Culture and teams are the most important ingredients for success in companies. This is our conviction at Vestigo which makes us work hard to think about how we define our culture and the behaviors we require to ensure that we are what we want to be as a firm.
It might have been easy to be relaxed about issues like culture when it was Ian and Dave and Mark starting the firm. Because we understand its value, we were not relaxed at all. We set down principals on how we wanted to behave and what we valued. We understood our mission quite easily-maximize returns for our LP’s. Our early thinking was much more about how we would make this mission work. What culture would we create to make this mission successful?
Our team has doubled in size since then. We added our fourth partner Mike Nugent almost two years ago and more recently our new analyst Frazer Anderson and summer associate Farrah Nekui, PhD candidate. Each hire has reaffirmed our commitment to the culture we set out to build.
We focus on a few key elements of our culture: respect for entrepreneurs; speed of execution; communication with substantive feedback, and; finally, fact based decision making. We value diversity of the team’s point of view and make sure all are heard in the process. If we remain focused on living these values in our culture, then we will reach our mission of maximizing returns for our LP’s.
—Dave & Mark
Envision Interview with Frazer Anderson
Frazer Anderson recently joined Vestigo as an analyst. He discusses his background and early experience at the firm.
We asked a question of our advisory board related to financial services incumbent innovation. What is your point of view on incumbents in financial services and how they can innovate? We got some wonderful insight from their answers.
Innovation is about where you can automate the greatest dissatisfaction that earns you the permission to take on the other parts of the business.
Incumbents need to innovate or die. They need to cannibalize their own business to be disruptive.
Many incumbents suffer when they believe they have arrived at their end state. There is never an end state, just the current state. I believe it is necessary to build and instill a culture of perpetual innovation and continuous improvement to avoid end state thinking.
Having an innovative culture means taking some risk, embracing change and allocating time and capital each year to new ideas. This should apply to outward facing ideas as well as inward ones. Incumbents should make use of their scale and consistently consider innovations in product, distribution and operations.
Strong corporate cultures in successful companies can become a tremendous liability during periods of accelerating change. Make sure to push hard to develop and maintain a highly diverse culture. Diversity will promote different points of view on risks and opportunity, making it more likely that a realistic assessment of clients and services will lead to faster innovation or more intelligent strategic partnerships.
Many established financial services companies have long been flexible and dynamically react to the changing products and client/customer needs. Capital markets evolution and regulatory changes have forced that culture. For example – mortgage backed securities were created out of thin air in the early 80s – they grew because they served a great purpose in enhancing the velocity of home loan capital. But senior management at the big Wall Street firms had to be taught what they are and then decide how much capital to allocate but they did and created new businesses for their firms.
Another example -The notion that Robos are going to knock over the incumbents is ludicrous. Vanguard, Schwab and Fidelity easily reacted because they had most of it already in place – it was largely repositioning.
So the “incumbents” are smart, dynamic and have near infinite capital.
Look at them as partners in many cases, and the ultimate exit — if they haven’t copied your products already. There are exceptions of course.
I think many of the incumbents do not have the mindset and ability to make the radical shifts needed in the next few years. This does not mean “business ends” but will have a profound effect on the ability to attract top talent and new clients. Many will need to acquire firms that don’t have the legacy issues, which includes pricing models, to slowly migrate to more innovative and adaptable technologies.
These are new times for incumbents, that have not been like the past. Experiment with all the emerging tech.
Change happens slower than you think in the short run and faster than you think in the long run. Therefore, keep a steady pace of innovation going. That way you cannibalize your own cash cow with the “next flavor” rather than letting others do it to you.
First, the days of any one company trying to do everything by itself are over.
An old way of thinking was that we had to control every aspect of every transaction and that no other company could do things better than we could. As technologies and businesses evolved, best performing companies have abandoned that perspective. Instead, they now actively seek out business partners whose capabilities can complement, or in certain cases, replace their own.
Building and sustaining “partnership capability” within an operating model takes a very specific set of core competencies. It’s a new skill set. To innovate as quickly as is needed, import that expertise into your organization. Build a sustainable, internal competency around external partnerships.
Second, lead from the top—you can’t delegate innovation. It takes time, but be acutely aware of disruptors in your market and in adjacent markets. Go to Silicon Valley, go to Kendall Square. It’s happening with or without you. Immerse yourself. Prepare, anticipate, adapt.
