Fronted, a UK-based fintech startup founded in 2019 by former Apple, Monzo, and Bud executives, aimed to revolutionize the rental market by offering credit products to help renters finance deposits. Despite raising over £20 million and facilitating 40,000 rental moves monthly, it closed in 2023 due to unsustainable capital costs.
What Was Fronted?
Fronted's main product was a 12-month deposit loan for renters, allowing them to pay back deposits monthly with interest. Leveraging open banking, it offered a cheaper alternative to credit cards. Notably, Fronted raised $27.83M, facilitated 40,000 rental moves monthly, and influenced UK rental policy.
What Happened to Fronted?
The story of Fronted is a compelling tale of ambition, innovation, and the harsh realities of the fintech world:
Initial Success and Funding: Fronted received over £20 million in funding, which allowed it to sign distribution deals with estate agent software firms. At its peak, the startup facilitated 40,000 rental moves monthly, helping renters transition from abusive homes and social housing to private rentals.
Innovative Financial Products: The founders, with backgrounds from Apple, Monzo, and Bud, introduced a 12-month deposit loan and a "deposit that moves home with you." Leveraging open banking, these products offered cheaper and more sophisticated alternatives to traditional credit cards and overdrafts.
Rising Capital Costs: The startup faced skyrocketing capital costs, exacerbated by repeated interest rate hikes. These financial pressures made it increasingly difficult to offer products at prices consumers were willing to pay.
Market Shifts and Decline: The dramatic increase in the cost of capital led to a doubling of consumer costs, reducing price elasticity. Despite signing a significant deal, Fronted couldn't bring its product to market at a competitive price, leading to its eventual closure.
Impact and Lessons Learned: Fronted aimed to improve social mobility by introducing liquidity to the rental market. The experience underscores the volatility of capital costs and the need for adaptable business models. The founders believe that earlier partnerships with larger entities could have facilitated better product distribution.
When Did Fronted Shut Down?
Fronted officially shut down at the end of May 2023, as recorded by Companies House. The closure was primarily due to unsustainable capital costs, which surged late last year, making it impossible for the startup to continue offering its products at competitive prices.
Why Did Fronted Shut Down?
Increased Capital Costs: Fronted faced a significant rise in capital costs late last year, which CEO Jamie Campbell described as going "through the roof." This surge made it impossible for the startup to offer its product at a price consumers were willing to pay, ultimately leading to its downfall.
Interest Rate Hikes: Repeated interest rate increases led to higher borrowing costs for Fronted. These financial pressures forced the company to more than double the price of their product, which was not feasible for their target market, significantly impacting their business model.
Economic Difficulties: The broader economic challenges affecting startups and SMEs also played a role in Fronted's closure. The dramatic change in the cost of capital at the end of last year caught many companies off guard, including Fronted, which struggled to adapt to the new financial landscape.
Market Shifts: Fronted's ability to offer its product at a competitive price was severely impacted by market shifts. Jamie Campbell noted that while customers were willing to pay around £50, the market changes meant they couldn't offer it for less than £100, leading to a loss of price elasticity.
Delayed Strategic Partnerships: According to Jamie Campbell, earlier partnerships with larger entities could have facilitated better product distribution. The delay in shifting to a model of working with partners who already had significant scale hindered Fronted's ability to maintain competitive pricing.
Lessons Learned from Fronted's Failure
Adaptability: Rapidly changing market conditions require startups to be flexible and ready to pivot their business models to stay competitive.
Capital Management: Effective management of capital costs is crucial. Rising costs can quickly erode profitability and sustainability.
Strategic Partnerships: Forming early partnerships with larger entities can enhance product distribution and market reach, providing a competitive edge.
Price Sensitivity: Understanding and maintaining price elasticity is vital. Products must remain affordable to the target market despite economic fluctuations.
Economic Awareness: Stay informed about broader economic trends and prepare for potential impacts on your business model and financial health.
Innovation and Timing: Innovative products need timely market entry. Delays can result in missed opportunities and increased competition.
We Shut Down Startups
Fronted's journey underscores the harsh realities of the startup world, where even innovative ideas can falter under financial pressures. If you're facing similar challenges, Sunset can help you navigate the complexities of winding down your startup.
Sunset takes care of all the legal, tax, and operational burdens, allowing you to avoid penalties and reduce liabilities. Book a demo to see how we can assist you in moving on to your next venture seamlessly.
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