This startup now has millions in no-strings-attached money because one of Silicon Valley's most famous VC firms had to walk away from the deal

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This startup now has millions in no-strings-attached money because one of Silicon Valley's most famous VC firms had to walk away from the deal
Richie Serna
  • Finix, a startup that enables other startups to manage their payments stack in-house, announced that one of its investors was walking away, returning its equity and board seat to the company.
  • Sequoia Capital had led the payments startup's Series B round in February, in which Finix raised $35 million, but later told Finix that it realized it had a conflict of interest: The fintech was competing with at least one existing portfolio company.
  • Finix's services allow firms to bring a payments system in-house, allowing companies to avoid building their own system or outsourcing it entirely to startups like the $35 billion payments giant Stripe (which is backed by Sequoia)
  • Sequoia did not reclaim the funds it originally invested in Finix, allowing the startup to use those funds to raise an additional $10 million.
  • Visit Business Insider's homepage for more stories.

Finix, a startup that enables other startups to manage their payments stack in-house, announced on its website that one of its investors was walking away from its original investment, returning its equity and board seat to the company.

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Sequoia Capital led the payments startup's Series B round in February, in which Finix raised $35 million, but later told Finix that it uncovered a conflict of interest: The fintech was competing with at least one existing portfolio company.

But Sequoia didn't reclaim its original investment in Finix, reportedly leaving the company behind with $21 million, according to TechCrunch's Connie Loizos.

Finix used those funds to raise an additional $10 million in a round led by Inspired Capital, boosting its total funds raised to over $60 million, the announcement said. And two new members will be joining the company board: former US Secretary of Commerce and current PSP Partners Chairman Penny Pritzker, and Inspired Capital founding partner Alexa von Tobel, who will join the board as an observer.

"We're thrilled to have Penny and Alexa's guidance and support as we enter our next phase of growth - they see the large market potential of our company," said Finix CEO Richie Serna in the announcement.

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Competition with Sequoia's existing portfolio companies

Finix's services allow firms to avoid building their own payments system or outsourcing it entirely to a startup like the $35 billion, Sequoia-backed Stripe. That competition appears to have played a role in prompting Sequoia to walk away from its investment.

Finix's announcement quoted Sequoia partner Pat Grady in explaining its decision to leave. Grady said that the VC originally made a mistake in thinking that the payments startup did not compete with any of Sequoia's existing portfolio companies.

"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," Grady explained. "This decision had nothing to do with Finix, and everything to do with Sequoia's desire to honor our commitments."

The competition between Finix and Stripe has grown more heated just days after Sequoia's initial investment in the company. Software company Lightspeed, an existing Finix client, announced a new partnership with Stripe in February. At the time, Lightspeed declined to confirm what partners it would depend on for different types of transactions.

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