We completed our seventh investment on July 2nd. We invested $750K in Tower IQ, an InsurTech platform that is designed to be a broker-first solution for streamlining workflows while capturing the market’s most valuable data. Our co-investors include Hyperplane Venture Capital, Clocktower Technology Ventures and a number of angel investors with industry expertise and value-added networks.
We are impressed with the team leading the company. Adam Demos is the CEO with a background in FinTech from his stent at EquaMetrics and in a competitive intelligence company named App Annie where he was in a business development role. Dan Hurwitz is COO and a co-founder with Adam. He was an associate at Hyperplane Venture Capital where he focused on FinTech startups. Michail Medvinsky just joined the firm as CTO and given co-founder status given his great technology delivery track record. He was recently CTO at Plastiq and was at Fidelity prior to that with a large staff of engineers doing core infrastructure.
We have both benefited from many fine mentors over the years as I am sure all of you have done. This issue we decided to ask our amazing advisory board members for their advice and counsel for startup CEO’s and for executives in established financial services companies. Fascinating answers from them for you to study.
We have added the best advice we have gotten-
Dave-Mentoring pays dividends over and over again.
As a result Dave spends a great deal of time mentoring across the Cogo Labs team and the portfolio companies.
Mark-Take two steps back to communicate and ensure alignment to be able to move very rapidly once an agreed course of action is shared.
Turned out the two steps back was not a set back but rather a chance to get others inspired and excited by the opportunity at hand.
Mike, Managing Director at Vestigo, talked to us about data and how he uses it.
Welcome Frazer and Farrah to the Vestigo Team
We are pleased to have Frazer Anderson join us as a full time analyst at Vestigo. He brings an extensive background in evaluation of managers and use of technology for our team. Farrah Nekui, who is a PhD candidate at Northeastern University, will be with us this summer as an intern. She has an extensive background in economics and pricing as well as being quite nimble with SQL to assist us in the use of the Cogo Labs data.
I asked our fantastic advisory board (take a look at the team) to provide their best management advice. Here is some wisdom laid down for all of us.
Think bigger and then be humble. -Ray Wang
Never be late for a meeting. -from Ducan McFarland to our advisor Darlene DeRemer
Surround yourself with a team of smart, confident people who know more than you do ..and are not afraid to share their views, even if they are different than yours.
Second, outlaw views on why things can’t be done until what can be done is considered. -Jarrett Lilien
Stay lean and agile and always be really careful to keep your self awareness index high. -George Wilbanks
Self esteem and self confidence doesn’t lead to accomplishments and success. Accomplishments and success lead to self esteem and confidence. -Tom Streiff
Your entire business must be driven by your clients’ needs…
It takes many years to build a reputation/brand and takes three seconds to ruin it.
Teams beat individuals.
Invest for the long term. -Pete Mattoon
Never promote someone to a managerial position, no matter how technically qualified, that doesn’t embrace the firm culture. -from the CEO of Intuit to our advisor Andy Putterman
Management can be hard. Nobody is the whole package. Understand your blindspots. Don’t only fill your gaps, do what you do well, really well, and learn how to do it better. -John Werner
See the world as it is and not as you wish it were. -Tom Gavin
Success leaves clues. Patterns of success and failure repeat and are predictable.
Define failure very carefully when leading an organization-understand what failure to avoid as a prerequisite to success. Advice from military history-there are only three types of failure. Failure to learn, adapt or to anticipate. -Maliz Beams
Now let’s move to advice for someone leading a startup organization. Their thoughts-
From Ray Wang-Get the economic model right before you build the offering. Make sure you understand your unit cost pricing model so you know where to bundle and where to decomponentize the cost structure.
From Darlene DeRemer-Strategy without execution is hallucination.
From Jarrett Lilien-First, make sure they have enough runway. For Jarrett this is 18-24 months of capital. Second, ensure they have strategic alignment with their major stakeholders.
From George Wilbanks-Be realistic about the time, budget and career risks you are taking. As setbacks occur along the way, be nimble and creative in seeking strategic partners to help you reach your goals.
From Tom Streiff-Stay flexible. You may have what you think is the perfect idea, with a perfect execution plan. Listen to the people around you. What you think is “perfect” may need some adjustments. Stay true to your values but be flexible and open to “more perfect” ideas.
