Summary:
Sankaet Pathak's Synapse faced bankruptcy, freezing $200 million in customer assets.
Regulatory failures left no agency accountable for the fallout from Synapse's collapse.
Pathak has raised $11 million for a new startup despite Synapse's failure, challenging the limits of investor tolerance.
Customer accounts, like Yotta, still face uncertainty with $95 million missing almost a year later.
Pathak's perspective on failure: "There’s no shame in failing, unless it’s catastrophic."
The Rise and Fall of Synapse
In the world of startups, failure can often lead to new opportunities. However, the story of Synapse, a fintech company founded by Sankaet Pathak, is a stark reminder of the risks involved.
I started covering the crypto industry at Fortune in August 2022, just months before the infamous FTX collapse. Since then, I’ve encountered stories of spectacular failures, but Synapse’s downfall mirrors FTX in many ways, though it hasn't received as much public scrutiny.
A Fintech Vision Gone Wrong
Synapse was launched during the banking as a service wave, aiming to connect fintech startups lacking banking charters, such as Mercury and Dave, with regional banks. Despite its rapid growth, the company faced poor internal controls and management issues, which strained relationships with its banking partners, ultimately leading to its bankruptcy last April.
The Fallout
The collapse of Synapse significantly impacted various fintech applications, including Yotta, which had assured users that their deposits were FDIC-insured. Following the bankruptcy, $200 million in customer assets were frozen, with nearly $95 million still missing almost a year later. Customers like Kayla Morris, who invested her life savings, are left in desperation, having only received a mere $500 back.
Regulatory Concerns
The case of Synapse raises serious regulatory questions. Operating in a grey area without clear oversight, no agency has taken responsibility for the fallout. It has become a blame game among Synapse, the banks, fintech clients, and the users, reminiscent of a nightmare version of the Spider-Man meme.
The Myth of the Founder
Unlike some infamous founders, such as Sam Bankman-Fried or Elizabeth Holmes, Pathak has yet to face any legal repercussions. Interestingly, he has successfully raised $11 million for a new venture focused on humanoid robotics. This scenario begs the question: how much failure is too much for investors to stop funding a founder?
When asked about his regrets regarding Synapse, Pathak stated, "There’s no shame in failing, unless it’s catastrophic." This mindset reflects the evolving narrative surrounding startup culture, where failure can sometimes be seen as a stepping stone to future success.
We delved into this story by interviewing former employees and analyzing court documents to uncover the complexities behind Synapse's collapse. For a deeper understanding, check out our full investigation here.
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