We just passed a major milestone at Cogo Labs. The Lab recently exceeded 10 petabytes of collected and stored data on consumer web activity. This is a 100% increase from the amount of data we had access to when we started Vestigo three years ago.
A few weeks ago we ran XPLR on over 400,000 unique websites that were showing early signs of viral consumer traffic. We have encouraging ongoing conversations from the batch of early stage FinTechs the algorithm identified. The continued growth of Cogo Labs’ data assets is critical to our investment success.
How to conceptualize 10 petabytes? One petabyte is 500 billion pages of standard printed materials. If you converted 10 petabytes of data into the Robert Fagles translation of The Iliad, you could produce over 7 billion copies. If you stacked these copies on top of one another, you could just about reach the moon. It is a staggering amount of data to query and learn from, an ocean of information to find signal in. It is our edge.
With that volume of information in mind, this issue focuses on the data science making its secrets known to us, a key focus for our companies at Vestigo, and the amazing applications they’ve developed so far.
—Mark & Dave
Envisions Interview with Paul Kesserwani
This month, Cushion CEO Paul Kesserwani sits down with us to talk about how his company is delighting its customers and making noise in the B2C FinTech space.
Turning Back the Clock: Symbolic Processing or Machine Learning
Aside from unlimited cold brew, one of the great perks of my job is the opportunity to make Dave tell me stories about the “old days” of machine intelligence. At that time, (believe it or not) MIT students were not encouraged (financially or academically) to study machine learning (ML). Marvin Minsky was running MIT’s artificial intelligence lab and researchers were focused on a top down approach to called “Symbolic Processing.” The fact that you are looking it up on Wikipedia (as I did), illustrates how successful that technology has been.
Less aesthetically enticing, ML required a vast amount of computing power and since it was out of favor, Dave had free rein to use the connection machine after 10pm. Walking the well trod path of other MIT probabilists like Claude Shannon and Ed Thorpe, Dave achieved technical breakthroughs in the middle of the night in an MIT “computer” room.
It was clear to Dave that computing power was reaching a point that enabled ML applications to dominate in a business that could scale relatively narrow human tasks. The actual task or industry was less important than having a well-defined problem. His team could therefore create software for digitizing handwriting, reading mammograms, and demand forecasting at Walmart before ultimately building the first predictive algorithms for Amazon.
It is in this field of so-called “narrow AI” that methods from data science continue to generate the greatest commercial value. This is the same approach we used to develop XPLR, which enhances our ability to find early-stage FinTechs. The majority of our portfolio companies use supervised learning in one form or another; Dave’s perspective is invaluable in both due-diligence and aiding our founders in their efforts to leverage their own proprietary data.
AI shows no sign of relinquishing its position as the most investable technology in FinTech today. As a true pioneer of commercial AI, having Dave’s network and expertise helps us intelligently invest in its continued proliferation.
—Frazer Anderson, Investment Analyst
The team at LifeYield continues to improve customer outcomes with new tools. The latest of these, “Income Advantage” enables financial advisors to optimize tax-smart retirement income for their clients.
Ryan Gardner, marketing manager at Vault, provides an overview of how workplace productivity can be driven by employee benefits. The data supporting the need to offer student loan repayment assistance as a standard employee benefit is unquestionable. Vestigo is proud to watch the team from Vault lead the charge on this crucial issue.
One of the more idiosyncratic aspects of FinTech relative to software in other industries is the relationship between the incumbents and startups. Will these groups collaborate or collide? In retail banking, the battle is well underway.
The ICO euphoria of 2017 was the first market mania in a generation and it may be another 20 years until we see its like. Like the world changing evolution of the internet’s application layer in the 00’s, perhaps DeFi will be crypto’s “killer app.”
We continue to deploy capital from our Limited Partners into promising companies that are changing financial services. We have made serious progress and have drawn down a material percentage of capital for Fund I. We are a bit ahead of where we thought we would be by spring of 2019. XPLR, our automated company discovery tool, is part of the reason for this advance.
We follow the fundamentals in the process of investing: What do we think of the team that founded the company? How big is the total addressable market? What do we think of the tech stack? It takes discipline to get the basics right, but picking winners is a lot easier when you do.