From Pete Mattoon-You will need luck to make it but the good news is that you can make your own luck with the right team, extremely hard work, and actually having a product/service that creates value for your target market. Know your purpose. Know your target market.
From Andy Putterman-Surround yourself with an advisory board to provide different perspectives, challenge assumptions and keeps you focused.
From John Werner-You are building a company and also a team at the same time. Focus. Be passionate!
From Tom Gavin-There is a fine line between confidence and hubris-believe in your vision and your plan but be open to making adjustments along the way. The flexible will always defeat the rigid!
From Maliz Beams-Keep your investors, partners and employees (and yourself) looking forward with surgically precise focus and discipline on the “differentiated” value you deliver to the market. Very quickly find a way to fact base your differentiation. (Harder than it sounds) then ensure clinical objectivity and discipline around unbiased measurement. Quantify it, measure it, base the team’s payback on that differentiation.
With a number of platforms that have been launched in the crowdsourced funding space, it’s great to see Netcapital get good coverage of their efforts. They show up well for a company that has been at their work for a relatively short time. Check out this article to learn more by clicking on their name.
New tools including LifeYield’s suite will help Morgan Stanley advisors be able to help clients solve complex planning problems. They see it as a way to gain part of the $2 trillion in assets their clients hold outside the firm while serving their clients.
Micronotes, Inc., an AI-enabled marketing automation firm, took on the issue of how to think about regulation of FinTech capabilities including AI. Vestigo GP Mark Casady really enjoyed the conversation and questions.
We have had over 400 start-ups seek funding from us. It is clear that our belief in the need for an early stage focused FinTech VC in the Boston area was well founded. About 20% of these have come from our Apollo proprietary technology at Cogo Labs. So our belief about its efficacy for a VC process has proven itself for identification of companies.
Using these as a marker for innovation and leading edge thinking about the changes coming to financial services, is proving to be helpful. A few trends we see in the waves of plans are:
-The vast majority are focused on B2B opportunities. It is clear that founders understand the high cost of customer acquisition.
-There is much to fix in the current infrastructure of financial services. Entrepreneurs are laser focused on single use cases to bring lower costs to the incumbents or to bring faster growth.
-Insurtech has lots of good ideas being tossed about for unique coverage or insightful uses of big data. Most are focused on assisting existing agent distribution networks rather than B2C.
-Regtech has not been showing up nearly as much as we thought it might at this stage. It was quite popular in the early plans that came to us but has dropped off significantly.
For incubants in financial services, help is on the way from start-ups. You will want to understand what is happening in ICO and crypto ideas. We will explain this a bit further in the next blog.
—Dave & Mark
Crypto Assets Will Change The World?
Today we organize for profit corporations that work to maximize their profits. What if we organized a collective gig economy based workforce that maximizes utility of a piece of software or making markets transparent?
The second type is becoming very popular via the ICO market. While there is much to be done to bring legitimate ICO’s to life such as regulation and industry standards, they are intriguing for the evolution they represent in the way enterprises undertake activities.
Let’s use an example of how it might work. I write a white paper (think of this process as creating a prospectus for token buyers)that lays out my idea for creation of a title company. You provide a token of investment-quite simply you give me $ or some other currency in the form of a token of a stake in this enterprise. This would make it a standard corporate form but better yet to avoid being a security we can have that token buy future services rather than owning future profits.
When you think about it, this is just like what Kickstarter does in a more conventional way. But with Kickstarter the pre purchase of a product or service makes you a customer. Often a corporation was created that owns the product idea and will make it sell it to you via this campaign or future customers in a more conventional way.
In our token title company, you fund it so you can use the utility over time. So perhaps you are a real estate agent and want to make the land titling process easier. You provide some capital and you can clear future titles via this new organization using your token.
Importantly, the white paper writer controls the new title company but its a collectively owned enterprise. The organizer uses the token sale (ICO) to pay programmers to build a technology that uses blockchain to create an ever lasting, non corruptible chain of ownership record for purposes of transferring property.
This would eliminate so many different existing corporations that do this today. It would make clear any issues that arose about the property as they would be right on the record. Complete transparency and very low cost records of property ownership would be the result.
