Combinator-backed fintech CapWay has shut down

CapWay, a Y Combinator-backed fintech that aimed to provide financial services to so-called “banking deserts,” has been shut down, according to its founder Sheena Allen.

Allen wrote about it on LinkedIn and confirmed it to TechCrunch.

“I am proud of the work we were able to accomplish, but sincerely disappointed that we were unable to complete the mission,” he wrote. “I strongly believe that there is still a lot of work to be done in the financial inclusion space, so this won’t be the last you hear from me when it comes to the fight for economic equality.”

Allen told TechCrunch that the company started going downhill last year and waited so long to announce after a potential acquisition fell through.

Bank deserts are people in communities, often rural, who don’t have a physical bank branch nearby to get a checking account. The term also extends to people who find it difficult to go to a bank, such as those with lower incomes, the elderly or those with disabilities.

Allen (pictured above) launched CapWay in 2016 after realizing the impact that not having a bank account has on some communities, such as relying on high-interest loans or check-cashing services with high fees, as reported by CNN.

CapWay’s company planned to address this population by teaching financial literacy and offering online banking solutions. Pitchbook shows the company raised just under $800,000 in funding, from investors including Backstage Capital, Fearless Fund and Khosla Ventures. He was part of YC’s summer 2020 cohort, as TechCrunch reported at the time.

Allen told us there were a few reasons why he closed the company. He cited the fact that the fintech industry took a huge reputational hit after the Evolve Bank & Trust hack and the Synapse collapse, the latter of which saw hundreds of millions of dollars in consumer funds frozen.

After that, many banks that wanted to partner with fintechs required the fintech to have a certain amount of money in the bank.

“It takes money to play in a highly regulated industry because you can’t control the changes,” Allen said. “You just have to have enough money and time to survive the adjustments.”

CapWay had to find a new banking partner during this time, but had to raise more money to meet the cash-on-hand requirements of potential partners, which it struggled to do. Some investors rejected it, saying the company lagged too far behind its competitor.

But he also noted the challenge that has plagued many black founders in the past year.

“Fundraising was low for everyone, but it was and is very low for black founders,” he said. Crunchbase found that black founders raised just 0.3% of the $79 billion that went to US startups in the first half of the year.

Allen often felt like he was in competition with other Black-founded fintechs for that smaller piece of the pie. She wrote in her post that some investors turned her down, telling her they had already invested in another debit card fintech founded by Black.

“Some investors like to lump all black fintech companies into one box, (even) when we don’t all do or operate the same or have the same target audience,” he told us. “It’s unfortunate, but that was a factor in us being told that a few times.”

Allen thanked his team and some of his investors in his LinkedIn post, noting that there were investors who “still called and not only checked out the business and me as a founder, but me as a human.” He also thanked his fellow founders who “heard me rant and called to simply check on my mental state through this process.”

But, a failed startup, which is almost a badge of honor in the startup world, hasn’t deterred her from her love for building businesses. He still wants to work in the financial inclusion space and is mulling over his next startup idea. He is currently looking for some potential entrepreneur-in-residence opportunities at venture companies.

“It’s a tough time to wind up your company,” he said. “But I’ve learned that there is beauty in the journey even on cloudy days when things seem dark.”