Daylight, a neobank focused on the LGBTQ+ community, is folding at the end of June following allegations from former employees of discrimination and fraud.
The digital banking platform's last day of operations will be June 30, due to its failure to scale amid a rising interest rate environment, CEO Rob Curtis wrote in a Monday blog post. The company's swan song comes six weeks after New York Magazine
The March lawsuit, at least the second employee legal action against the company, claims that Curtis presented false data to investors and created an environment that was "psychologically unsafe," among other transgressions.
"Start-up leaders must be extremely pragmatic, often required to make tough decisions for the business, including partnering with folks you don't always agree with, managing team performance and laying off valued team members," Curtis wrote in the blog post. "Building a sustainable business means taking a long-term, macro view…I wish I'd been better able to navigate this tension."
In the email to American Banker, Curtis said that the lawsuits had "no material impact" on the decision to cease operations, and that customer sign-ups to freemium products grew 300% since the lawsuit was filed. Daylight has filed to dismiss the suits.
Daylight has already laid off 13 full-time employees as part of the phased shutdown, Curtis said in the email to American Banker. He added that the neobank first began considering closing shop in February, when its long-planned product to help the queer community plan their finances and paths to parenthood underperformed against expectations.
"We have been analyzing our remaining opportunities — further investment in this product, investing in another LGBTQ+ financial services opportunity, or implementing a wind-down of the Daylight brand," Curtis said in the email. "Daylight's entire reserves were held by SVB and [when the bank failed]we began preparing plans to wind-down the brand, which were incorporated into the recent decision."
Curtis wrote in the Monday blog post that a period of "soul searching" and turbulence in the banking industry made him feel it's time to exit.
Challenger banks that
Jonah Crane, a partner at the advisory and investment firm Klaros Group, said that while investors are still deploying capital in early stage startups, companies that don't hit certain growth projections will find it hard to get funding. Daylight had raised $20 million since its founding in 2020 through its seed and Series A rounds, from investors like CMFG Ventures, Citi Ventures and Mendoza Ventures.
Many challenger banks with specific target demographics have strong products that fill a need, but can't make a business case as full-service companies, Crane said. Daylight's products included debit accounts that allowed people to use their chosen names on cards instead of their birth names, an important feature for people whose names and genders don't match their official documentation. Curtis said in the Monday blog post that "thousands" of customers used the company's products.
Crane said that Daylight was solving real problems that customers have, but it wasn't able to achieve scale.
"The positive lesson I take away from some of these niche companies is there's an opportunity for companies to attract new customers by doing even relatively small, creative things to solve real needs and real issues that they have," Crane said. "That's the promise of fintech. Leverage technology with individualized, customized focus on the consumer."
Curtis said in the email to American Banker that providing the types of services Daylight offered in a profitable way is a job for large, institutional banks, and that the company has offered to help them innovate their product suite. He added that Daylight is in conversations about the acquisition of its brand and cardholders, but can't share details.
Crane said that Daylight might have been a promising acquisition target, but that acquirers are likely apprehensive due to the lawsuits from former employees, in addition to the backdrop of JP Morgan's soured and
