FinTech's Judgment Day

THE FUNDING FRENZY IS OVER. DOZENS OF ONCE-PROMISING FINANCIAL STARTUPS ARE NOW CHASING TOO FEW CUSTOMERS AND STARVING FOR CASH. FOR MOST, IT'S EITHER MERGE OR PERISH.

- Jeff Kauflin and Emily Mason

On November 15, the cofounders of Ribbon Home, a five-year-old financial technology company that promised to fix a "broken" homebuying market by offering buyers the ability to make all-cash offers, sent a cryptic and disconcerting email to its entire staff. "During this time of uncertainty, we ask team members who are not customer- or finance-facing to shift their focus from work to self-care, spending time with family and doing things that bring you comfort," it read in part.

Six days later, New York City-based Ribbon dismissed 85% of its staff-190 people-and cut severance to one week's pay versus the six weeks employees had been previously promised. Fewer than 30 people remain today, and the company recently announced that it has paused all new business.

Ribbon's days are numbered, but in September 2021, amid the pandemic housing boom, venture capitalists including Bain Capital and Greylock threw $150 million at the startup, valuing it at $500 million. The money was supposed to fuel explosive growth-the company predicted "$10 billion in home transactions annually"-and staff ballooned to 360.

Those easy-money days are over. Home mortgage rates have more than doubled since 2021, cooling the market and the need for all-cash offers. Ribbon, which likely never came close to being profitable, relied heavily on a continuous source of outside funding. Unlike traditional banks whose deposits fund home mortgages, Ribbon needed Wall Street firms to fund its customers' cash offers. Goldman Sachs and Waterfall Asset Management, Ribbon's primary financiers, have pulled back funding because Ribbon no longer meets their lending requirements. Ribbon declined to comment.