Startup graveyards

It’s blazing here in San Francisco today as the weather should hit 90 in the next hour or two. It’s a nice little heat wave to kick off October. I’m sitting here in a good mood with a great Q3 behind me and a fun trip to Seattle this weekend followed by a work trip to New York next week.

I was notified today that another consumer finance startup that I was following for a couple of years is shutting down. The company was incubated by a firm that I admire and I gave it a shot as an early adopter. I eventually canceled as the app was very basic for my needs.

I don’t know the stats on this, but I’d guess that consumer finance startups, specifically apps, have to be in the top 3 of VC backed startup graveyards. It’s an incredibly hard space to build in.

On the surface, the tools you have today from the incumbents are in need of a tech overhaul. It’s easy to see why a tech minded individual who is using antiquated tools built by banks want to build something better.

But most consumer finance apps need significantly scale to make enough money to just generate enough traction to get to the next round, yet alone make a profit. These users are expensive to acquire and possibly harder to keep.

Getting users to manage their personal finances is a psychological battle where individuals don’t get immediate gratification and may not realize benefits for many years in the future. The inherent churn in these businesses are very high.

For most, I’d guess that raising VC money to build the next personal finance startup isn’t a wise decision. I’d imagine that there are plenty of great businesses that are bootstrapped and kept small intentionally. Costs are lower and a relatively small core of users can create a profitable business.