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Trouble at Railsr: New layoffs, insiders allege funding issues and sale to Nigerian fintech

The fintech formerly known as Railsbank faced a major shift in strategy in 2022 from aiming for a 'unicorn' valuation higher than £1bn and breakneck growth to a sale amid tightening market conditions.

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Nigel Verdon/Railsr.

Less than twelve months ago Railsr, a provider of banking-as-a-service and embedded finance software, was touted to be near a unicorn valuation

Today, according to sources familiar with the matter, the company - known as Railsbank until the summer of 2022 - is facing being sold amid new layoffs and allegations its last funding round came in materially lower than originally reported. 

In the past few weeks, AltFi has spoken to a number of sources both external and internal to the company who allege a new round of layoffs amid a sale to Nigerian fintech Flutterwave. 

In addition, two sources say the company faced an acute cash flow issue in the second half of 2022 despite a reported $46m Series C funding round announced last October.

The company’s CEO Nigel Verdon told AltFi in an email message at the time of the Series C round that the new cash would help the company to reach profitability and that the valuation reflected the ongoing difficult investment conditions for growth-focused companies.

“This is a fairly priced raise in a challenging market,” he said.

AltFi asked the company, whose latest accounts are now overdue according to Companies House, if it was in financial distress. 

“It’s true that we’ve faced a difficult time, as most fintechs are right now,” a spokesperson for Railsr told AltFi.

“It is a tough time for companies that were formerly valued on growth, such as ourselves. But over the last few months we’ve managed all the issues we’ve faced, methodically and constructively,” they added. 

Railsr added that the Series C funding round “represented our bridge financing towards an M&A event” but declined to deny allegations made by sources - both an employee on an all-hands - internal call and a customer familiar with the matter who told AltFi that only a fraction of the reported $46m was actually raised. 

That round was reported at the time as being split between $26m of equity and $20m of debt. The equity portion was led by Anthos Capital, who also led the Railsr Series B in July 2021. The debt side came from Mars Capital.

Two sources say that an investor cancelled all or part of its loan agreement around this time.

Railsr’s spokesperson responded: 

“The Series C was as we announced at the time - a $20m debt facility and $26m equity. Subsequently, we have repaid our debt facility and sourced some alternative financing - but that doesn’t change the fact that at the time the Series C was outlined as above and in the comms issued at the time.” 

Another allegation concerns leadership at the company, with two sources saying to AltFiRailsr co-founder Nigel Verdon was effectively pushed out of his CEO position amid a wider reshuffle of its top team. 

“Around this time a number of actions were taken, including the redistribution of roles and responsibilities, such as the promotion of our Chief Product Officer (CPO) to Chief Operating Officer (COO) and the appointment of an interim CFO,” Railsr’s spokesperson told AltFi. 

“|Nigel [Verdon] as CEO leads our M&A activity,” they added.

New buyer?

AltFi also understands the company is close to a deal with Nigerian fintech Flutterwave, according to a source, and reported by Sky News this morning

Railsr declined to comment on the sale. 

“As we’ve said above, It is a tough time for companies that were formerly valued on growth, such as ourselves. But over the last few months we’ve managed the issues we’ve faced methodically and constructively. As you'd imagine, The Board and Executive Committee have been closely focused on the governance and the due diligence related to M&A activities as we collectively work through it,” Railsr’ spokesperson said.

Railsr was founded by Nigel Verdon and Clive Mitchell in 2016. It offers banking-as-a-service solutions to customers ranging from other fintechs to non-financial brands that want to offer financial services such as personalised cards to customers. 

It is this latter group of customers that the company has focused on for the past twelve months as part of a budding ‘embedded finance’ strategy, a market widely predicted to boom in the coming years. 

Verdon, who formerly founded another fintech Currencycloud which was acquired by Visa for £700m in 2021 said in an interview with AltFi in June of 2022 that “fintech is dead” and that the company would grow its revenue by 100 per cent over the course of the year.

Its customers include the likes of Crypto.com and Intercash and until the summer it had a rapidly growing global operation that include offices in the UK, Singapore and North America. 

As AltFi revealed at the time, Railsr announced its second wave of layoffs in November that affected about 16 per cent of its staff and the sale its Singapore-based business. About 10 per cent of its staff were made redundant over the summer ahead of its rebrand.

In the week before Christmas 2022, it was revealed to its US team that half of its staff would be made redundant.

An insider also alleges that the second wave of those laid off looked set to have their redundancy payments go unpaid as the company faced tight cashflow. Although, this decision was later reversed with payments made, according to the same source.

Its US team meanwhile, made redundant before the Christmas break, will receive no package beyond regular payment. 

“As we’ve shared previously, we’re not immune from the global market downturn. We’ve had to make some tough decisions about our business, and that has meant downsizing in all our markets, and saying goodbye to good colleagues. Our burn rate was too high in complex but attractive markets such as the US, said a Railsr spokesperson. 

The message of too high burn rates is one shared by a former customer who spoke to AltFi on condition of anonymity. 

“In 2022 the company seemed to be scaling very quickly but this seemed to lead it to over-promise and under-deliver. This led to issues with some services,” they said. 

Railsr had previously raised $70m in its Series B round in July 2021 and $37m in November 2020 in its Series A. Ahead of this round it also bought assets in Wirecard UK, the subsidiary of the German fintech Wirecard that collapsed after a Financial Times investigation uncovered widespread fraud that same year.

In a separate series of developments, a subsidiary of Railsr PayrNet is being sued by Northern Borealis, a Cyprus-registered freight company, who want back more than €28m ($30m) and allege it failed to pay out money from its account, according to Law360.

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Nigel Verdon

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