When the #community bankers’ trade association went looking for a tech accelerator that could help provide next gen apps for smaller #banks, it selected The #Venture #Center in Little Rock, Arkansas which had experience developing apps for FIS.
Financial Technology
Last year, was big for #corporate #venture capital — $ 37.4 #billion big. That’s the total #record amount of money invested by the corporate venture capital industry last year in 1,268 financing deals, according to a report from Pitchbook and the National Venture Capital Association released Friday. Overall, corporate venture capital entities participated in 44% of all #2017 […]
Bank Innovation
EXCLUSIVE – Public #blockchain #platform #Waves is launching a new blockchain #venture product called Basics #Fund to focus on investing in crypto-assets and pre-sale ICO tokens. The fund is dedicated to investment in blockchain infrastructure, specifically in a diversified portfolio of promising startup projects in the blockchain space. Aside from pre-sale ICOs and crypto-assets, the fund will […]
Bank Innovation
INV #Fintech, this site’s sister accelerator, announced a partnership today with Shanghai-based #JadeValue, an incubator and investment #fund, to enhance financial #technology startups in both the United States and China. INV startups will be introduced to JadeValue for investment and introduction to the Chinese market through JadeValue or its parent company, CashBUS, a Shanghai-based personal lender. INV, […]
Bank Innovation
#Mobility has been the most crucial innovation driver in the financial world, fostering partnerships among #fintech upstarts and traditional FIs. Today, mobility is disrupting transportation and altering the way people and things move around a connected, digital, social-networked world. To track that trend, #Royal #Media – Bank Innovation’s parent company – launchedRead More
Bank Innovation
The year 2016 may go down as the year of #debt for #startups, a new report suggests. #Venture capitalist plunged to its lowest levels in two years in the last quarter to $ 2.4 billion for #fintech startups. But founders — especially for fintechs &8212; still needed access to capital. BloombergRead More
Bank Innovation
Investors continued to take a much more cautious approach to #fintech investments this year. #Venture capital (VC)-backed #global fintech deal activity fell for the second consecutive quarter, marking its lowest level since Q2’14, according to the Pulse of Fintech, the quarterly report on global fintech VC trends published jointly by KPMG International and CB Insights.
VC-backed fintech in Q3 2016
VC-backed fintech #funding dropped 17% to US$ 2.4B, while deal activity fell 12% to 178 deals in #Q3’16 compared to the previous quarter. Asia was the only continent to see a fintech funding increase on a quarterly basis in Q3’16, while North America and Europe fintech funding declined. All three continents covered in the report saw fintech deal count drop.
Chia Tek Yew
“Asian investors are seeing the potential of fintech amidst global uncertainty in an environment of moderating growth,” said Chia Tek Yew, Head of Financial Services Advisory, KPMG in Singapore. “As businesses continue to embark on the journey of transformation, interest and investment in Asia’s fintech sector will continue to be strong, particularly in areas like payments #technology, insurance technology and regulatory or risk technology.”
Mr Chia added: “Singapore is a leading fintech hub, being one of the first countries in the world to put in place a regulatory fintech sandbox. There are also plans by the authorities to explore ways to attract more VC funds, which bodes well for the overall funding ecosystem.”
Asia quarterly fintech funding tops US: US$ 1.2B across 35 deals in Q3’16. While the number of VC-backed fintech deals dropped to a five-quarter low in Asia, funding increased 50% on a quarter-over-quarter basis to reach US$ 1.2B. Year-to-date results of US$ 4.7B suggest Asia-based fintech investment for 2016 could top last year’s peak investment results of US$ 4.8B. Corporates continue to be highly active in Asia’s fintech investment environment, participating in more than half of all deals to VC-backed fintech startups in Q3’16.
North America sees fintech funding fall below US$ 1B. North America saw both fintech funding and the number of deals fall on a quarter-over-quarter basis, as VC-backed startups raised just US$ 0.9B across 96 deals, a drop of 5% in deals from Q2’16 Funding in Q3’16 to VC-backed fintech companies in North America fell 68% compared to the same quarter last year, which saw US$ 100M+ financings to the likes of Sofi, Avant and Kabbage. #KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.
Deal Count and Investment by Continent
Europe fintech funding on pace to drop below 2015 levels. Q3’16 saw European fintech deals fall 17% quarter-over-quarter as fintech funding in Europe dropped 43% over the same time period to US$ 233M. Germany outpaced the UK in terms of fintech funding for the second consecutive quarter, with 35% more funding raised by German- based VC-backed fintech companies than those in the UK.