Fundamentals are top of mind as we think about our exposure to crypto assets. Our thesis for Fund I is that a tremendous amount of value will be unlocked over the life of the fund. The pace and form of this technological transformation are less clear. It is obvious that crypto already matters to both institutional and retail investors. Check out the article reviewing Fidelity’s survey of institutional investors concerning crypto investing.
We have focused on foundational companies in the space leading us to three firms: Digital Assets Data, FRST and ZenLedger. Each has done well in their first years of operation. Their leadership provides lessons in readiness and pivoting the business where needed in a new market.
—Mark & Dave
Envisions Interview with Ian Sheridan
This month, Vestigo Ventures Co-Founder & Managing Director Ian Sheridan discusses the state of the crypto ecosystem and how RIAs are thinking about their clients’ exposure to digital assets.
Winter Is Leaving… Cryptoros
Borrowing a catchphrase from Game of Thrones is always popular for a blog post but is particularly helpful when writing about the crypto winter we have enjoyed for about a year. Our portfolio companies have used the adverse market conditions to opportunistically add technical talent in a highly competitive job market.
We continue to be believers in the power of alternative asset classes and stores of value. Crypto is an ideal example of both. It shares many characteristics with other tradable currencies, which is why crypto desks are populated with FX traders, except it is not issued by a government. It also digitizes value in a convenient and easily transferable way for investors. It matters because it is a truly decentralized way to transfer value to others and remove friction costs.
It is quite easy to imagine digitization and fractionalization of ownership of assets of all types. ETF’s removed incredible amounts of costs from mutual fund structures which has lead to their popularity. I believe the next phase is to rollout digital assets representing ownership in stocks, bonds and all asset types. While there is still a great deal to do in regulatory oversight and rule making, we will see this happen quickly once ETF’s of crypto assets are allowed.
This matters because of the same cost characteristics of digitization of a currency. It removes the need for cost related to trust verification by building the trust in the asset-blockchain. This cost savings accrues to the savers who now pay them as part of their investing process.
None of this will happen overnight but does represent the march to decentralization of assets and better outcomes to investors to put more of their investment money to work at lower costs. You can practically feel the frost of crypto winter melting!
—Mark Casady, General Partner
Digital Assets Data has been receiving some well-deserved press coverage on their substantial $6M capital raise and the addition of Ryan Alfred as company president. As investors, we are excited to see Mike Alfred and his brother Ryan working together again full-time. The two leaders’ complimentary skill sets were instrumental to the success of their previous venture, BrightScope.
Vestigo is a proud investor in Cushion. The platform has already put over $1M back into the pockets of its users and will continue to find other ways to improve personal finance with true automation. Cushion has built the kind of bleeding edge technology that gets us excited about the FinTech revolution.
We believe strong teams are especially paramount for success in emerging technology businesses. It is no coincidence that all three of our crypto-focused CEOs are highly regarded thought leaders in the world of digital assets. In a recent article from CryptoSlate, ZenLedger CEO Pat Larsen shares his perspective on corporate adoption of blockchain technologies.
New research from Fidelity Investments shows that institutional investors are overwhelmingly favorable about the appealing characteristics of digital assets. Today, only 22 percent of institutional investors have exposure to digital assets. Imagine the crypto landscape when this changes to 100 percent.
Coinbase has been working on offering a regulated custodial service for digital assets for over a year. The company now supports custody for over 30 of the most popular digital assets. Institutional participation in the crypto markets is a big step in the evolution of the space.
A loud minority of crypto enthusiasts claim that blockchain technologies will render most corporate and government structures obsolete. We believe a thoughtful regulatory environment is a necessary step to unlock the full value of this game-changing technology.
We love the way that the new tech becomes the old tech at regular turns. It makes one wonder if its not just a plan for economic rejuvenation for tech companies. Don’t get us wrong, we are in the business of replacing old tech with new so it works for Vestigo’s portfolio companies.
Of course the reason for this roundabout is that new ways of doing business can offer new opportunities to compete. Yesterday’s consumer experience is tomorrow’s decrepit interaction needing to be upgraded to the best user experience and interface.
Yesterday’s acceptable business process is today’s costly, error prone, human-lead process needing to be automated out of existence.
