The blackout at Powa Technologies has some in payments industry circles wondering whether the company’s sudden collapse is a sign of harder times for fledgling fintech companies.
Powa, a high-flying fixture of the mobile payments industry for several years, raised $179 million partly from interest surrounding its QR code technology, enabling consumers to scan a printed PowaTag to be immediately directed to an online checkout page.
The company on Monday laid off 74 people out of 100 at its London headquarters, according to reports from Business Insider and the Financial Times. This was just a few days after Powa announced new ownership after it abruptly ran out of money this month.
The question on some observers’ minds is if Powa—which has been steadily expanding and announcing new partnerships—can blow up so quickly, who’s next?
It’s a good question to be asking if you’re part of Silicon Valley’s payments scene, said Matt Harris, managing director at Bain Capital Ventures, who believes Powa’s collapse is indicative of a couple of trends “we’ll see many more examples of” this year.
“The first trend is that the label ‘fintech’ will no longer be enough to get you funded,” Harris said, pointing to the stock performance of Lending Club and, most recently, Square Inc., which has had a mixed showing since going public in November 2015.
“People are coming to understand that trees don’t grow to the sky, and ultimately [all companies] trade at a cash flow multiple,” Harris said.
The second trend is that scrutiny is intensifying on bottom-line results for payments industry startups—just like all other business ventures—as specific technologies and companies mature.
“Positive unit economics, or how much money you actually make on a transaction, net of costs and in consideration of how much it costs to recruit customers [matters], and you can’t fake it for long,” Harris said.
Harris declined to speculate on Powa’s prospects.
Thompson Investments, a vehicle headed by Richard Thompson, has purchased Powa for an undisclosed sum and is retaining top management, Powa CEO Dan Wagner said in a press release Feb. 19.
Powa got its start in 2007 with mobile point of sale technology and expanded to several global offices before introducing the PowaTag in 2014. PowaTags grabbed interest not just in the payments world, but also in the advertising industry.
Powa hasn’t disclosed details of its profits and losses, but the company generated interest from investors because its concept was particularly compelling, said Ketharaman Swaminathan, founder and CEO of Pune, India-based GTM360 Marketing Solutions, a payments industry consultant who has closely watched Powa.
“When it launched, it appeared Powa was solving one a key problem, by reducing the steps between viewing an ad and buying a product,” Swaminathan said. Powa also introduced a way to connect a specific purchase to the existence of a PowaTag. This process could have been a breakthrough in the advertising industry, which has long sought better methods to measure the effect of advertising media expenditures.
“Powa got far because its original value proposition looked strong,” he said, guessing that the company’s troubles may have been caused by some other weakness in execution or strategy.
Wagner did not respond to calls, and Powa’s website continues to tout regional headquarters in London, New York and Hong Kong, with additional offices in Paris, Milan, Madrid, Shanghai, Taiwan, Tokyo, Atlanta, Miami and San Diego.