Corporates stay active in fintech. Corporates participated in 30% of global VC-backed fintech deals for the second consecutive quarter in Q3’16, driving a significant amount of fintech deals activity globally. Citigroup, Banco Santander and Goldman Sachs have made over 20+ fintech investments in total over the past five quarters, while a host of insurers have launched corporate venture arms.
Other key highlights from the Pulse of Fintech:
The Pulse of Fintech
Global fintech mega-rounds fell to a new low in Q3’16. Asia saw US$ 50M+ fintech rounds stay level for the fourth straight quarter, while Europe has not registered a single US$ 50M+ round to a VC-backed fintech company so far in 2016.
The median late-stage deal size in fintech globally fell to US$ 23M in Q3’16. This is significantly smaller than the same quarter last year, when median late-stage fintech deal size hit US$ 50.2M globally.
Total year-to-date funding to VC-backed InsurTech companies reached US$ 1.36B at the end of Q3’16. InsurTech-focused VC-backed deal activity topped 20 deals during three of the past five quarters.
Next-gen payments has attracted US$ 1.2B+ in 2016 VC-backed funding (year-to-date). The top 20 deals, including Affirm, Mobikwik and One97, raked in 67% of the total funding to payments technology companies in the first three quarters.
Anand Sanwal
Anand Sanwal, CEO of CB Insights, adds: “While we continue to see significant investment into fintech companies globally, the euphoria for mega-deals that we saw into the latter half of 2015 has waned. Total investments to key areas like marketplace lending and #blockchain technology have both seen #declines heading into the tail-end of 2016.”
The post Global Venture Capital-backed Fintech Funding Declines In Q3’16: KPMG And CB Insights appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
William Mougayar argues that the traditional #venture #capital model is being quickly revolutionised by #blockchain tech.
Yesterday evening I had dinner with a good friend of mine who is a world renowned cardiothoracic surgeon. I asked him if he followed a framework when dealing with each patient and he brought up the subject of #differential diagnosis. At its core, differential diagnosis is a method used to identify a disease when alternatives are possible while utilizing a process of elimination. A doctor will assess a patient in context (symptoms, patient’s history) and taking into account medical knowledge, go through a decision tree, starting from most likely diagnosis, eliminating each alternative until the right diagnosis is reached.
There are two approaches to differential diagnosis. The specialist and the generalist approach. The specialist approach – used by a surgeon for example &8211; utilizes a sharp shooter technique, selecting from the most likely to the least alternative, one alternative at a time. The specialist approach is narrow and deep. The generalist approach &8211; used by a family doctor for example &8211; utilizes a broad brush technique, also selecting from the most likely to least likely alternative yet considering a group of alternatives together. The generalist approach is broad and shallow (and I do not mean this in a negative way).
Medical doctors have to learn an incredible amount of historical knowledge and then have to practice extensively in live conditions, in hospitals, before becoming experts in their fields. The body of knowledge at their disposal does not change markedly &8211; it is not like we are inventing new diseases, ailments, different ways of breaking a bone on a regular basis. The medical tools, medical drugs at their disposal, and the medical techniques do change. So there is a constant “on the job” training occurring.
The framework I use in #venture #capital strikes me as eerily similar to differential #diagnostics. First, I am a specialist venture investor as I only invest in #fintech. It goes without saying that I need to develop a very deep understanding of the financial services world in order to be effective at my job. Without explicitly knowing &8211; it until now &8211; I have developed a sharp shooter approach, akin to the one used by my surgeon friend, that allows me to very quickly assess the merits of a payments startup for example. For each of the five sectors that comprise fintech &8211; lending, capital markets, insurance, asset management and payments &8211; I have a top 10 of &8220;things&8221; I look for for which the presence or the absence are a deal killer. I rarely need to go past thing 3 or 4.
I use the sharp shooter differential diagnostic approach when I first encounter a startup. it is a way for me to eliminate the noise and get to the signs fastl. If I am still interested and impressed past this first stage, I will switch to a generalist differential diagnostic approach where I bunch groups of &8220;things&8221; and attempt to figure out, holistically adds systemically, patterns I like/do not like or that make sense/do not make sense, repeating the process until I eliminate the startup as a potential investment or I confirm my initial positive signal.
Much like my surgeon friend who has to go through thousands of cases per year to hone his skills, I go through approximately 1,000 business models per year. This is the material I need, along with historical knowledge base I built over the years &8211; a mix of theoretical knowledge and many years of practice as both an operator and investor &8211; to keep current. The number of business models does not change at the margin that much, the number of ways a team should be built, how a startup should be scaled, a board should be architected &8211; all the business aspects of building a business &8211; do not vary that much. What changes are the the technologies and how they are applied to specific business models. So I need to constantly learn that aspect to stay ahead.How AI, quantum computing, AR will be applied to fintech are my learning curves.
