‘You have to know what’s coming’: Inside Oak HC/FT’s approach to investing

Patricia Kemp has been investing in financial services technology long before it boomed three years ago. Since 2012, Kemp has been a partner at Oak HC/FT, a venture capital fund that invests in technology-enabled companies for the healthcare information and services and financial services industries. Specifically, the firm likes to take an 80/20 approach to its investments -- 80 percent growth companies and 20 percent early stage. Thanks to technology, it's not just healthcare and financial services that have experienced major digital shifts. Simply creating a company has become easier and faster with technology, giving way for more and sometimes better ideas to be realized -- and opportunities for Kemp's firm to invest. That means today, bigger brands, teams and money aren't necessarily better -- if anything, they're probably slower than the tiny unknown companies that tend to be more agile. Kemp's investments span blockchain, data, payments and more with a portfolio of companies that includes the Digital Currency Group, Fastpay Partners, Feedzai, Insureon, Poynt, Trov, Urjanet. Tearsheet caught up with her on how she sees the overlap between fintech and healthcare, how to use data more effectively and how investing today is different from when she began. The following has been edited for length and clarity. How does financial services overlap with healthcare and where’s the opportunity for you? Both are becoming digitized, both are highly regulated industries, both have large legacy players. Healthcare payments — identifying, matching, authenticating, settling, processing payments and claims, a large portion of it is very similar. The opportunity within both of these is you have these out-of-date technology stacks that have not made use of cloud, data, AI, mobile offerings, outsourced services. We like to enable the Bank of Americas and Chases and Fidelitys instead of compete against them. Would you invest in a fintech company that’s would compete against them?  We think that’s a harder round. You’re going to find the most successful categories of fintech are the ones that are helping the banks get there, that have what the banks don't have — engineering and talent — and don't have the legacy platform and internal fiefdoms or agendas. How is investing today different from when you began 15 years ago? There’s a much greater acceptance from large, corporate, legacy players to utilize a smaller company for something like fraud or compliance or to outsource customer service. Ten to 15 years ago, the attitude was “go with IBM, you can't go wrong.” But today there’s a much greater understanding that we should go with a team of 50 engineers in Flatiron because they can do it better and faster than a large incumbent could do internally with its long processes and resource management. What’s your favorite area right now? We think data can be used more effectively for more personalized pricing, customer experience, onboarding, management. You're going to have upsides from both cost perspectives from all those financial institutions and also customer experience, customer management and revenue generating experiences. Can you give an example of the ineffectiveness of data use? Data today comes on largely paper bills that has different fields that don't match. To get that into a standard format and then be useful for bill payment, cost management and reduce sustainability is a job. One of our companies, Urjanet, has a platform connected to 4,500 utilities in the country: gas, power, electric, water, waste, telecom. I call them messyware. They cut out pipes, pull in billing and payment information for corporate clients, put it into a standardized template and feed it into billing and payment information, cost analysis, energy management and frequently to the corporate client itself. What’s the advantage of making all that data so accessible? People have better budgetary controls in terms of managing the cost of paying the bills. In addition what we believe is there’s also going to be energy regulations at some point. If you have 3,000 retail locations out there you're going to have to report on energy usage by location. Energy, water, waste — it can mean a lot of different things — and now that data’s going to be accessible. Why 80 percent growth and 20 percent early-stage? We do the 20 percent early-stage because things are moving so quickly in this world. Ten years ago you could invest in a company with 10 to $20 million in revenue and think you were off to the races and not worry about it. Today, startups are so quickly becoming participants in the industry you have to know what’s coming. Early-stage informs your growth stage investments, it also informs your involvement with a growth stage company because you know what else is coming. And now, early stage companies scale at a much faster pace.