By Ryan Falvey
The Financial Venture Studio is again seeking applications to join its next cohort of fintech innovators. It has been a volatile 9 months since the last time we ran an open application process but it’s been a truly transformative time for fintech. In the interim period we saw a number of acquisitions, a global pandemic that has fundamentally transformed how consumers interact with their finances, the widespread destabilization and closure of many small businesses, and a policy response that leaves much to be desired. These rapid changes have all combined to illuminate the limitations of our financial system in helping consumers and businesses cope with a uniquely potent humanitarian and economic tragedy.
While it is an incredibly difficult time to build, manage and operate a business, it might be one of the most opportune times for new entrants to begin to rebuild financial services with robust tech at the center. One of the most common questions we get whenever we do this process is “What is FVS looking for?” The honest answer is everything: we see nearly unlimited opportunity for improvement across financial services, so it’s actually quite challenging to be prescriptive. The best founders and teams almost always impress us with ideas and approaches we could never have conceived. That said, here are three broad categories we’re tracking:
- Anything in small business financial services. One could scarcely imagine a part of the economy that’s been more fundamentally altered than small businesses. Overnight, physical stores have needed to go virtual. Layoffs are rampant. Consumer preferences have shifted. Local regulations have fundamentally changed. The opportunities to help small businesses recover, compete and grow seem nearly limitless and the incumbents seem incapable of responding. One area we identified last time, that still seems like a pressing opportunity are solutions that automate complex processes or capital flows in a multi-user context. Indeed, making multi-person processes work more efficiently is even more critical now, as much work is done with fewer opportunities for in-person collaboration. Small business owners often work at the center of a complex web of collaborators, contractors and employees. They need more tools to leverage these networks while allowing them to stay nimble.
- Competitors to the big banks. Traditional banks will continue to lose market share for products that we used to call “banking” — things like deposit accounts, payments and lending. Those products will be replaced by digital-first solutions that help consumers save, spend and plan for their future. Some of them are already huge businesses (PayPal, Square, Chime), and will only get to be much larger, while many other multi-billion dollar companies have yet to be built. We continue to think that there are still big opportunities in products that use technology to make financial decisions easier for consumers and products that continue to abstract away some of the legacy infrastructure in financial services. Both approaches result in companies’ owning the customer relationship over the long-term to the detriment of all but the most savvy incumbents.
- Self-service software for banks. Despite their shrinking importance to end users, banks will continue to exist and play their primary economic role of intermediating financial risk in our society. As such, they’ll need to modernize and find a way to make their own vendor procurement processes easier and faster. It’s possible that banking regulators make this easier and that bank cultures change. Or it’s possible that banks will increasingly just turn a blind eye to employees and staff bringing their own tools to the table. (We saw this before with mobile phones, when banks spent years — and billions of dollars — trying to prevent employees from using iPhones versus the internal IT-approved Blackberry.) With millions of bank employees now working remotely via home offices, we expect to see a similar trend occur with software. If you’re building something that’s so easy to install that any employee could do it, and that helps banks run better, we’d like to talk with you.
These are intentionally broad categories; there is just too much opportunity to try to limit our scope. However, given that we identified a number of topics the last time we did this, it’s probably worth circling back on those areas that might not be covered in the above categories, and where we’re still interested in investing:
- Educational finance. Who would have thought we could have made our educational system worse? But we did it! If you’re working on solutions that rethink education and how we pay for it in this country, we want to talk. Even if you don’t consider yourself a fintech company, if you work in education, you probably will be.
- Solutions that enable real-time payments. We continue to think this is probably the biggest business opportunity out there in financial services. We’ve made one unannounced bet here and will make more.
- Better and more affordable tools to enable compliance. This is one area where we made a couple of investments in our last cohort of firms: Reserve Trust and Zaam. We’re enthusiastic about the space and open to more.
- Innovative solutions to stop fraud and theft. We’re still looking for solutions here. Please!
- New approaches to homeownership. We’ve made one new unannounced investment here and are open to others.
- Compelling new customer acquisition engines. In December we wrote: “The market is probably ready for the next version of Lending Tree, Credit Karma, NerdWallet, etc.” Since then the leading player was acquired by Intuit for $7 billion. There are huge opportunities here.
- Better retirement and de-cumulation tools. We continue to search for an investment here. The need for innovative, delightful customer experiences in this area is huge and this category seems even more ripe for a compelling entrant given how much more comfortable this period of “shelter-in-place” has made many Americans with using digital financial tools.
- Asset creation tools for consumers. We made an investment in NestEgg earlier this year, but that certainly doesn’t preclude us from making more investments in companies that help Americans to build and manage their assets.
- Tools that reduce discrimination in financial services. Our financial services industry has a long history of discriminatory practices, the consequences of which still reverberate today. It’s not hard to imagine a software solution that helps to highlight these practices and change them. We want to invest.
If anything on this list resonates with you — or you’re working on something we haven’t thought of — we’d love to connect and learn more!
FVS invests in great teams who are seeking to improve how Americans conduct their financial lives. We are now accepting applications for our Fall 2020 cohort of seed-stage fintech startups. Applications are due Monday, November 2, 2020. To learn more about the program, please see here or review our FAQs.