It would make the idea of title insurance to protect you from a lack of transparency obsolete. How nice for a homeowner to never pay title insurance again.
So for reasons of wanting to make the world better, I organized a collective to provide capital and to program a new way of doing things. I offer it to the world at low or perhaps even free to gain traction and then I have upended the title insurance and title company worlds.
As the organizer I can take the profits from this idea. I can share those profits (if its in the form of labor as payment) or as ownership. But the breakout idea here is that it does not have to be a typical corporate form.
Any thoughts? Crazy smart or just crazy?
-The Vestigo Team
Have I Got A Deal For You
We are seeing 6-8 deals a week now at Vestigo. We love seeing so many good ideas with so much insight on the passion of entrepreneurs. What are they excited by in the FinTech world? How will they change financial services to make things better, faster and cheaper? What tools are they using like AI or blockchain to drive their start-ups?
Let me characterize the nature of these companies for the benefit of seeing the edge of the future. They are-
-Lots of blockchain business plans came in this past year. None of what we saw was investable which surprised us as we had expected more in this area to be ready for the market.
-Blockchain that was created by consortiums has been popular and seem very smart to us but not easy for a VC to make the targeted returns.
-AI is coming into its own. We have seen the largest group of start-ups by our count in this area.
-Many AI businesses are not using the latest algo-rhythms or they are renting someone else’s AI platform. This leaves them with no distinctive business model as it can easily be replicated by others.
-Wealth management tools for advisors have been a heavy theme in the pool of start-ups. Many are quite good but it is a crowded field.
-We have seen a very large number of robo advice and crowd sourced investment ideas. If it focused on B2C as many are, then we have less interest as the customer acquisition costs are so high. If they have found a way to get B2B2C then they are interesting ideas to us.
-Crypto assets are another big theme. Many of these are riding the popularity wave with no real business behind them but a few are very smart applications for building new forms of commerce using new forms of infrastructure and ways to store value.
Always happy to see any entrepreneurs and their business plans so do not be shy in sending them along.
What technology development seems to have gone beyond the hype cycle for FinTech start-ups? We feel it is Artificial Intelligence (AI). Dave has been using it for Cogo Labs partner’s companies to create efficient ways to serve clients’ needs in a variety of markets. This cost effectiveness is due to the lack of human capital needed to assist the client.
We are also seeing it applied to big data problem sets similar to what we do to search the Cogo Labs data for information on possible investments for the portfolio. Many of you know this is called the Apollo tool. The bigger the data set, the more interesting are results from applying AI but the more difficult the process of getting results.
Recent applications include Micronotes who we invested in late in 2017. They use AI to help banks help their clients with needs based solutions such as lending or wealth management. We saw another plan recently for a lending platform driven by AI.
We wanted to dig a bit deeper on the topic to share our insights on the state of play for this tool.
—Dave & Mark
Google Cloud provides a good primer on AI.
It’s a labor replacement. This is the key factor to remember when presented with an idea or opportunity for AI. It uses algorithms to sort through data and learn patterns and “answers” to questions one is seeking in the data.
Let’s use online employment. You can review Linked In searching for types of employees to hire for your new analyst role. You might search for those people with an analyst title. You might search for firms you admire for their training of analysts so you can pluck them already trained by someone else. Am sure you have done this type of search before and have realized how much time it takes to sort out the information. You are the AI algorithm.
Instead you can use a search firm like Jobcase to perform these tasks within their database of candidates (tens of millions)and provide specs to drive candidate discovery. That is AI being used to more efficiently do a task.
A further benefit to AI, especially in this example, is that it eliminates bias. We all have a bias-it can be good or bad on the human level. Maybe people who wear glasses look smart to you so you unconsciously favor those candidates with glasses. You don’t experience the bias or you would fix it. Try a test the next time you are searching for something see if you see a pattern in your choices and your non choices. Perhaps you will see a bias and become conscious about it.
AI, when trained properly, will not have that same bias. It can create it’s own mistakes; however, so it is not infallible. Perhaps it is looking at data and favors candidates close to the office. Seems an easy way to ask a program to sort candidates but it introduces a bias. Maybe the neighborhoods within five miles to the office are diverse in candidate profiles or perhaps they are not. Maybe that area is next to a university so many candidates come from the same school. You would likely want to pick from many types of schools rather than one to find the very best choice but your data set and your algo are training on only this biased dataset. Beware this automated form of bias.