Every week we hear this from financial services incumbents looking for ways to innovate and improve. Thank goodness they are asking and their customer is demanding it. Every week we meet entrepreneurs with smart new ways to replace old tech with new. These founders are finding ways to build businesses making this happen.
We applaud the leaders in our portfolio companies for their hard work and constant testing to find the right business proposition and build their businesses. We are thrilled to be on this tech roundabout with you.
—Mark & Dave
Envisions Interview with Lindsay Holden
This month, Long Game Savings CEO Lindsay Holden sits down with us to talk about how her company is shaping the future of saving and financial engagement.
What is a Bank?
I find myself asking this question regularly in my role as an investor and as a bank director. Any business should ask what is its reason for being. It ensures regular review of its strategy and its competitive edge. In the case of financial services, it is critical given the speed of change in the environment.
Historically, banks were about place. The local bank (even if it is a big regional bank) occupied mind share in its market because it advertised and opened its branches to customers and prospects. The act of walking into a branch let the brand come to life for customers. This is true for consumers and businesses alike. Picking your “footprint” as the bankers like to say focused your resources and impact.
Secondly banks need deposit growth to feed the balance sheet to allow them to lend money and make a spread. On the consumer side they have focused on new accounts coming from consumers who are much younger than those consumers looking for a wealth manager or a doctor. So banks have experiences with younger cohorts of consumers well before other industries might make first contact.
My belief is that we have in a short time experienced a significant shift from the younger cohorts. They have in less than two years according to a study by Bain Consulting stopped coming into the branch. They have identified less with place and more with experience. Who is easiest to work with? Who charges me less in fees? Who has my best interest at heart?
If this is the new way forward, it will require a new definition of banking. Robin Hood is a bank by this definition. Marcus is a new form of bank fitting this model more so than other traditional branch laden banks. Focusing on customer experience may be the key to getting the attention and business of consumers. Worrying about NPS (net promoter scores) should drive any financial institution more so than worrying about NIM (net interest margin) perhaps.
We have invested in two startups – Long Game and Cushion who we think embody this new way of thinking about customer experience. Enjoy the interview with Lindsey Holden who is the founder and CEO of Long Game. See what you think about their way of gaining trust and delighting consumers.
Cushion gains trust by rebating checking fees. Over $200B per year is charged by the banking industry to consumers. Imagine a firm who helps you get some of this back. It would be easy to trust them when they offer you a new service. What a great customer experience that should build a new version of a bank or financial partner.
I welcome your answer to my question above to help shape my thinking. Send me your thoughts at email@example.com.
—Mark Casady, General Partner
Prudential, financial services and insurance company said last week it has updated its offerings for more than 3,000 employer clients to allow workers to better manage student loan debt, develop a financial plan and get access to coaching services. The tool their clients will be using to manage student loan debt? Vault!
In March, Long Game launched “Savings Jars.” The new feature enables a customized, data enhanced user experience. Early days show that most users are saving for vacations, new homes and bills. In addition to personalization, Jars are already increasing savings rates. Vestigo hopes you’re enjoying the app as much as we are!
Will Vestmark Repeat?
We are delighted to learn that Vestmark has been nominated for the fourth year in a row for the “Best Places to Work” Award by the Boston Business Journal. The company took 1st place last year, and we are very proud to put our capital to work with a firm that delivers both excellent technology and treats its employees the way they deserve.
While we have never been more excited about how our portfolio companies will shape the future of financial services, its amazing to reflect on the degree to which consumers are already benefiting from improvements in financial technology.
Only a few years ago, policymakers had little inclination to regulate AI. Now, as the consequences of not doing so grow increasingly tangible, a small contingent in Congress is advancing a broader strategy to rein the technology in.
We are excited to come the office everyday (most days) not only because of the investment opportunities in financial technology, but because the FinTech revolution is already bringing about necessary changes in both access and fairness to our economy.
Our impact at Vestigo is centered in Cambridge just blocks from MIT’s campus. We have a chance every day to meet entrepreneurs and learn about their business ideas. We review the data coming from XPLR that reveals new companies that are going viral in FinTech. But our reach can also be global as we saw from the recent visit to Davos by part of our team.
