We continue to talk to the best fintech investors in the business. Up today is Jonathan Ebinger, partner at BlueRun Ventures. BlueRun is probably best known in fintech circles for its early stage investments in PayPal and in Kabbage, where Jonathan still sits on the board. Jonathan shares with us how fintech has evolved over time and where he sees opportunities in today’s market. We dig into a few choice selections in the BlueRun portfolio and how they signal Jonathan’s core fintech theses.
Why focus on financial technology?
We got started investing in fintech with our second investment in our first fund, which was in something called Confinity, now known as PayPal. So, we were the first institutional investor in a company that became PayPal. We backed Luke Nosek, Peter Thiel, and Max Levchin, as they launched the company.
They thought it would be great if people could beam money back and forth with each other with their Palm Pilots. We thought that was crazy enough to work. We lead the Series A and soon realized the value was sending money through email, not mobile phones. We went public and then sold to eBay along the way. That got us involved in fintech and taught us the value of having a high-viral coefficient in signing people up for services.
How has fintech investing evolved over your career?
PayPal lead us to invest in security. It’s well-known that Max Levchin invented the captcha functionality and we invested again in that category via FreedomPay. The company powers most of the POS devices in places with a lot of public traffic.
We are making a lot of investments in data aggregation. When people think of this industry, they immediately jump to privacy issues. That may be true on the consumer side of data aggregation, but on the business side, there’s an opportunity for businesses to establish and share their data to get credit.
Investing in Kabbage
We lead Kabbage’s Series A. I’ve been to a lot of eBay meetups, including in Santa Clara. It’s true — a lot of firms have problems with cashflow. This business was started right after the financial crisis. When working capital dried up, a lot of small businesses really suffered.
Kabbage’s word of mouth really spread. We had a promo code and referral bonuses to sign up. The company just grew like wild through eBay. Traditional banks really couldn’t understand how to lend to a business run out of someone’s garage with no inventory. Kabbage was able to sort that out. It’s been a great ride.
Highlights from the BlueRun fintech portfolio
It may not be the most exciting category you’ve covered but payments is a big field. If you look at an income statement, the expenses are the second largest numbers on there, aside from the revenue side.
You have products like Salesforce that look at everything from the revenue side. When you look at the expense side, no name really jumps out as a market leader. We invested in Coupa, which we took public two years ago. We were Series A investors in that, too. What the current CEO realized is that you have to make this software easier to use than not to use. You have to add value to doing something like paying your bills or getting paid.
We continue to invest in this thesis. We most recently put money in PayStand, which is really about cashflow acceleration. It’s a product that helps small businesses getting paid more quickly. There’s traditionally little intelligence in small business finance. If you think about a relationship with a customer, it’s a journey that begins when he’s just a prospect all the way through to signing the first contract. PayStand takes a holistic view of this customer and what he means for a business and how we can make it beneficial for them to pay us on time.