Investment Banker Steve McLaughlin left Goldman Sachs in 2002 to start FT Partners, a boutique investment bank focused on fintech. 2002 — that was definitely before fintech was cool and since then, Steve has played a major role in the growth of the industry. Now, 15 years in and with a team of 70 people, Steve and FT Partners have completed hundreds of transactions in the fintech space.
I sat down with Steve to talk about how fintech has changed over his career, how the industry grew to become cool, and how the interactions between incumbent financial institutions and fintech startups should continue to play out.
Steve’s firm just published a massive research paper on digital wealth management. He’s participated in many of the big fundraisings and transactions in the roboadvisor space, so I was interested to learn about how he sees this industry evolving and whether he expects to see standalone roboadvisors with big businesses a few years down the line or whether digital wealth management is more like a bolt-on feature for generalist asset managers.
Below are lightly edited and condensed highlights from the conversation.
Standalone roboadvisors?
I think for a long time, there’s always room for standalone roboadvisors that go direct to consumer with a slick product. But, I think the BlackRock/FutureAdvisor deal shows that the empire will strike back and arm pretty much every RIA in the country with these types of products and services to service their clients.
Fintech specialization
Investment banking for fintech absolutely requires a specialization. That’s one of the reasons we’ve done as well as we have: there still isn’t a single firm that’s 100% focused on fintech like we are. Top fintech firms that work with larger investment banks typically get a top technology or software banker working with them. Given our experience in the fintech space, when we get hired by clients, we almost instantaneously know what they do, how they do it, who the buyers and investors are in the space. Our completion rate on transactions is 90% — that’s because we can also pick the highest-quality clients, as well.
How fintech has changed
In the pre dotcom-bust era, you had a ton of innovation but the problem was that 1% of people weren’t comfortable with ecommerce, there weren’t smartphones, and encryption wasn’t what it is today, and the models required 5-10X the capital to get off the ground. Many of these companies failed but you did have some successes like PayPal, Checkfree, ING Direct and Capital One.
Between 2002 and 2008, there weren’t too many earth shattering things going on. The big area of innovation then was in the brokerage technology space. You had the New York Stock Exchange moved from guys flashing hand signals around to get trades done to getting wiped-out and becoming fully electronic.
Post financial crisis, we’re in a completely new area of innovation. Millennials have grown up using smartphones, the Internet of Things, and Big Data is changing the world in a much more rapid pace. I don’t think anything is going to change dramatically over night. There will be some companies that create multi-billion dollar businesses but companies of that size won’t change financial services very broadly. We don’t predict the fall of JP Morgan or Wells Fargo any time soon and there will be lots of time for the big guys to catch up.