We share more stories of Davos this month with you as the event was so rich in experience and learnings. We also share what we learned from an HR conference that Mike attended to flush out more of our thinking on worksite businesses. And Frazer attended an MIT FinTech event that was filled with local startups and those that support them like FinTech Sandbox, other VC’s and Mass Challenge. We give back in many of these events by making connections to find new companies for the portfolio or to share insights with those that need it on FinTech.
We also moved officially to an office that is a bit bigger and just around the corner in building 200. Here’s a photo of B-2101. Please come by and say hello.
—Mark & Dave
Data, AI & the Future of Work from the WEF
Big Data and AI insights with Vestigo Advisor and Cogo Labs CEO Mira Wilczek from her talk at Davos.
Xs and Os at Qualtrics X4 Summit
I had the good fortune to attend the Qualtrics X4 Summit in Salt Lake City last week. The Summit had an amazing star-studded list of Speakers, including:
President Barack Obama: powerful discussion on the dedication to the mission of his cabinet and the team he assembled, coupled with the absence of individual advancement by the people he surrounded himself with over eight years in the White House.
Sir Richard Branson: a humble visionary, who attacks the problems he has experienced firsthand while also looking to do the impossible. A simple, but powerful take-away was his statement (paraphrasing): “startups can only excel if the CEO / Founder is willing to delegate daily responsibilities and trust the team they are assembling.”
Oprah Winfrey: if there were ever a better motivational speaker, please let me know; despite all the challenges she has faced from the earliest days in her childhood, she has continued to succeed and give back to society. It was refreshing to hear someone so successful reiterate the mantra to “be true to yourself and you will achieve success” and reminding people to not make decisions purely for money, as that will not lead to long-term success or achieving your goals.
Bill McDermott: as the CEO of SAP (~$150.0 billion market cap) he spoke with pride of his entrepreneurial beginnings, at 16 years old he bought a local deli and built a business designed for the local high school kids who were “looking to play arcade games and get good food”, in turn his little corner store took all the business from his local rival, 1970s behemoth 7-11.
Ashton Kutcher: I have to admit an ignorance to the workload of actors/actresses and models, and the pleasant surprise to hear Ashton extoll the benefits of working hard and that no job is beneath you. In evolving from a laborer to a model to an actor to an investor, most importantly his energy is being used as an activist to save children from exploitation and human trafficking.
Dan Reynolds: as the lead singer of Imagine Dragons, he has seen the trials and tribulations of an unsigned band and the heights of multiple platinum albums. In an era where every song being released seems to have an Explicit Warning on it, Dan and his band are steadfastly focused on clean music and in response they are the drawing amazing crowds of both young (children) and old (parents) all the while traveling the world on what seems to be a perpetual tour. Dan does an amazing job educating his audiences on the need to bring awareness and acceptance to depression, anxiety and the value of therapists.
In addition to the opportunity to hear the stories from these amazing people, there was an extensive discussion on the powerful combination of X (experience) and O (operational) data, as illustrated by the $8.0 billion acquisition of Qualtrics by SAP. Qualtrics software focuses on experience management related to: (1) brand, (2) customer, (3) product and the most recent addition (4) employee. These four areas provide a continuous feedback loop related to all aspects of a company and take the concept of customer development well beyond product market fit and simple product iteration. This is a growing market and already gaining incredible traction. SAP on the other hand is already everywhere; take into consideration that 77% of all transactions globally are run on SAP software, they have cornered the market on operation data.
The combined entity (SAP + Qualtrics) gives us a view into how every company (start-up or established) needs to truly embrace data and eliminate bias in their business decisions. Human nature is to make excuses for negative outliers and criticize the data that does not conform to their opinion. If we want our companies to be truly successful, we need to align with the mission of the company, trust in our team, not chase the dollar rather the goal, and embrace the ground truth provided by both X (experience) and O (operational) data, no matter how difficult it may be to accept.
By the way, if you ever need some to break up the tediousness of your conference, I would highly recommend Dr. Peter Lovatt, Dance Psychologist. It is amazing how quickly he can get an 11,000-person audience engaged and raise the level of energy in only a few minutes. This is definitely worth a watch:
Dr. Peter Lovatt, Dance Psychologist Talent Summit 2018 (skip forward to the 7m00s mark)
—Mike Nugent, Managing Director
MIT FinTech Conference
This month, I attended MIT’s annual FinTech conference in Boston’s Seaport district. The event was a tremendous success, bringing together an accomplished group of entrepreneurs, technologists, VCs and financial services executives. Panelists discussed topics ranging from the rise of challenger banks, the next generation of digital governance to VC perspectives on the opportunities in FinTech today.
