In this case the potential exit was big: owning checkout for the web is a multi-multi-$B business.
The risks, however, were also big. This was a highly competitive market, with lots of complicated technical and GTM problems to solve. But, investors seemed to believe in their vision + chutzpah + ability to execute, hence they discounted the risk and gave them a rich valuation.
As it turns out, the risks were very real! They successfully hired a big, seemingly-experienced team (something many companies struggle to do) but failed to make enough progress to justify their valuation, i.e., de-risk the business and demonstrate a higher probability of achieving a big exit to potential next-round investors. The product never worked well (actually 502 hard-crashed on launch day) and their team got bloated and slow. Their GTM strategy was fundamentally flawed (horrible CAC/LTV on small merchants) and the founder spent like a mad man. This wasn’t foreseen but perhaps should have been especially by the pros at Stripe
Fast lived a short, insane life and will quickly fade into obscurity versus the more infamous WeWork and Theranos implosions. But I think it’s a more relevant cautionary tale: Fast was backed by “proper” Valley institutions (Index, Stripe, etc.), was a pure software business, and from the outside had all the trappings of hypergrowth success. Lots to be learned by investors, employees, and founders here.
Can't help but think the famous VC concept of "pattern matching" is a euphemism for something more sinister.
I’m not familiar how Fast actually did their fundraising but it’s not impossible to get pre-emptive terms sheets from VCs when you have barely met them or shared any data.
Once you get a term sheet or close to one, this sometimes starts the hypetrain where VCs beg you to meet them and consider them for an investment. At that point it becomes a competition between the VCs who win the deal. The competition will often balloon the valuation since investors care more about ownership % than valuation.
It sounds crazy to invest in a company with no real numbers or traction, but VCs have seen that it works sometimes when the company actually delivers on the story they told when fundraising.
Also amount of ARR or other revenue matters less than the speed it is growing. $10M with stable growth over the years is worse than $5M growing 3-10x a year.
As another example look at the current PE ratio of the companies in the S&P 500: https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea.... This shows that prices are unusually high compared to earnings.
See also: bitcoin, meme stocks, etc
If we find out that there are huge operating costs and little revenue for this valuation then I would be not surprised to see it close down faster than Fast.
Going to be interesting to see how the other companies that raised big A and B rounds in the past one to two years fare.
I believe this really boils down to "Why did Stripe's investment arm value at $150M for an A they lead and then go on to co-lead a B at $500M?". Honestly, it mostly sounds like bad diligence by the folks at Stripe. The co-lead for the B was Addition One, a newish firm that also had invested in one of Stripe's latest rounds, so they may have just been co-investing with Stripe from a "oh yeah, we're all in on Stripe".
Edit: or looking at the timeline, perhaps Addition closed this investment in Fast in January 2021 to get in on Stripe's Series H in May 2021.