I continue to apply both differential diagnostics frameworks during the lifetime of an investment, constantly toggling from one to another.
I believe the best VCs are good at differential diagnostics. Not only because they master the framework and have built their own heuristics in their particular domains, but because they also know when to switch from sharp shooter to generalist differential diagnostics. That is a crucial skill. I also believe top VCs are more adept at applying differential diagnostics in context. By that I mean that &8211; taking a fintech example &8211; a US payments company may need a different sharp shooting approach than a EU payments company, while one may need the same generalist approach for both. It all depends on nuances relating to culture, jurisdiction, consumer/user behaviors, market structure. I tend to call these nuances &8220;terroir&8221;. Yes, I like wine. Knowledge of terroir will help you choose the right differential diagnostics approach at the right time, and load the right decision trees.
I also believe specialist VCs have an edge over generalist VCs. To be clear, both need to master the two differential diagnostic techniques. The specialist VC will always have an edge with the sharp shooter technique given the required deep knowledge she needs to operate in only one field. This is especially important considering the changing VC landscape is currently experiencing: the rise of crowdfunding and angel investing on one end of the spectrum and that of corporate VCs, sovereign wealth funds, mutual funds and large PE funds on the other end of the spectrum may force traditional VC funds to specialize in order to retain an edge. Specialized VCs may be the way of the future.
I am also well aware that medical doctors have an edge over venture capital investors when it comes to track records. On the evidence, declining mortality rates and improved longevity beat hands down VC-backed startup survival rates. This means that even with the best differential diagnostics tools and the most astute and timely ways to apply said tools and make a decision, venture investing is an extraordinarily difficult business to succeed in. There is much literature attesting to this fact. VC investing and startups building are ruled by power laws.
I do not pretend to disprove nor fight this fact. What I do is try to refine the odds ever so slightly. For me this means to always have #Zebras in mind.
Theodore Woodward, a 1940s professor of medicine coined the aphorism &8220;When you hear hoofbeats, think of horses not zebras.&8221; He meant that if you diagnose something &8220;normal&8221; applying your diagnostic tools, there is a great chance it is indeed a &8220;normal&8221; thing and not something else, something &8220;exotic&8221;.
This works well in the medical field. Not so well in venture capital.
Hence, if there is one thing that keeps me up at night, it is Zebras. Due to the unfathomable emerging properties of large systems, venture investing breeds many more Zebras than horses, even though you may have correctly diagnosed a horse from the beginning. By that I mean that you may start with a horse, but due to unforeseen circumstances, you end up with something else, a Zebra. Very few Zebras end up with positive outcomes. The great majority of Zebras experience neutral to negative outcomes.
Thusly it is imperative to be paranoid about Zebras. I endeavor to excel at differential diagnostics which is a necessary requirement but not a sufficient one. Additionally I try to take risks I can measure in ways that attempt to mitigate negative Zebra effects. I shy away from entrepreneurs and startups that open themselves to fragility. I favor entrepreneurs and startups that strive to capture optionality and build antifragility. This means favoring entrepreneurs and startups that exhibit the right mix of #technology, business and talent (the necessary requirements) AND that will thrive during volatile business conditions OR that do not include business variables whose rate of change increases negatively as business conditions fluctuate. Examples of fragility would be a cost of acquisition that increases as the startup increases traction, churn that increases the more clients are acquired, a loan default rate that increases as interest rates increase, a technology build that increases in complexity even as the startup matures. I picked up fragility and antifragility concepts from Nassem Taleb, and encourage anyone involved in investing and startups to read his work. Much more could be written about how one can apply antifragility thinking to startup investing; for another post maybe.
In as much as I apply differential diagnostics techniques to scrutinize the form and substance of a startup, my Zebra heuristics helps me understand the likelihood such form and substance will behave positively in dynamic situations. Not a perfect approach for sure.
The best VCs excel at diagnosing the right horses then shunning the patently negative Zebras. This still leaves the field wide open for a variety of surprises.
You may find it odd for a #venture capitalist – a capitalist &8211; to attempt to interpret #investing in startups through a #Marxist lens. Be that as it may I enjoyed the thought provoking argumentation and hope you will find humor in this tongue in cheek exercise!
Entrepreneurs, when founding a startup, engage in a revolutionary and subversive act. They self actualize their ideas and dreams as well as themselves and appropriate the capacity to transform the world. In other words, an entrepreneur exerts meaningful labour by leveraging his vision in the real world. This labour is his and his alone, and his relation to it is crucial. (Relation should be read as ownership in this context). The fruits of his meaningful labour are embodied in his startup.