Of course, I was most interested in the founder mythology. Rashmi Melgiri (Co-Founder of CoverWallet) captivated the audience with the story of how her team has revolutionized small business insurance. Her ability to articulate the parallels between small business insurance today and airline tickets before Expedia, coupled with her ninja product development (she visited dozens of local insurance agents in Brooklyn with her co-founder posing as potential customers) was intoxicating founder-talk for a VC like myself. If only we’d had XPLR in 2016!
We also had the pleasure of hearing perspectives from multiple established FinTech VCs. Adam Valkin, GP at General Catalyst, shared 20 years of invaluable wisdom from launching companies to making successful investments with his present firm. Two themes that resonated with me are the common qualities in successful founding TEAMS (intentional caps lock) and how to think about the macro of venture capital. Today, great technology has almost* become table stakes for venture funding. There is a temptation to spend all your time comparing trees instead of looking to see whether the forest is next to a paper mill or set to grow and thrive in the coming years.
Needless to say, the day was time well spent and I would encourage all of our readers to put next year’s event on your calendar!
—Frazer Anderson, Investment Analyst
The team at LifeYield continues to find new sources of “tax alpha” for their customers. We are proud of the company’s role in making tax optimization ubiquitous, empowering investors to earn higher returns without increasing risk.
I had the pleasure of supporting Vestigo portfolio company FRST at an Ethereum meetup in Chicago a couple of weeks ago. While of course FRST’s technology shined, perhaps the most impactful speaker was Andrew Gordon (a Chicago tax attorney). He presented on the many myths surrounding how to calculate and pay taxes on digital assets.
The audience was horrified (clearly none of them were using ZenLedger). Fortunately, Andrew is also a ZenLedger advisor and we both shared the company’s story to the palpable relief of the entire room. The crypto world is quickly waking up to the importance of tax compliance.
—Frazer Anderson, Investment Analyst
Vestigo is excited by the collision between technology and banking. As investors, while it would be great to fund the “iPhone of mobile banking,” we see fantastic promise for incumbents of all sizes to partner with B2B FinTechs and start delighting their customers.
Dave along with Ian hit the road to Davos this month. Read more about their insights from this amazing gathering in the updates below. While there is a glamorous side of global leaders, the key to a great Davos experience is to dig in with the latest thinking on technologies and innovation.
We are also hitting the road to see the portfolio companies and prospective investments. You learn so much when you can sit with the leaders of companies and discuss their vision and struggles and opportunities. We had recent trips to San Francisco and to NYC. While we see plenty of deal flow from our offices in Cambridge and via XPLR, our algo deal seeking machine, we need to be out to share stories and learn.
—Mark & Dave
Introduction to Blockchain+AI+Human from the WEF
Blockchain and AI insights with Vestigo Advisor John Werner and MIT’s Sandy Pentland
This year, I had the opportunity to attend the World Economic Forum (WEF) at Davos. Founded in 1971 as a not-for-profit foundation, the WEF recognizes that the world is changing at an ever increasing pace. The forum brings together leaders from across many spectrums of society: politics, business, academia, NGOs, and the arts, who travel from all parts of the globe to discuss the biggest challenges facing the world. The topics of this year’s conference ranged from Big Data, Blockchain Technologies, Artificial Intelligence to Social Inclusion and Equal Opportunity.
“The Forum strives in all its efforts to demonstrate entrepreneurship in the global public interest while upholding the highest standards of governance. Moral and intellectual integrity is at the heart of everything it does.” -WEF
Invited by John Werner of our Advisory Board, Vestigo was given the unique opportunity to participate and present. Our General Partner David Blundin, Vestigo advisor and Cogo Labs CEO Mira Wilczek, and FRST (a Vestigo Portfolio Company) CEO Karl Muth each presented. Mira and Dave shared thought provoking perspectives on Big Data. Karl Muth articulated the evolution of the Crypto marketplace while demonstrating the visualization power of the FRST platform.
