Sequoia leaves $21m Finix deal due to conflict of interest with Stripe

10 Mar 2020628 Views

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Sequoia has reportedly let Finix keep its $21m investment, but has handed over its shares, board seat and information rights.

Sequoia Capital has had to walk away from an investment deal with San Francisco-based payments infrastructure start-up Finix.

According to reports from TechCrunch yesterday (9 March), the deal would have resulted in a conflict of interest, as Finix would be competing with at least one existing company in Sequoia’s portfolio.

TechCrunch reporter Connie Loizos said that rather than reclaiming its investment, Sequoia has left Finix with the reported $21m that was invested in the fintech start-up, while handing back its board seat, information rights and shares.

The investment

In early February, Finix announced that it raised $35m in its Series B funding round.

The round was led by Sequoia, with additional participation from Acrew Capital, Bain Capital Ventures, Activant Capital and Inspired Capital, among others. It brought the total raised by the start-up to $55m.

Finix, which was founded in 2015, helps businesses control their own payments stack, positioning the start-up as a competitor to the likes of Stripe and Square.

The company claimed that it differentiated itself by targeting businesses that process $50m in annual transactions and charging them a monthly licensing fee and other surcharges, rather than charging per transaction, as is common with existing payments businesses.

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According to Business Insider, competition between Stripe and Finix has been heating up for the last few weeks, with Finix client Lightspeed announcing a new partnership with Stripe last month.

Sequoia backs out

According to Loizos, this marks the first time in Sequoia’s 48-year history that it has had to walk away from a deal due to a conflict of interests.

In a statement released after the TechCrunch report, Sequoia partner Pat Grady said: “While we’d previously concluded that Finix was not a direct competitor to any existing portfolio companies, after making the investment we came across a variety of small data points that collectively painted a different picture of the market.

“This decision had nothing to do with Finix, and everything to do with Sequoia’s desire to honour our commitments. It is incredibly difficult to part ways with Richie, Sean and their team at Finix. They are exceptional people and leaders and their future is bright.”

Finix CEO Richie Serna added: “While the changes to our relationship with Sequoia were unexpected, we’ve never been more fired up about the future of Finix and our position in the market.

“We appreciate Sequoia’s speed in dealing with this situation and respect their commitment to doing what’s right for their portfolio companies. They have been transparent and helpful throughout this process.”

Finix said that, in addition to keeping the funds provided by Sequoia, it has used a portion of the returned equity to raise an additional $10m, led by Inspired Capital, along with PSP Growth and others. Its extra board seat will now go to Penny Pritzker, co-founder of Inspired Capital and founder and chairperson of PSP Partners.

Kelly Earley is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com