[podcast] Why Foundation Capital’s Charles Moldow invests in B2C fintech companies

charles moldow investing in fintech
Charles Moldow, Foundation Capital
Charles Moldow, Foundation Capital

Last week, we had Caribou Honig of QED Investors on the podcast and I said that his portfolio is one of the strongest in fintech. If I had to name the top investors in the next generation of finance companies, Charles Moldow of Foundation Capital  would definitely be near the top of the list, as well. Charles joins us this week on the Tradestreaming Podcast to talk about his thesis behind why he likes to invest in a trillion dollar industry that, in his words, “doesn’t do a great job servicing its customer base”.

His white paper, A Trillion Dollar Market By the People, For the People is essential reading for anyone who wants to know about the marketplace lending space:  its size, structure, and potential. We’ll include a link in the show notes to it. His current portfolio includes auxmoney, BTCJam, Finxera (formerly Bancbox), LendingClub [IPO 12/11/14], Lending Home, Motif Investing, and On Deck Capital [IPO 12/17/14].

I think you’ll find my conversation with Charles to be thought-provoking — pay attention to why he prefers to build standalone B2C finance companies as opposed to firms that partner and sell into incumbent financial institutions. Contrarian and a very interesting point.

Listen to the FULL episode

In this episode, Charles shares:

  • his thesis on why he likes to invest in early stage fintech
  • why fintech has been relatively off the radar screen for many venture capitalists
  • his preference building B2C companies in the financial services space and why B2B firms have a hard go at it
  • how his white paper changed how we view peer to peer lending by renaming it the marketplace lending industry
  • why he turned down investing in Lending Club when he first met them in 2009 and why pulled the trigger in 2010 and invested
  • the struggles of matching supply and demand for a consumer financial marketplace
  • the challenges originally faced by OnDeck Capital and how the company solved them
  • the opportunity to market to millennials and the challenge the generation (with rising debt and weak wages) poses for financial firms
  • his view on the heating up of valuations in the fintech space
  • his firm’s interest in insurance and why it could be an exciting, investable space

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5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletter .[/alert]

  1. More banks sign up for SWIFT nascent payment tech initiative (PYMNTS)
  2. DTCC wants to coordinate industry activity on distributed ledger tech (Finextra)
  3. Why bank fintech accelerators are destined to die (American Banker)
  4. Is VC the right money for fintech? (TechCrunch)
  5. What Bank of America’s race to cardless ATMs says about the future of banking (Tradestreaming)

[podcast] QED Investors’ Caribou Honig on investing in today’s early stage fintech

fintech VC, QED Investors' Caribou Honig

Our guest for this episode is Caribou Honig, a founding partner of QED Investors. QED has quietly become one of the top investors in the financial technology space — their investment portfolio includes early big successes like SoFi and Prosper and also firms like LendUp, borro, Orchard, Avant Credit, blooom, and ApplePie Capital.

Caribou Honig, QED Investors
Caribou Honig, QED Investors

As part of our conversation, Caribou shares his personal path to how he ended up as part of the founding team of QED after a post-MBA career at Capital One where he developed a passion for data-driven marketing,, including responsibility for a $50 mm marketing budget, management of a 200 person underwriting operation, and cracking the code on digital credit card origination. This experience, along with his co-founders which include the founder of Capital One, provides a differentiator for the investment firm when it comes to deal flow and portfolio building.

In this episode, Caribou shares his views on:

  • his background running data-driven marketing at CapitalOne and how this impacts his firm’s approach to investing in early stage fintech
  • why “data-first” strategies are more likely to win
  • hist team’s 150 years of experience in consumer lending market and why it’s such an exciting sector right now
  • current trends in the financial technology space
  • how incumbent financial institutions view startups in the space
  • how these larger financial firms are planning for their futures
  • QED’s investment mandate and the types of fintech companies that fit well into the investment firm’s sweet spot
  • the companies in his portfolio and the investment thesis behind them
  • lastly, we’ll talk about where Caribou is looking to make investments in the future.

Listen to the FULL episode

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An ex-Uber marketing pro weighs in on the Uberization of money debate

online lending

[dropcap size=big]W[/dropcap]hile the stock market opened 2016 with a loud plop, the hottest companies continue to be technology startups. Atop this pile sits Uber. Uber has become synonymous in tech circles for how easy buying things really can be and how enjoyable the experience can be, as well. If the taxi industry can be Uber-ized, the thinking goes, so can many large industries that have similarly been slow to change.