David’s presentation described his journey as an entrepreneur and his ability to link the power and ubiquity of Big Data. He conveyed to the audience how the simultaneous evolution of software, processing power, growing data sets, and Blockchain Technologies will enable entrepreneurs to quickly move their companies and careers forward.
Mira was able to set the stage for Big Data in a trustless world and the important role that Blockchain Technologies will play. It was a thought provoking talk as Mira shared the IDC estimate that the average human on earth will generate 1.7MB of digital data every minute, while comparing the “wet” data (eyes, and ears) generated by the humans in the room at Davos. She discussed the challenges of data ownership, transparency, replication, and security, affirming the role of Blockchain Technologies.
Karl took us on a journey through the crypto world from the revolutionist to the professional. He described why FRST was created and demonstrated the power of their trading tools. The audience was amazed by the magnitude of the visualization tools and the edge that the platform provides for professional organizations trading crypto currencies. Karl outlined the path that we are moving along: from the crypto winter to the professionalization of the marketplace.
At Vestigo, we leverage Big Data and machine learning every day to find great FinTech companies. The collective “wow” moment from these talks, was the tangible absorption of the transformative power of Big data by the Davos audience. The results of the talks where immediate. Dave was quickly whisked away by the executive leadership from TATA, Forbes and many others. Mira was recruited to a leadership panel with the CIO of the US Government, Karl was interviewed on TV. I was engaged in the debriefs discussing Vestigo and our unique portfolio of financial services solutions with leaders from the world’s largest financial intuitions.
There were many wonderful random collisions of ideas and meet-ups with people from all sectors of society. I met a physicist who is developing the next generation of quantum computers. Over lunch he was able to explain how quantum computers work and for a moment I think I understood him. We attended an incredible variety of events including, the day at the TATA/MIT TCS Dome, CSAIL Artificial Intelligence group discussion, The TCS Global Reception, NYTimes Debate, Aberdeen Investments scotch tasting party, the Harvard networking event, the Global Blockchain Business Council dinner, the evening with Forbes executives, and had the opportunity to meet many thought leaders like Steve Forbes and David Rubenstein, the co-founder and co-executive chairman of The Carlyle Group, Tim Berners-Lee (inventor of the Web) and Amy Cuddy Ph.D. (most viral Ted Talk) and so many more amazing people.
We made many new connections and look forward to future engagement and visits to Cambridge. These are seeds that may well translate into good business, time and effort will tell. I want to thank John and our General Partners, Dave and Mark who created a unique opportunity for Vestigo along with Karl from FRST. We are looking forward to being invited back next year and we hope to include one or two of our leading portfolio companies.
The trip was a huge success. Being part of the collaboration of ideas through intellectual exchanges and having exposure to people willing to challenge the status quo was a whirlwind of fun!
In a wonderful article by Vestigo advisory board member John Werner and long-time collaborator Sandy Pentland (#geniusvisionary) we hear about the minds that truly shone in Davos this year.
XPLR Scores Again
Our second investment that resulted from identification of potential viral companies in our Cogo Labs data is now complete. Cushion joins our portfolio companies as a personal finance application that automates stressful, complex and tedious actions to reclaim or save money for their customers.
They are targeting bank fees which total over $200B annually on consumers. They negotiate via an automated process with the banks to get these fees reduced or eliminated. They have saved customers hundreds of thousands of dollars while in Beta.
Paul Kesserwani is the founder and CEO along with Ivan Balepin as CTO and Lauralynn Stubler, in charge of growth and retention, run the firm. It is a lean team that has built an impressive technology on a shoestring. We applaud their lean style of management.
Alloy Joins the Portfolio
We met Tommy Nicholas, founder of Alloy, in our search for a technology first approach to the insufficiencies in today’s AML/KYC solutions. We were immediately impressed with their approach to on-boarding new clients for banks and FinTech startups. This is critical in their role to provide proper KYC and AML compliance systems as well as to protect themselves from fraud.
Tommy is joined by a great team. Laura Spiekerman is their CRO along with Edwina Johnson, COO, have great startup experience that will help the company with the inevitable twists and turns. Charles Hearn is the CTO providing the early build along with client success on-boarding. Sue Devine, VP Customer Success, trains the clients in using their capabilities.
