Inside the chaos at Synapse, where questionable management tactics by CEO Sankaet Pathak have left the company with its future in jeopardy.
I n July 2019, the 29-year-old CEO of San Francisco financial technology startup Synapse scolded five of his engineers for not making faster progress. "Do you even enjoy this project?" Sankaet Pathak asked. "Not really," the team's leader answered.
"That's it, you're out," Pathak declared, firing the employee on the spot in front of his colleagues.
Synapse's Human Resources director, Juan Aguayo, confiscated the terminated worker's key card and computer. But as Aguayo spoke, he received a message on his laptop, and his tone started to change. Minutes later, he said to the engineer, who was now crying, "Don't worry, you're not fired."
The dazed, confused employee went back to his desk. Pathak never spoke to him about the incident again, acting like it never happened. The engineer started looking for a new job the following week and left the company less than two months later. In late February 2020, Pathak pulled the same stunt again with a customer service staffer, firing and rehiring him minutes later.
In mid-2019, Synapse was on a fast rise, securing $33 million in venture capital funding from Andreessen Horowitz, Core Innovation Capital and other investors. It recruited fast-growing clients like Dave, a digital bank with five million-plus users and a valuation of $1.2 billion, and Honey, the Internet browser application that helps consumers save money, which PayPal recently bought for $4 billion.
But over the past six months, a picture of Pathak has emerged as a leader whose short fuse, poor judgment and bad management practices have left Synapse with its future in jeopardy. Ten of Synapse's roughly 120 permanent employees left the company in January and February. Its products are riddled with technical flaws, former employees say. Large customers have fled, while other clients complain of a poor user experience. And new customer sign-ups may be slowing.
The situation at Synapse, where a brainy CEO's behavior ranges from autocratic to bizarre, is not uncommon in the world of rapidly growing startups and Silicon Valley. Elon Musk's tweets have created one controversy after another . Travis Kalanick scoffed at regulators and presided over a discriminatory culture at Uber. Former WeWork CEO Adam Neumann controlled the rights to the corporate name “We” and sold it back to the company for $6 million, creating a huge potential conflict of interest.
In cases like this, investors are left with a difficult question: What can a company do when it has a visionary CEO who's reckless? "They can try to bring in other executives to complement the weaknesses the entrepreneur might have," says Hans Morris, a venture capitalist and the executive chairman of online lender Lending Club. In 2016, Morris helped fire Lending Club CEO Renaud Laplanche after he allegedly sold $22 million in loans to one investor in a way that violated the investor's specific instructions, causing the board to lose trust in him.
Another strategy for dealing with an irresponsible CEO is coaching, Morris says. "I think the accurate answer, however, is that investors should remain skeptical that any of these methods will work when they see extreme behavioral problems."
Forbes spoke with 13 of Synapse's current and former employees and six customers for this article, most of whom asked to remain anonymous. Pathak declined to answer most of our questions. "Synapse is a hard sciences company, not a marketing brand," he said in an email. "We solve hard engineering problems that revolve around attempting to build high class financial products for the masses." Regarding his firing and re-hiring of a customer service staff member recently, he said, "I cannot recall anyone on the [customer service] team ever being rehired."
A fter growing up in northern India, Pathak immigrated to the U.S. to attend the University of Memphis, graduating with a degree in computer engineering. In 2014, he cofounded Synapse as a digital bank that aimed to serve underbanked consumers. He quickly learned he needed to partner with many traditional financial institutions, ranging from banks to payment processors. Their systems were painfully difficult to integrate with, and he pivoted Synapse into a business-to-business startup that aimed to make it easier for other companies to launch financial products like checking accounts and debit cards.
Pathak worked out of a rented, seven-bedroom home in the residential Twin Peaks neighborhood of San Francisco, which had a majestic view of the city. In 2016, a handful of people lived there, and standards for professional behavior were low. Pathak posted crude messages in public forums on Slack, the popular messaging app, including a joke about having masturbated on one of his colleague's beds. "The joke was only intended for and received by my roommate," Pathak told Forbes in an email. But a person who saw the message says Pathak wrote it in a public channel and that at least 10 employees would have seen it.
The CEO almost exclusively recruited young, inexperienced engineers and salespeople, hiring many of them directly out of coding "bootcamps," or short-term training programs where you can go to learn coding skills after college. "I think he screened for people who didn't stand up to him," says a former account manager at Synapse. "He's very much an authoritative person who doesn’t take well to people telling him what to do."
For most of its existence, the company has had few managers. Pathak was the only boss on the business and technology side of the company, even when it later exceeded 100 people, former employees say. That let Pathak more closely control the company and keep costs lower, since he didn't need to pay the higher salaries that more experienced hires demand. It also meant some employees received little to no mentoring, causing low morale.
In 2018, U.S. fintech companies started offering online-only checking and savings accounts in droves as they tried to build stronger customer loyalty. Digital-first banks also proliferated. Pathak had an innovative and appealing pitch: Plug into Synapse's APIs—application programming interfaces, or code that customers can access and customize—and you can offer a checking account to consumers in a few months. Before Synapse, it might take a year or more to build the systems and establish the banking relationships necessary to launch a deposit account. (Since Synapse doesn't have a bank charter—few fintechs do—it partners with three banks, including a 95-year-old Tennessee bank called Evolve, for core financial functions like holding customer deposits.)