AI is a wonderful tool but humans still need to think about the criteria and insight they need to automate. They need to really dig into choices around data and AI tools to make sure they are getting the best benefit of the technology.
Patterns Are Telling
I bet that high on your list of issues to think about for your organization is how to oversee its digital transformation. I hear that all the time from large companies in finanical services.
Portfolio companies are an answer for them. Partner with them to drive this change to digital. Find ways to experiment in the organization. Do not be afraid to fail.
Our fun way of expressing how data scientists want to find patterns in data we have at our fingertips is “Disneyland for Quaints”. As a result of having built such a resource, we spend time thinking about the governance of the use of the data for our purposes or in support of a portfolio company. This structure is the same for you in your firm too.
With so much new data being collected from devices like that iWatch to Alexa on call to make every wish her command, this is only going to get tougher over time and more insightful. Knowing what to do with the data collected is critical.
Key to governance is protection of consumer identity. The data has to be protected. You can create Disneyland for data but you have to be sure nobody gets hurt riding the “data” rides.
Second, you have to be clear about what patterns you are searching for in the data. I always love those Eschler drawings where you can see several different images from the same piece. Your perspective matters as you know what you see in it at first so clearly. But with a bit of time you can start to see something new.
Finally once you find the patterns, you have to act. Do you have an insight pulled from data? Get going on exploiting that advantage. These insights may not last so taking action is key.
A Is For Analysis & I Is For Information
I prefer to think of AI as a tool that lets me analyze information rapidly. It takes me out of the drudgery of digging for gold and into the “nugget finding” business. I want those insights that allow me to recommend a new investment for Vestigo Ventures Fund I.
I know my way around SQL tools that let me build the right queries to help you as an investor in our Fund get returns. It allows us to form a basis of fact about the industry. We can believe we understand something but in reality using data discovered using our tools shows the facts. We can then see if the facts are different than the conjecture.
This benefits our ability to find the right investments without human bias. The tools allow us to dig into the right SEO and SEM strategies to build a business. They also allow us to help a company in the portfolio defend their position as we see competitors emerge. Al is key to helping a business growth.
Plus its just cool to see what the use of AI and our five petabyte database reveals to my inquiring mind. Are robos any good at customer acquisition? Answer is no. It appears they are burning lots of funding without a return from the value of the assets raised.
Are online lenders good at digital marketing? You bet they are quite good at taking traffic into their website and intelligently reselling some leads to others or finding ways to close a new relationship with novel methods like a meet up. Why try this on our own using scarce resources when we can learn best practices on our own via our unique data set using our AI tools?
We have had a busy couple of months at Vestigo, finding some very interesting companies to consider investing in for the fund. In this update, we have two to tell you about with 4 to 5 others in the hopper for consideration.
We have had a busy couple of months at Vestigo, finding some very interesting companies to consider investing in for the fund. In this update, we have two to tell you about with 4 to 5 others in the hopper for consideration.
We will focus this issue on Big Data. It is an area that is dear to us, given our relationship with Cogo Labs. Dave has many years of experience digging into data to find interesting ideas and companies to build.
In our first collaboration, many years ago, one of our first collaborations was CourseAdvisor. It’s a great example of the success we can achieve with the data and analytics coming out of Cogo Labs. In addition, it underscores the importance of data analysis to understanding what consumers want. In the case of CourseAdvisor, the need was to build up educational credentials.
Today, we use Cogo Labs data to find and fund FinTech start-ups. Even when the company comes to us via our network, we still run its information in the data for insight on competitors and the activities attracting the most interest from consumers. It is a powerful tool.
Dave & Mark
I have been around data my entire career. In the early days, it was about using small volumes of data to cross-sell to consumers. Today, it’s about teasing out the nuances and relationships in massive amounts of data.
As I spend more time around Cogo Labs’ search features and functions, I often find myself blown away by the power of startups that are able to get SEO and SEM right. At Vestigo, we use a tool called Minerva.
I spend a great deal of time digging into data with the team at Cogo Labs. My “go to” data geek is Mike Perry, who joined Cogo only 18 months ago, but I’ve also had the opportunity to work with a number of other, high-IQ folks on the Cogo team. Every one of them is smart about data and committed to seeking the truth(s) in it.