Alloy’s use results in 98% automation of customer acceptance decisions with a 50% reduction in fraud. Further it reduces the need for manual review by 95% which is an enormous savings for those firms using their solutions. Helping firms reduce costs while providing better regulatory outcomes is why we are pleased to be able to join their recent fund raise in a convertible note.
—The Vestigo Team
InsureTech remains one of our primary areas of focus at Vestigo. We see almost limitless possibilities for improving outcomes and delighting customers when incumbents and FinTechs can find ways to effectively collaborate. Consumers are already enjoying the early innings of this trend.
In a fascinating interview from the WEF at Davos, a panel of experts discuss how the use of distributed ledger systems can address the challenges of small businesses who remain separated from digital networks.
While “crypto winter” has undoubtedly come, Vestigo could not be better positioned to help our founders create value in this seemingly harsh climate. We remain encouraged by both the promise of blockchain technologies and the continued, steady flow of “smart money” into the space. Every bull market is the parent of a bear market and vice-versa. We are well positioned to act when green shoots begin to push through the snow.
We love a new year. It’s so full of hopes and plans and excitement to get started. It is truly the most wonderful time of the year. Last year was quite good with the close of Fund I and the growth of our portfolio to 12 companies.
What will 2019 bring? We would like to continue to find and fund great companies who will bring positive change to financial services. Our XPLR search process using the Cogo Labs data continues to provide companies to research and pursue. We plan to dig in further to find possible investments. We see continued deal flow from fellow venture firms. Sourcing from our broader network is yielding good insight and investments. Our plan is to remain focused on getting capital into companies in their seed round.
Follow on investments picked up in the fourth quarter so we look forward to many more in 2019. We have been pleased with the thoughtful structures and valuations in these thus far.
Finally, we have big plans to move just a 100 yards from our present office but into space to allow for expansion. All of us have enjoyed our closeness in the current space-but any added interns or growth in staff for our next Fund and we are out of space.
We hope you have an amazing 2019.
—Mark & Dave
Envision Interview with Patrick Larsen
Blockchain insights from ZenLedger CEO Patrick Larsen
What does a recession really mean for a VC?
Downturn, what downturn? We don’t see a slowdown in the core business premise of our portfolio companies nor in the incumbents willingness to work with them…….yet.
What might cause that to change? We think it would have to be a substantial downturn in business activities with incumbents laying off and digging in for a prolonged drop in activity. We just don’t see that coming at this stage.
We do see the potential for a pull back or significant slowdown in 2019 or 2020. It is also possible that we get back to growth with a deal with China and a Fed less likely to raise rates.
In fact, we feel any slowdown is good! It takes out our weak competitors in FinTech. It lowers expectations on valuations in a healthy way. It makes capital a bit more precious which is good. It will be better used if considered very valuable.
We are already seeing this in the digital assets world. Bad projects are falling apart which is good. Good firms are getting funding to get them through crypto winter at better valuations for investors. Weak competition is going away. Professional investors are still entering the market and loving the volatility.
Our plan is to take as much advantage as we can of these conditions. Providing insight and staying power to our portfolio companies is a key activity for us in these moments.
Being a newer fund with a long time horizon and plenty of capital should provide an advantage at these moments of change. It should allow us to intelligently invest.
—The Vestigo Team
Vestigo at Davos
We are pleased to report that Vestigo Advisory Board members Mira Wilczek and John Werner, Vestigo GP Dave Blundin, Vestigo Founder Ian Sheridan and Vestigo portfolio company FRST CEO Karl Muth will be attending the World Economic Forum at Davos this year. We look forward to giving you the details on all the action from Switzerland in next month’s issue.
With Long Game cracking 90,000 savings accounts this month, it’s no wonder that our favorite mobile “game” is running up a high score! Forbes contributer Jennifer Cohen noted it as one of her top apps for success in 2019. Vestigo is also confident in the success of Long Game’s users and the company itself in 2019.
Crypto Winter’s Silver Lining
Vestigo Portfolio Company ZenLedger enjoyed a big pop in revenue on the back of their successful “tax loss” harvesting campaign. Vestigo’s approach to crypto has been to find opportunities with low correlation to token/cryptocurrency prices. While many people in the crypto ecosystem are suffering these days, the idiom “Death and Taxes” is proving out.
