‘With a fund, CUNA Mutual Group gets a seat at the table’: CMFG Ventures’ Brian Kaas
- CUNA Mutual Group distributes investment and insurance products to 95% of the credit unions in the U.S.
- It also invests in fintech with an eye on helping credit unions get access to new, innovative products.
It may be surprising to hear that 124 million Americans are credit union members. Serving that constituency isn’t always easy. That’s because client expectations are high as financial service providers compete on experiences with Netflix and Amazon. CUNA Mutual Group partners with over 95% of all credit unions in the US to help them better serve their membership with insurance and investment proucts.
CUNA Mutual Group also invests in fintech. Brian Kaas is the managing director of CMFG Ventures, the firm’s venture capital arm. He joins me on the podcast today to discuss the challenges credit unions face and the role fintech is beginning to play to help them level the playing field. We talk about CMFG’s mandate and some of the firm’s investments like Affirm, Current, Good Money, and Steady.. Lastly, we look ahead to see just where Brian is interested in investing in the future.
Brian Kaas is my guest today on the Tearsheet Podcast.
Why CUNA Mutual Group set up an investment arm
I think it’s really critical. When we go back to the early days, when we were looking to create a venture fund back in 2015, I think we recognized that the financial services space is undergoing one of the greatest revolutions in the history of mankind. With that pace of change, we really saw a need for these types of technologies to find their way into the credit union system so that the system itself remains strong and relevant to all, well into the future. One of the best ways we thought to do this is to form a venture capital fund, so that we really get a seat at the table, that we get an opportunity to see some of the emerging technologies at very early stages, and then find ways to introduce that technology into the credit union system. So that really was the genesis and strategic purpose of setting up CMFG Ventures.
All of the investments are funded off of the balance sheet of our parent company, CUNA Mutual Group. There are some regulatory limitations on credit union investments in fintech companies. So, we’re not able to have credit unions invest alongside us. But really, what we’re focused on is creating this ecosystem between fintechs and credit unions that really brings those two worlds together. That’s as, if not more, important than the investing itself.
The ecosystem is something that, as the fund evolved, we’re really looking to kick off and accelerate as we move forward. We look at it in a couple of different ways. One, we are next month launching what we’re calling the Fintech Forum, which is going to be an opportunity for credit unions to engage in direct dialogue with fintech companies, for credit unions to have discussions among themselves around what they’re doing with regard to fintechs. We want to provide a series of educational programs, webinars, and other events to familiarize credit unions with fintech companies and to get more credit unions comfortable with trying to navigate this space and break down the barriers that that many fintech companies face when they try to go into the credit union space.
In other cases, we’ll look to help some of the portfolio companies with distribution into that credit union space. We work with over 95% of credit unions, and we also provide products or services to over 1300 banks. So we have over 6000 financial institutions that we work with. That provides really tremendous opportunities for our portfolio companies.
Biggest challenges for fintechs to sell to CUs
I think credit union executives would agree it’s a pretty tight knit community with respect to credit unions. And if you’re a company that credit unions aren’t familiar with, it’s very hard to get the doors open to even have that initial conversation. CUNA Mutual Group has been around for 85 years, and throughout the entirety of our history, we’ve worked with those credit unions. So, you know, oftentimes by just having our name associated with a company, it helps get those initial calls and intros, so that’s certainly one of the hardest challenges that fintechs face,
I also spend a lot of time talking to credit union executives. Tomorrow, I’ll be speaking at a conference on this very topic. And what I hear from the credit union side is, it’s really challenging for credit unions to try to navigate the fintech world. By some counts, there are over 6000 fintechs globally — that’s more fintechs than US credit unions. They just don’t know where to start. And so there really are challenges on both sides that we’re trying to address through CMFG Ventures.
Mandate of the fund
The mandate is really to focus on fintech companies that can help address the needs of credit unions, that might have relevant technologies that credit unions can use to better serve their members. We really have a dual mandate. So it’s both financial and strategic, like most corporate venture capital funds, but we primarily invest in Series A stage companies for our initial involvement with a check size of $1 million to $5 million. But because we are strategic, we’ve invested in seed companies and have led a Series D and have invested in even later rounds. So the rounds are not as important to us as the strategic value that those companies might be able to bring on to the credit union ecosystem.
Investing in DTC and B2B
In any of the companies that are direct to consumer, there either is an existing relationship or play between that company and credit unions, or in some cases, we look at the future roadmaps of these companies. And there can be situations where credit unions could play a part in that company’s growth as they develop that roadmap.
For example, we have four or five companies in the portfolio that are direct to consumer lenders. What’s really unique and distinct is that these companies are partnering with credit unions, where the credit union provides the funding for those loans. And then the consumer becomes a member of that credit union. So this year alone, through those portfolio companies, we’ll originate over $5 billion of loans for the credit union system.
