stock for some of its veteran employees — and the massive employee tax burden that is likely to come with it.”

Recently valued publicly at $95 billion, Stripe has not been immune to the global downturn. In November, it dismissed 14% of its employees, i.e. roughly 1,120 people. And the company has already cut its internal valuation more than once in the past year. Earlier this year, TechCrunch reported that Stripe had cut its internal valuation to $63 billion. This 11% cut followed an internal valuation cut six months earlier that valued the company at $74 billion.

The fact that Stripe can raise money to pay its tax bill has raised eyebrows internally here at TechCrunch. That’s not typical, and it certainly doesn’t seem like an ideal way to spend investors’ cash. Ken Smythe, founder and CEO of Next Round Capital Partners—a capital markets and VC firm—confirmed our impressions.

In a Jan. 27 phone interview, he told me it’s “extremely unusual for investors to get excited about a new round that’s primarily about paying unpaid taxes.”

Either way, the fact that fintech startups — or any startup — are closing rounds isn’t as big news as it might have been a year ago. When faced with closing or raising a round down, most startups opt for the latter.

Sources: Techcrunch | biz.crast.net