Nov 25, 2024 - Business
Synapse debacle cost some users their life savings
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Illustration: Aïda Amer/Axios
When startups collapse, the losers usually are direct stakeholders like investors, founders, and employees.
- But when fintech Synapse went under earlier this year, thousands of users also were left holding the bag. In some cases, that meant their life savings.
Catch up quick: Synapse was a middleman, connecting fintechs that didn't have banking licenses with actual banks.
- It raised just over $50 million in VC funding, most recently in a $33 million Series B round in 2019 led by Andreessen Horowitz (which took a board seat).
- Earlier this year a dispute over account balances arose between Synapse and lender Evolve Bank, resulting in Synapse locking users out of their accounts. Synapse's fintech partners bailed, and bankruptcy followed.
- That dispute remains unresolved, with a court-appointed trustee estimating that there are between $65 million and $95 million in missing funds. For example, a woman named Kayla Morris so far only has recovered $579 of $282,153 that she believed was kept in FDIC-insured accounts — cash that the mother of three had saved to buy a house.
The big picture: The mystery of the missing money hasn't been resolved because of ... well, money.
- The trustee says that Synapse doesn't have enough to pay for an outside firm to reconcile the ledgers, estimating it would cost between $2 and $3 million.
- It's not a guarantee that all the funds would be found in a reconciliation process, but it's the best option.
A modest proposal: Synapse is broke. Andreessen Horowitz is not.
- The venture firm got wiped out on its Synapse investment, and has no legal obligation to help, but it could be the financier of last resort for people like Kayla Morris.
- Kind of like what Bain Capital and KKR did when they created a $20 million pool to compensate thousands of Toys "R" Us employees who lost their jobs when the retailer shut down — funded by the general partners, not the limited partners.
- In this case we're talking about just $2 million to $3 million, which is just a small fraction of the management fees that Andreessen Horowitz generates each year.
Andreessen Horowitz did not return requests for comment.
The bottom line: Venture capital firms aren't charities, but that doesn't mean they must turn a blind eye to suffering caused by companies that they funded and helped to oversee.