This conversation hit finance circles when the WSJ ran a story about how slow the finance industry has traditionally been in adopting best practices that have influenced the buying cycle in other industries. According to the article’s author, Zachary Karabell, head of global strategy at Envestnet, finance is indeed now undergoing its own Uber process. Not overnight or over weeks and months, but over the next few years, major parts of finance will undergo technology-driven disruption. And this change is being driven by fintech startups, like Wealthfront, EquityZen, Loyal3, and ZestFinance.

Whatever the risks, however, the Uberization of finance is no fad or stunt. Many of today’s startups may implode, as most do, but the spread and democratization of capital—and the proliferation and analysis of data—are irresistible trends. They will offer new opportunities to millions of people, entrepreneurs and investors alike. They also will unlock a vast amount of money, energy and talent, and to that we simply should say, bring it on.

Not everyone buys this line of thinking. Cornerstone Advisors’ Ron Shevlin explains that there isn’t really a parallel to the financial industry because this whole discussion is based on a misunderstanding of what Uber has really done. Uber pursued a consolidation strategy in a highly fragmented industry. The WSJ cites marketplace lending and crowdfunding as examples of uberization but rather than consolidate, these new forms of finance add to the fragmentation of the finance industry.

An Uber exec weighs in

Upstart, an online lender targeting millennial borrowers, is typically used as an example of the disruptive change that’s happening in finance. In order to lend to young adults, Upstart had to turn traditional lending models on their heads, as many of these FICO-like credit scores rely on historical data. As young people find their places in the gig economy, it’s not easy for them to get loans. Upstart’s forward-looking models are trying to change that. Young borrowers don’t have very much credit history, so Upstart uses other inputs to determine creditworthiness for its customers.

Mike Osborn joined the startup finance company recently as the company’s first CMO. Hailing from the marketing team at Uber, Mike joins a firm that’s generated $240M in originations in 18 months since it launched, averaging 25% month to month growth since inception (you can listen to Tradestreaming’s interview with Upstart founder and ex-Googler David Girouard below).

Osborn has a quick 3 point questionnaire when testing for Uberization:

  1. Is this an industry ripe for disruption?
  2. Who’s the disruptor?
  3. How will it be disrupted?

Finance fits this model, and to Osborn, much of the change is going to happen from the bottom up — with changes in consumer usage patterns brought about by top UI/UX in new finance apps and platforms. “When you think of what drives user experiences, in Upstart’s case, it’s about having better holistic models, better rates, different options — all with the view that we’re helping our users out of a jam,” Osborn explained.

In this vein, next generation finance tools should resonate with users and generate the same reactions as other apps residing on their smart phones. Why shouldn’t users have the same visceral responses to their banking apps that they do to their transportation apps?

“When your target audience are millennials, they live and breathe online and they do it in a community-driven way. Financial service providers need to find ways to get their users financially fit and package it into a shareable experience and celebrated event — the same way getting physically fit is. When someone loses a lot of weight and gets in shape, they take a before-and-after picture and post it socially. I can imagine the same thing happening before and after a difficult credit card situation.”

Growth hacking new accounts online and offline

Perhaps ironically, many of today’s online financial services startups rely on offline methods to acquire new customers. It’s especially acute when it comes to landing new borrowers, as two of the largest online consumer lenders, Lending Club and Prosper, each send tens of millions of offers via snail mail every month. Upstart’s Osborn embraces both online and offline acquisition marketing.

“When we think about where we’re going to find our next customers, we’re definitely looking at the offline opportunity. We’ve been positively surprised in volume and profitability with offline channels. When you get an email offer to refinance your debt, it’s pretty easy to ignore it. But when you get your credit card statement in the mail and a couple of days later, receive an offer to help pay it off, the offer has relevance and timeliness when it comes via direct mail.”

Same goes for social media marketing. Osborn claims that a Facebook response is either immediate or it disappears into the ether. That’s not to say Facebook isn’t fertile ground to message new prospects — it just needs to work quickly. Same goes for Google and search engine marketing. “The economics on Google work but we’ve been most positively surprised with direct mail,” Osborn reasoned.

If finance is being Uberized, where’s the pressure coming from?

It’s debatable whether the disruptive change everyone’s talking about is supply-side or demand-side driven. Osborn thinks it’s actually a confluence of factors that’s enabling the next generation of financial services, technologies, and apps racing to get a foothold with today’s customers.

