Banking-as-a-service startup Solid, formerly known as Wise, has filed for Chapter 11 bankruptcy protection, according to documents filed in the United States Bankruptcy Court for the District of Delaware on April 7. The Palo Alto-based fintech company, which had raised nearly $81 million in funding from investors such as FTV Capital and Headline, is now in the process of trying to restructure or sell itself.

Solid, founded in 2018, had touted itself as "the AWS of fintech" and claimed to have grown 10x in revenue, doubled its customers to 100, and become profitable as of August 2022. However, the company has been unable to raise more capital since its last funding round and has faced significant and costly litigation, leading to its current financial struggles.

One of the major factors contributing to Solid's financial woes is a lawsuit filed by Series B investor FTV Capital in 2023. FTV Capital, which had invested $61 million in Solid, claimed that the startup's co-founders, Arjun Thyagarajan and Raghav Lal, had lied about the company's revenues, customer churn, and business generally. The firm also asked for Thyagarajan and Lal to resign. The co-founders pushed back, filing a countersuit against FTV and its partner Robert Anderson, accusing the firm of being "an aggressive private equity firm" that resorted to "made-up claims of fraud, threats, and strong-armed tactics" to get its money back.

According to the bankruptcy filing, the FTV litigation was dismissed in April 2024 "with prejudice under a settlement reached by the parties." However, the legal battle has taken a significant toll on Solid's finances. As of the petition date, the company said its capital structure consisted of unsecured trade debt totaling approximately $760,000, with "a limited amount of current revenue" and approximately $7 million in cash on hand, with approximately $2 million of that held in non-liquid reserve accounts. The company has also significantly downsized, with only three employees remaining.

Solid's bankruptcy filing under subchapter V, which imposes shorter deadlines for filing reorganization plans and allows for greater flexibility in negotiating restructuring plans with creditors, suggests that the company is hoping to restructure its debt and emerge from bankruptcy as a viable business. However, the road ahead will be challenging, especially given the company's current financial situation.

Solid is not the first banking-as-a-service startup to file for bankruptcy. Last April, Synapse filed for Chapter 11, hoping to sell its assets in a $9.7 million fire sale to another fintech, TabaPay. However, TabaPay ultimately walked away from the deal. One common thread between Solid and Synapse is their partnership with Evolve Bank & Trust. Notably, another fintech, Mercury, recently ended its relationship with Evolve, citing concerns over the bank's stability.

The implications of Solid's bankruptcy filing are still unclear, but it is likely to have a ripple effect on the fintech industry as a whole. The company's 20 largest unsecured creditors, including Amazon (AWS), Visa, Plaid, and Trulioo, will be closely watching the proceedings. TechCrunch has reached out to Solid and FTV for comment, but had not heard back at the time of writing.

As the fintech industry continues to evolve, the bankruptcy of Solid serves as a reminder of the risks and challenges involved in building and scaling a business in this space. While the company's valuation of $330 million just a year ago seemed impressive, its current financial struggles are a stark reminder that even the most promising startups can falter. The fate of Solid remains to be seen, but one thing is clear: the fintech industry will be watching closely as this story unfolds.