Entrepreneurs need capital in order to achieve their visions. For the purpose of this discussion, let’s assume this capital comes from Capital which is dissociated from Entrepreneurs. In this sense, Capital mediates the social relationship of production and the Entrepreneur gives up ownership of his startup. This is akin to alienation whereby the Entrepreneur loses the ability to solely determine the life and destiny of his startup. Of course the Entrepreneur receives capital from Capital in the exchange &8211; without which achieving his vision may not be possible. Nonetheless the end result is an alienation from his meaningful labour. To what extent is this alienation material or will become actualized is key to the discussion.
Another way to visualize this alienation is to use the term “class struggle”. Here the #interpretation of the term is dual. First, we are confronted with a class struggle between the Entrepreneur/Labour and the VC/Capital in a general sense. Second, we are dealing with separate classes of stock, common shares vs preferred shares, one &8220;struggling&8221; against the other, in a specific sense.
Class struggle permeates the narrative of early stage investing from the start of a term sheet negotiation til the sale of the startup. The major terms found in a term sheet serve to define the investment and the relation between the Entrepreneur and the Venture Capitalist. A different interpretation forces the astute reader to conclude that each term also serves as a means of alienation by Capital. These terms enable Capital to control or eventually take over Labour&8217;s fruits, i.e. the startup and/or its assets: liquidation preference, cumulative dividend, control provisions, governance issues relating to board composition and board election, contract and compensation issues relating to the Entrepreneur, various flavors of anti-dilution. The more protected Capital is, the more alienated Labour will become. Either materially so or potentially so over time depending on specific future events.
Class struggle becomes even more intractable as the capital stack densifies over time and as Labour faces Capital(s). Several classes of preferred shares may alienate one another and in turn individually and collectively alienate the common share class. The ultimate alienation for an Entrepreneur being his removal in whole from his startup. To be clear, alienation can only remain within the realm of potentiality should outcomes develop in a positive fashion.
The old adage that main terms are as or even more important than valuation takes on a vivid dimension when the above Marxist interpretation is taken into account.
As this alienation is inevitable &8211; potential or actualized &8211; Labour needs to choose Capital wisely and concede the right level, both in depth and breadth, of its alienation. Where does the Entrepreneur draw the line and where does the Venture Capitalist accept the line to be drawn are eminently complex questions.
No liquidation preference, no cumulative dividends, the lightest possible control provisions, an Entrepreneur friendly board, benign overall governance will make for minimal alienation. What if no other class than common shares existed and were issued over time? I recently witnessed the CEO of a #fintech startup push back against aggressive liquidation preference and cumulative dividends by stating such terms would work against shareholder alignment. He really meant alienation, unconsciously so. I also witnessed another founder pushing back on special controls and board representation a corporate investor was requiring prior to investing by arguing he feared too much control by one corporate would risk altering the strategic roadmap of his startup. Subconsciously so, he also meant that too much corporate control was an alienation he did not care for.
I think all Entrepreneurs are hidden Marxists in as much as left to their own devices, they would insist on zero alienation. I do not think all Venture Investors are of the malevolent Capital type described by Marx, although it is indeed in their nature, theoretically and sometimes practically, to generate alienation. The best Venture Capitalists intuitively grasp that too much control generates false comfort and negative unintended consequences. I view the &8220;purest&8221; Venture Capitalists as non-interventionists intent on ensuring, to the maximum of their abilities, the visions of the Entrepreneurs they back without undue meddling. Witness the stories we hear and read about top tier VCs who negotiate an investment and a term sheet in a couple of hours over a handshake and who only get high praise and positive reviews from the entrepreneurs they work with. Praise the Entrepreneur that encounters such a VC, as his alienation will be minimal.
The ideology of venture capital investment with its term sheet and final documents accoutrements can also be interpreted as false consciousness, whereby the Entrepreneur is sold the venture capital investment ideology (terms and conditions associated with an investment) while the true nature of alienation is hidden. Caveat Entrepreneur! Be mindful that the venture capital investment ideology is actually true &8211; capital needs to be remunerated, comes with caveats… &8211; but that as the true motives it impels remain hidden from the Entrepreneur, it is therefore false consciousness.
I will leave you with two parting thoughts.
First, there is a cost to the absolute absence of alienation. Freedom is indeed very dear and forces an Entrepreneur to a higher level of solitary fiduciary care. Indeed, the absolute absence of alienation may not be optimal.
Second, I guarantee that no Marxist or Capitalist was harmed while writing this post.
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