  1. Consumer-led: The changes happening in the industry right now are implicitly lead by the consumer. People are demanding change. When every experience looks like an Uber experience, you get what you want and begin to expect more. You don’t want to have to go through all the hoops and paperwork associated with traditional financial services.
  2. Technology-driven: A lot of the change that’s happening in online lending is coming from changes in capabilities. Now, at Upstart, the firm has the power to make credit decisions using so many different signals — like what grades a prospective borrower got in college. These borrowers were previously shut out of the market if they were judged solely on historical credit models.

Osborn believes it takes a new type of company and leadership to be able to compete today — both require an understanding of big data and large systems. “When I first met with Dave and the rest of the leadership team, founded by Googlers, I saw they understood the power of taking in all that data and making wise and powerful decisions, like extending credit, with it. There’s a reason we have such good ratings on CreditKarma and high NPS scores with our customers.”

Whether financial services are actually being Uber-ized misses what’s really going on. Led by technology advances and driven by customer demand, startups and incumbent institutions are changing the way users interact with money.

Photo credit: FamZoo via Visual Hunt / CC BY-SA

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletter .[/alert]

1. Goldman, JPMorgan Seen as Fintech Winners While AmEx Suffers (Bloomberg)
Goldman Sachs and JPMorgan will probably benefit most from the coming wave of financial technology disruption, rather than being supplanted by startups driving the change, according to a new survey.

2. 2015 Automated Platform Performance Review: Betterment vs. Wealthfront (Meb Faber)
Meb Faber with some good analysis on how Betterment performed this year vs. Wealthfront (and where Schwab and Vanguard come in). Hint: roboadvisors are neither “safe” nor are they one-size-fits-all.

3. Inside J.P. Morgan’s Deal With On Deck Capital (WSJ)
As part of the deal, OnDeck won’t put up any capital and will get fees to originate and service loans for J.P. Morgan, many with a value up to $250,000, previously considered too small to move the needle at the big bank. OnDeck also can use data it gleans from the partnership to improve its lending models. “We think it’s a watershed partnership,” said OnDeck CEO Noah Breslow.

4. Microinsurance Is The Answer To The Insurance Industry (TechCrunch)
In the wake of Lemonade’s giant seed round, the tech industry is buzzing thinking about the potential of disrupting insurance. Whether it’s peer to peer models or microinsurance, Silicon Valley is coming.

5. Nasdaq Linq Enables First-Ever Private Securities Issuance Documented With Blockchain Technology (Nasdaq)
Transaction by Chain.com Marks Significant ‘Proof of Concept’ and Major Step Forward in Use of Blockchain. Blockchain Holds Potential for 99%.

[podcast] The top 10 fintech stories of 2015

top stories about financial technology in 2015

2015 was in many ways a watershed year for fintech.

According to Pitchbook, it looks like 2015 will finish with close to $8 billion worth of venture capital invested in financial technology startups. To put that into perspective, there was $4.7 billion worth of fintech investments in 2014. It looks like there will be close to $10 billion of M&A done in 2015, as well.

Based on our coverage, here’s what we believe to be the top 10 most important fintech stories of 2015.

Listen to the FULL episode

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Photo credit: mathaios via VisualHunt / CC BY

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s weekly newsletter (published every Sunday).[/alert]

1. Tradestreaming’s 2016 list of the top 20 insurance startups (Tradestreaming)
Insurance technology, or insurtech, startups are popping up everywhere and a handful of them have raised significant capital. Who’s on their way to success in the space? We put together a list of 20 (+5 honorable mentions) top insurance startups in 2016.

2. 10 B-School Experts Reveal Predictions For Finserv Disruption (BusinessBecause)
10 B-school professors weigh in on where they think innovation is headed in financial services

3. Bitcoin is Entering the Age of Practicality (CoinDesk)
The blockchain is essentially a database. It may be the Liam Neeson of databases, but still it’s a database.This new age of practicality must be filled with companies solving real problems – problems that could not be solved before the gift Satoshi left for us (before returning to his alternate dimension)

4. What’s Expected for Fintech 2016? A Special Roundtable [AUDIO] (Bank Innovation)
What does 2016 hold in store for fintech, payments, and banking innovation? Matt Harris, managing director of Bain Capital Ventures, and Brian Roemmele, CEO of Pay Finders and a noted payments analyst, joined Bank Innovation to discuss just that

5. Can Fintech Fix Financial Services? (TechCrunch)
“The thing most in need of innovation in the financial sector is the nagging feeling on the part of the everyday customer that somewhere, somehow, he is getting screwed”

Fintech’s top 15 stories of 2015

top fintech stories for 2015

By many accounts, fintech had a massive year in 2015.

