EquityZen's Blog On Startups and Their Economics

Planning Your Own Funeral: Why FinTech Firms Must Prepare for the Worst

Sean Troy | August 10, 2016

As humans, we are programmed to “hope for the best but plan for the worst,” a philosophy that is often evident in actions we take throughout our lives. Working professionals, even those with healthy incomes, set up savings accounts to create a financial safeguard against loss of employment. Midwestern families build underground shelters to protect their families from tornadoes. Parents purchase cars with built-in airbags, so that their children are protected in case the unthinkable happens. We plan for the worst not to buy a license to act recklessly, but rather to take care of those who depend on us during extreme times.


It is just as important for companies to take similar measures to protect against unfortunate, yet entirely conceivable disasters. This planning is especially crucial for startups. As Forbes has kindly reminded its readers, 90% of startups fail. One of its advised conditions for creating a successful startup: design a product that is “perfect for the market”. Certainly no easy task. What happens in the end if a product isn’t quite…perfect? What happens if that 90% becomes 100%? All of a sudden, customers who had depended on the company’s services would be left without a safety net.

A mantra frequently heard from company management is “our customers come first!” Yet, those same customers, individuals and businesses alike, are too often left in the dark when a firm closes shop. Companies should acknowledge the possibility of their demise and have contingencies in place for the sake of its customers. Firms that work with people’s money or personal information have an additional moral, if not fiduciary, responsibility to protect it. It is one thing if you suddenly cannot play Pokemon Go or listen to your favorite song on your music app, but it is a completely different thing altogether to be unable to withdraw your well-earned money from your online investment platform. Yet, instances of such businesses leaving their customers high and dry after going insolvent or filing for bankruptcy are far too common.

Let’s consider Nirvanix, the cloud storage provider who filed for bankruptcy in the fall of 2013. Following several successful funding rounds, the company, seemingly out of the blue, announced that it was shutting down operations, giving customers just two short weeks to recover their stored data (Infoworld, “Cloud Storage Provider Nirvanix is Closing its Doors"). Two weeks. If you stored your kids’ photos on Nirvanix and were on vacation during those two weeks, tough luck. You can bet those customers will think twice about which data storage provider they give their personal information to in the future; and a written insolvency plan will be one of the first things they check for.

Another example affecting individuals and businesses is that of Zirtual, the virtual assistant service provider. Zirtual is still alive, but only after an interesting (to say the least) week late last summer. On August 10th of 2015, Maren Kate Donovan, the company’s founder and CEO, announced that Zirtual would cease operations due to an excessive cash burn. It would terminate its employees and cut off its service to loyal customers. Luckily, a day later, Donovan announced that would salvage Zirtual, allowing it to continue operations the following week (, “Zirtual: What Happened and What’s Next”). But what if there had been no, no white knight to save the company at the last second? All customers and enterprise clients would have been left on their own.

A common theme evident in each of these, and countless other narratives, is that customers suffer when companies fold without a proper transition. While it is incredibly difficult to generate product awareness and publicity, customer trust is even more challenging to build. Startup founders that make a concerted effort to demonstrate that their customers’ needs come first will find it far easier to earn that trust.

The need for good planning for extreme events is one of the biggest takeaways from the global financial crisis of 2008-09, the worst of the last 80 years. Customer assets evaporated because large banks did not have a robust contingency plan in place for a chain of seemingly unlikely events. Startups, with unfavorable odds of survival, have all the more incentive to consider business continuity as a core customer service they must offer.

Caveat emptor is not good enough. Today, anyone that operates a business that handles customer money should publicly state what happens to that money if the business does not survive. How will customers’ assets be accessible and protected in the event of insolvency?

We at EquityZen, a marketplace for private investments, believe that FinTech firms, especially those managing their customers’ money, must ensure that those funds are completely secure no matter what. We strive to put customer needs first. In the FAQ portion of our website, we candidly face the prospect of our own mortality, addressing what happens in the unlikely scenario that “something happens to EquityZen?” before detailing a prepared structure of a back-up manager who “would ensure orderly administration of the fund and distribution of its assets” (

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If you were an investor or shareholder, wouldn’t you feel more comfortable knowing that the organization with whom you had entrusted your capital had existing measures in place to keep it secure even in the unlikely scenario of something happening to the company? I fly a lot and while I have never used the floatation device under my seat, I sure am glad airlines put them there.

FinTech founders need not curtail their optimism or compromise their vision, but instead, must accept that as leaders, they have an added level of responsibility to their customers. Against all their natural instincts, they must prepare for mortality, so that early adopter customers are not penalized when something goes wrong. Young companies must have a contingency plan in place to protect customers and their assets. We are in an age where cybersecurity breaches (see last summer’s Ashley Madison hack) and regulatory probes against high-profile CEOs (see Elizabeth Holmes, Theranos) are almost commonplace. Customer trust is at a premium. In a world where 90% of start-ups fail, those that neglect to recognize that fact will quickly see their 10% chance of success turn to zero.

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