Fast has crashed. But there are lessons in its surprise demise.
Tampa-based Domm Holland, who rose to prominence the last two years for leading fintech unicorn Fast, took to Twitter Tuesday to announce the company's shuttering.
Its crash is not uncommon — investing is inherently risky. But it is part of a growing number of higher-profile companies that receive massive amounts of funding and even larger valuations, which are buoyed on projected growth and not necessarily a path to profit. Fast could serve as a cautionary tale to some investors, who may begin to place more emphasis on the basics that have become muddied in the last 18 months as the competition to get into splashy deals heated up.
"You can’t abandon the fundamentals we’ve used over the last 100 years," Tom Edwards, founder of Tampa-based TJ Edwards Group, said. "I think people have been focused highly on growth, to the extent they look at growth at all costs. They don’t focus on the margins or the efficiencies of the sales engine."
Several factors over the last two years have created the perfect storm to reach the sky-high valuations — and subsequently large early-stage rounds. Interest rates have been low, funds have begun growing larger than ever (aided in part by stimulus money), more people have gotten involved in the angel investing space, and the amount of money began to outpace the available talent to invest in, according to experts.
"There is a lot of money chasing deals, and if there is more money than deals, the quality of the investment goes down," said Scott Kelly, founder of Black Dog Venture Partners, which is moving its headquarters to Tampa this summer. "What happened with Fast will give people some pause and do more due diligence before going to market, but it's the same as with the Internet boom and bust. You can make money in either scenario but have to play the court."
The continually-rising funding rounds have extended well beyond Silicon Valley and can be seen in Tampa Bay companies.
"What last year what would’ve been a $5 million valuation for a Tampa company is now $10 to $15 million on the same amount of revenue," Ryan Whittemore, chief investment officer at Florida Funders, said. "You will see valuations compressed to a more normalized range growing at a solid 100% annually. There will still be funny money thrown around, but companies like Fast serve as a reminder to go back toward disciplined diligence."
But the money will still continue to be deployed. And founders can also take the time to re-assess their own growth plans, according to Edwards.
"There is still a lot of money out there so there will still be investments," he said. "I think ultimately what you will see are some companies are still burning cash, not looking ahead. And when you raise money, you probably expect [the amount] to raise in the next round; but it will drop. If they knew that now, they would probably get more disciplined in spending their money. It's what needs to happen."
Ultimately, more startups could come out of this year by getting acquired, which would be an even bigger win than an oversubscribed round. Both Whittemore and Edwards expect to see a shift come toward the end of the year and the beginning of 2023.
"More companies are looking at what we have here and realizing the depth of what we have is really attractive," Whittemore said. "It's positive to have this much money available for growth companies. It will result in more mergers and acquisitions, and it will be a thing where the best companies survive. There will be a lot of money made from [the deals], so there just needs to be more selectivity."