According to Pitchbook, it looks like 2015 will close with close to $8 billion worth of venture capital invested in financial technology startups. To put that into perspective, there was $4.7 billion worth of fintech investments in 2014. With the recent announcement that Global Payments would acquire competitor, Heartland Payments, it looks like there will be close to $10 billion of M&A done in 2015, as well. New York was the top destination for investment capital, with 93 local companies landing investments throughout the year.

Here’s a slidedeck we put together of the 15 most impactful stories in fintech throughout 2015. To dive deeper, please read our column published on Forbes today.

 

The Startups: Who’s shaking things up (Week ending December 27th, 2015)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming weekly newsletter.[/alert]

OTAS Technologies’ Tom Doris is creating machines to do (part of) a trader’s job (Tradestreaming)
Traders are going to seeing a lot more AI and automation on the trading desk

After Fed, fintech hikes rates, too
(Seeking Alpha)
Responding to the Fed’s rate hike last week, Lending Club ($LC) boosts rates on new loans on its platform by 25 basis points. Speaking to the WSJ, CEO Renaud Laplanche says it will be company policy to move in lockstep with the Fed’s future moves

Moven Launches E-Gifting and Affiliate Programs (Bank Innovation)
The banking service Moven is expanding its marketing efforts as 2015 comes to a close. The startup has launched an e-gifting service for the holidays, as well as an affiliate program

Gusto, Formerly ZenPayroll, Closes on $50 Million Funding (Finovate)
According to payroll and benefits provider, Gusto, these funds are part of the Google Capital-led $60 million Series B round announced in April

Protect your downside and follow these 20 top insurance startups in 2016

top insurance startups

Insurance as an industry has been one of the last to be reimagined in the Internet era. That’s all changing now: entrepreneurs and institutions are investing heavily to turn out the next generation of insurance companies from the ground up. Institutional capital is betting that this new class of insurance companies will make a dent in the multi-trillion insurance industry.

Industry experts like Santander’s Pascal Bouvier point to insurance tech as one of the last, and ripest, fields for investment capital in 2016. Indeed, in 2015, over $800 million of risk capital was invested into startups in the insurance technology, now called, insurtech, space.
2015 insurance tech investment trends

Here’s a quick rundown on the state of fintech, investments, and the digital disruption of the insurance industry:

    • The US insurance industry accounts for $1 trillion, or approximately 7 percent, of gross domestic product (US Treasury)
    • At $831.5 million, investment in insurance tech this year is already up nearly 10 times what it was in 2010 (CBInsights)
    • 1 in 4 insurance agents will be gone by 2018 (Insurance Business America)
    • 47 percent of households couldn’t cover an emergency expense of $400 (Report on Economic Well-Being)

Insurance technology is a broad field that includes all different types of insurance, distributors, risk and regulatory managers, big data and enabling technology.

map of the insurance technology startup field

One of the things that makes this surge in interest and money backing insurtech startups is that it’s bring driven by outsiders. The same disruptive force emanating from Silicon Valley that’s changing transportation and logistics (Uber), music consumption and distribution (Spotify), and travel and lodging (Airbnb) is now turning its sights on one of the oldest and largest economic sectors: insurance. We’ve seen both industry insiders and talented outsiders enter the industry and expect that trend to continue.

We’ve compiled a list of the top 20 insurance startups worth keeping tabs on throughout 2016. Compiling top lists are tough — like in most fields, there are way more than 20 companies that deserve such recognition.  The methodology we used in compiling this list included startups who’ve raised over $2 million, had a strong signal ranking on AngelList, and had a relatively robust Crunchbase profile. We also attempted to create a broad list that was inclusive of different approaches to impacting the insurance industry and therefore, we limited the number of startups doing something similar (say, direct distribution to consumers, for example). So, to that extent, this is a subjective list. For those that didn’t quite fit but were worth noting, we created an Honorable Mention category at the end of the list.

Top Insurance Startups

View more lists from Zack Miller

Photo credit: Ninian Reid via Visual Hunt / CC BY