A couple of themes emerge if you look at the companies we’ve invested in, and today, we’ve invested in 27 companies. In the current portfolio, we have nine companies that are in the lending space. Lending is really the lifeblood of credit unions. And yet we see a lot of fintechs and big banks taking market share away from the credit union system. Again, we view fintech companies as really critical to the lifeblood of credit unions as we look ahead. So that’s a big component of companies that we’re interested in. I think what might come as a surprise to some credit unions, we also have investments in what I would describe as challenger banks. So Current and Good Money are in our portfolio. These challenger banks certainly pose potential risk to credit unions. But they provide tremendous learnings for us — we’re able to see how these challenger banks are really resonating with younger consumers. In these instances, we see the potential down the road for there to be unique partnerships between challenger banks and credit unions.
Another one is companies that are focused on financial wellness. And when we look at the core demographic of both CUNA Mutual Group and credit unions, we’re focused on the middle market, and focused on consumers that oftentimes get overlooked by a lot of the larger banks, or that are underserved — that’s a theme that really resonates throughout many of the companies in the portfolio. Technology is a great way to provide greater access to financial security to that middle market than we’ve ever had before. That’s one of the things that I love about my job: we can provide those technologies into the credit union space and fund companies that provide financial security to everyone.
There certainly is [a focus on social consciousness with] a lot of companies out there, especially when we’re looking at some of the direct to consumer companies. A company in our portfolio that’s been around for almost 10 years is called Happy Money. That sort of social consciousness is really embedded in the mission of the company. it’s also embedded in the mission of credit unions and our company. So there’s tremendous alignment across all three of these groups.
We’ve also excited to discuss the launch of a sister fund to CMFG Ventures, and it’s the CMFG Ventures Discovery Fund. The mandate of the Discovery Fund is to invest in seed and pre-seed companies that are founded by women, people of color, and other underrepresented groups that traditionally have lacked access to capital. We’re looking to invest $15 million over the next three years into these early stage companies, and help those companies not only through capital, but to provide opportunities for these companies to get in front of credit unions. We want to create almost a corporate mentoring program where credit unions can take some of these companies under their wings to help them on their product roadmaps and go to market strategy. It very closely aligns with this strategic mission that we have and social consciousness through our investing.
The CMFG portfolio
The first company I’ll briefly mention is a company called Line. This was one of our first investments through the Discovery Fund. But Line really is a subscription platform that offers access to emergency capital of up to $1,000. There’s no interest on these lines and there’s also no income restriction. This can be a lifeline to somebody that has an emergency crisis: they have a car repair that they need to make just to get to their job, for example. And they’re not able to access traditional lines of credit or borrowing. ’m really excited to have Line in the portfolio and to work with that company, as they look to grow and mature.
We have another company called Steady. What’s really interesting about Steady is that they’re what they would describe as an income building platform that aggregates personalized work opportunities, primarily focused at the gig economy. What they’re really focused on is trying to strengthen the asset side of people’s financial balance sheets. Especially with gig workers, where you might have more sporadic income, they’re doing some amazing things with the data that they’re collecting, working with banks and credit unions, to help overcome some of the challenges that lending to gig workers provides.
And three others that fit in that lending category: I mentioned Happy Money, which provides consumer loans. MotoRefi provides auto loan refinancing. Renofi provides lending for home improvement loans, and Splash provides student loan refinancing. All these companies are working with credit unions to provide loans. So it’s a good example of how companies have strengths that they are able to bring to the credit unions, and for credit unions to leverage the strength of their balance sheets to help these fintechs. So it’s a real symbiotic relationship between those companies.
We will continue to invest in companies in the lending and financial wellness space — in companies that can either provide needed technology or solutions for credit unions, or that provide products or solutions to reach into that very large credit union membership.
One area that we’re starting to take a closer look at is cryptocurrency. Right now, we’re really just trying to understand what credit unions may need in terms of servicing their members in the crypto market. So, I’m excited to dig deeper into that.
It’s been interesting talking to credit unions at these various conferences.Three or four years ago, the majority of credit union leaders were fairly dismissive of the impact that fintechs would have on their businesses. I think what we saw coming out through the pandemic and the impact that that’s had on many industries, including financial services, it really has opened the eyes of a lot of credit unions, recognizing that they really need to do a lot more to get their house in order to compete with not only fintechs but also the big banks. I tell credit unions that JPMorgan Chase has a larger technology budget than the entire credit union system combined. And so the only way that they’re going to compete with that is through these unique fintech partnerships, and we’re here to try to make that happen.