Trouble at Railsr: New layoffs, insiders allege funding problems 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 tighter market conditions.

Image source: Nigel Verdon/Railsr.

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

Today, according to sources familiar with the matter, the company – known as Railsbank until the summer of 2022 – faces being sold due to new redundancies and claims that the latest round of funding came in significantly lower than originally reported.

During the last few weeks, AltFi have spoken to a number of sources both external and internal to the company who claim a new round of layoffs amid a sale to Nigerian fintech Flutterwave.

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

The company’s managing director Nigel Verdon said so AltFi in an emailed statement at the time of the Series C round that the new cash would help the company reach profitability and that the valuation reflected the ongoing difficult investment conditions for growth-focused companies.

“This is a reasonable price increase in a challenging market,” he said.

AltFi asked the company, whose latest accounts are now due according to Companies Houseif it was in financial distress.

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

“It’s a tough time for companies that were previously valued on growth, like ourselves. But over the past few months, we have dealt with all the issues we have encountered, 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 dismiss claims from sources — both an All-Hands employee — internal conversation and a client familiar with the matter who said AltFi that only a fraction of the reported $46 million was actually collected.

That round was reported at the time to be split between $26 million in equity and $20 million in debt. The equity part was led by Anthos Capital, which also led the Railsr Series B in July 2021. The debt side came from Mars Capital.

Two sources say an investor canceled all or part of the loan agreement around this time.

Railsr’s spokesperson replied:

“Series C was as we announced at the time – a $20 million debt facility and $26 million in equity. We’ve since paid down our debt facility and raised some alternative financing – but that doesn’t change the fact that at the time Series C was outlined as above and in the communications issued at that time.”

Another claim concerns management in the company, with two sources saying so AltFi Railsr co-founder Nigel Verdon was effectively pushed out by his CEO, amid a major reshuffle of the top team.

“Around this time, a number of actions were taken, including reassignment 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,” a Railsr spokesperson said AltFi.

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

New buyer?

AltFi also understands that 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’s a tough time for companies that were previously valued on growth, like ourselves. But over the past few months, we’ve dealt with the issues we’ve encountered methodically and constructively. As you can imagine, the board and the executive committee have been closely focused on governance and due diligence related to M&A activities while we work through it together, said Railsr’s spokesperson.

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

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

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

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

As AltFi revealed at the time, Railsr announced its second wave of layoffs in November affecting about 16 percent of employees and the sale of its Singapore-based operations. Approximately 10 percent of employees were made redundant during the summer ahead of the rebrand.

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

An insider also claims that the second wave of layoffs appeared to have their severance payments unpaid as the company faced tight cash flow. Although this decision was later reversed with payouts, according to the same source.

Meanwhile, the American team, who were made redundant before the Christmas break, will not receive any package beyond their usual payment.

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

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

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

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

In a separate series of developments, a subsidiary of Railsr PayrNet is being sued by Northern Borealis, a Cyprus-registered shipping company, which wants more than €28m ($30m) back and claims it failed to pay out money from its account, according to to law 360.