In May 2019, after Andreessen Horowitz sunk millions into Synapse at a reported valuation of $180 million, the VC firm took every opportunity to promote the startup. It called Synapse the "AWS [Amazon Web Services] of banking." Angela Strange, the Andreessen partner who led the investment, said Pathak had a "brilliant financial services product mind." (Strange declined to comment for this article through a spokesperson.) Former Synapse employees also call Pathak a genius.
The CEO recruited more than 100 customers, including student loan fintech CommonBond and investment company Yieldstreet, charging about $10,000 a month. Last fall, Pathak said Synapse was earning between $20 and $30 million of annualized revenue, or roughly $2 million a month. He said he owns 35% of the company, which gives him a net worth of more than $60 million.
Inside Synapse's chic San Francisco office, Pathak threw tantrums repeatedly and set unusual policies. He told workers to take their shoes off to keep the office clean and not to bring in dairy products to reduce the company's carbon footprint.
In 2019, more troubling concerns emerged. Multiple company reviews appeared on Glassdoor.com calling Pathak verbally "abusive." He denied the claims to Forbes last fall, saying his mistake was that he should have fired more people when they didn't meet his expectations instead of letting them stay in roles they weren't qualified for.
He also sued anonymous Glassdoor reviewers for defamation, saying their reviews contained false statements. That case is still pending.
Then in December, three former employees sued Synapse with accusations of gender and age discrimination. Asya Bradley, Synapse's former head of sales, said Pathak didn't pay her while she was on maternity leave and told her to take training calls with him late at night while she was breastfeeding her new baby. In response, a Synapse spokesperson told Bloomberg that the allegations misrepresent the company's culture. Some former Synapse employees say Bradley is motivated to damage the startup's reputation because her husband Matthew Bradley, a Synapse cofounder, is now leading a direct competitor, Bond.
After the gender discrimination lawsuit became public, Pathak's approach to addressing the topic frustrated employees. During a company-wide meeting, Synapse's in-house attorney referenced it briefly, saying there are two sides to every story. Then Pathak projected diversity statistics onto the shared screen, showing how Synapse compared favorably with other tech companies in its number of female employees and managers.
Synapse has an unusually large number of women for a tech startup, and it has women on its leadership team, including its head of compliance and head of legal. But former employees say that on the sales and technology side of the business, Pathak was the only leader with true authority. They say the diversity statistics were beside the point, and they were disappointed he didn't directly address the question of how women were treated.
Beyond those problems, operational issues weigh down the startup, potentially stemming from Pathak's reluctance to delegate. "We had a lot of code that was always broken," says Alex Dotterweich, a former machine learning engineer at Synapse who left the company in January 2020 to join digital bank Chime. Synapse's customer database is a disorderly jumble, a former employee says, because too many people have access and don't understand best practices for database management. One reason Synapse's systems were error-prone was likely because Pathak has never hired a "dev ops" engineer, a common role at tech companies designed to make sure all code runs smoothly across different databases and computers.
"[Our] products are live, and working," Pathak told Forbes in an email. "If they weren’t, we [wouldn't] have any customers … There are a lot of moving parts and we are stitching it all together."
Former clients also say that Synapse often made technical changes with little to no notice, and one former customer says Synapse tried to force a pricing increase on short notice.
Empower, a digital bank that offers cash back on debit card purchases and has grown to 600,000 users in three years, previously used Synapse but switched providers in January 2020. Oxygen, another San Francisco neobank, had a falling out with Synapse after experiencing a surge in fraudulent activity that resulted in hundreds of thousands of dollars in losses for the nascent startup, according to a person familiar with the situation. Pathak declined to discuss details but said, "Oxygen was terminated by Synapse for multiple issues." Insurance behemoth Prudential used Synapse's service last year but is no longer a customer.
Synapse's new customer sign-ups may be slowing down, according to former employees—they say the startup recruited fewer clients at the end of 2019 compared with 2018. (Synapse declined to comment on customer numbers or current sales figures, but its head of revenue, Deb Bardhan, says the company is "growing so fast" that its biggest challenge is scaling the company "without bursting at the seams.") Since Synapse landed its first client around 2015, one in every three companies that have purchased its products are no longer using the service, based on Forbes' research.
What's next for Synapse? One former employee says Pathak's temper has improved, he's delegating more and has set up a tiered management structure. One proof point: In October he recruited Bardhan, a former analytics director at Thomson Reuters with a Wharton MBA, to join the leadership team. Yet it's unclear whether Pathak can meaningfully delegate responsibility.
Pathak's investors are in a pickle. Since the CEO shunned hiring managers for years, there's no bench of established leaders to help the company reach the next level of growth—and no clear successor if he were to step down.
Synapse's service remains novel and ambitious. It's the fastest way to launch more than eight different financial products, and unlike many financial infrastructure companies, it's willing to work with new startups. But it faces even more challenges: The coronavirus-induced recession will make it harder for early-stage businesses to get funding in the near term, putting many of Synapse's customers on shaky footing. Combine that with the overcrowding of the digital banking industry, and demand for Synapse's service could start to wane quickly.
Update: This article was updated on 4/1/20 to clarify that a person quoted was a former Synapse account manager (not a customer service manager) and that Synapse tried to force a pricing increase on one customer (not multiple).
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