Micronotes is a PaaS cloud-based marketing automation company that helps with targeted, automated interview technology that combines machine learning-driven analytics and in-branch sales interviews. The company is lead by Devon Kinkead, CEO, and Christian Klacko, COO.
Today, new tools are digitizing everything from client onboarding and portfolio construction to back-office operations and compliance. Fintech has expanded who has access to financial advice and how advisers serve their clients.
Few milestones are more refreshing than the beginning of a new year. We had a wonderful 2017, and now we’re looking forward to the fun of focusing on investing for fund 1. We completed an addition of a fourth investment at the very end of December.
In this issue, we focus on issues surrounding managing a company. We are often asked for recommendations on books about management. We recommend three-
The Hard Thing About Hard Things, by Ben Horowitz
Extreme Ownership, by Jocko Willink and Leif Babben
The Everything Store, by Brad Stone (one of Dave’s favorites)
We chose these because each illustrates a particular skill needed to run a company. In order of the recommendations, these include management basics, the power of purpose and determination and the power of data analytics — the basis of our competitive edge. Enjoy!
Dave & Mark
Where are we now? The US economy seems to be running faster as we enter the New Year. The backdrop is set for a not-too-hot and not-too-cold US economy. From an economic perspective, the world seems to be just right. Geopolitical risks are concerning, but at least they’re well known.
I founded Bison, the go-to resource for private fund investments, motivated by a need to solve a problem for institutional investors. I was clear about my mission to create the best source of information for the institutional investing industry. My mission sustained me through tough times in the early days (and beyond).
When I was a CMO at a large financial services company, I learned how hard it is to gain and maintain insight into customers. The challenge: Find meaningful signals in transaction data to remind customers they made a smart choice doing business with you, and empowering a new conversation to expand the relationship.
Banks are traditionally stodgy institutions built on creaky, old infrastructure and usually being the last ones to adopt new technologies. This has been true regarding robo-advisors and digital advice platforms, where broker-dealers and RIA’s have taken the lead over the past few years.
With so many Blockchain, Bitcoin and ICO questions coming to us from LPs and others, we thought that focusing this issue on these areas would help all of us stay on track.
As the year comes to an end, we have much to celebrate at Vestigo. The fund is well on its way to hitting our target. We have some amazing LPs who are already helping us identify new investment opportunities. Our portfolio companies’ leadership teams are making significant progress growing revenues. We’ve asked all partners to share their own reflections on what they’re most thankful for and what has brought them the greatest happiness.
Dave & Mark
In this month’s Envision Interview Mark Enriquez from Frictionless Markets discusses Initial Coin Offerings. He reviews everything from what they are, to examples of how companies are using them and the difference between Kickstarter and an ICO.
The market continues to be driven by blockchain hype, surging Bitcoin prices and confusion over ICOs. We thought we would share what we have learned about these trends and why they are connected. We acknowledge this may be a bit basic for some while enlightening for others.
See a demo from Vestigo Board of Advisors member Anders Brownworth on how to use the blockchain. This is a roll-up-your-sleeves, coding demonstration designed in a way anyone can follow. This will give you bragging rights at cocktail parties to tout your prowess as a blockchain hacker.
It also shows the need to understand what technology can and cannot do for your business — something we dig into with our LPs and portfolio companies on a regular basis.
As a classic MIT technology guy, I am most thankful for the ways data can make the world a better place. A great example is everything we have done at Vestmark to lower costs for investors. The remarkable success we’ve had at Jobcase getting people hired is another. The possibilities for the future of FinTech and the consumer economy are endless.
Reflecting back on 2017, it’s been an amazing year for me and my family. Highlights include the amazing trips we were able to take to faraway spots like Cuba, New Zealand and Botswana among others. We are so thankful for these opportunities to see the world in its infinite variety.
The article, Morningstar’s Tax-Cost Ratios Beat Its Fund Rankings describes how financial advisors rather than allowing clients to assume the fallacy of performance outliers, should be helping them with tax-smart asset location.
Cameron Winklevoss, thought to be one of the largest holders of bitcoin, thinks the cryptocurrency’s blazing gains this year are just the start. He predicts it will rise as much as 20-fold as investors come to view it as an upgrade to gold.