We started Vestigo with the premise that while the amount of capital in the venture eco-system as a whole was enormous, early-stage (and in our case FinTech) was being overlooked. It’s gratifying to see our intuition confirmed by this new report from PWC and CB Insights.
Nearly all consumer facing FinTech startups (including some of our own) have deep integrations with both Plaid, the FinTech startup that enables developers to create financial services applications and Quovo, a startup that aggregates investment data. This is massive news for our industry.
This short article touches on most of the things we talk, think and write about at Vestigo every day. Understanding the relative importance of the overall industry trends when analyzing a particular investment opportunity is one of the exciting challenges of the job!
We always like to take time as a firm to think about trends that will evolve in the next year. For 2019 we make the following five observations.
AI Acceleration – We have seen AI in a number of areas for growing bank revenues. We will see more AI applications for other parts of the financial services industry. The tools here will also reduce costs. However, financial institutions will need to audit AI results to be sure an unintended bias does not appear.
Crypto Continues – Trading activities and support by institutions will continue to grow. While we are not predicting upward price moment, we are seeing evidence that more and more mainstream investors are attracted by digital asset trading.
Big Iron Workarounds – The financial services industry has an ancient infrastructure that is unlikely to be replaced any time soon. More startups will work to create smart workarounds for helping the incumbents move faster at lower cost to support their clients.
Employment Evolves – We will see more workers with multiple income sources resulting in employee benefit providers beginning to evolve to tap this opportunity with new product and service offers. These gigs can offer a way to climb the financial ladder or create a lifestyle choice.
The war for technology savvy talent puts pressure on growth – Traditional education makes room for shorter duration certifications in software, engineering and data science. The drive for apprenticeships emerge in technology fields and dependent business sectors. Employers evolve benefit programs to create flexible benefits like helping to pay down student loans for employees.
We invested in Craig Welch’s newest startup Kingfield Corporation’s (“Kingfield”) Series Seed. Craig’s previous venture was the very successful Acadia Soft. Kingfield is a financial technology start-up that is currently developing a common industry communication network that will organize, standardize and facilitate delivery of operational type messages between institutional investors and the agent banks with which they have relationships. The building of this secure technology environment will allow all market participants to transmit routine post-trade correspondence, across all asset classes, through one client portal, thereby eliminating emails, chat, paper correspondence and other inefficient bespoke forms of communication. Our co-investors include Bain Capital Ventures and Contour Ventures.
First Sale – Mirador
It was a short time ago that we announced an investment in Mirador. We are pleased to mention that they have sold the company providing our LP’s a 3X return on capital in a very short time. This will allow us to post an excellent IRR for the Fund in its early days of operation.
Long Game’s Look Ahead
2019 will be an exciting year for our company as we scale to support our customers to achieve their financial goals and have fun while doing so. Even so, we share concerns about the impact of an economic recession but hope that we can help our customers weather this time of insecurity. Traditionally (and sadly) Lottery expands during times of economic hardship because people are looking for hope. Hopefully this dynamic will help people to find our games of chance and be motivated to save instead.
Fintech is only at the beginning of its story. Even the biggest FinTech companies are still small (~2M customers) relative to the opportunity (~200M customers) so lots of expansion is possible in the years to come!
So no surprise, we’re bullish about next year for Long Game. 2018 was our year of product-market fit and establishing channels for efficient growth and we start of 2019 with a new round of financing, poised to scale and monetize, and ready to help our customers succeed in the face of a tough economy.
–Lindsay Holden, Long Game Savings CEO
What to Expect from towerIQ
2019 is a tremendously exciting year for towerIQ, we have a number of large achievements around the corner. In particular we’ll be converting our pilot customers into enterprise customers in the beginning of Q1; this comes at the heels of launching our first 10 micro-services in January. Our incredible engineering team has worked hard in ’18 and plans to nearly triple in size and productivity over the next twelve months.
The new year also represents a pivotal time for the commercial insurance market. For the first time we are seeing large incumbents hiring Chief Digital Officers from other industries. A number of large brokers saw internal projects fail in ’18 and will now be looking to buy additional solutions in ’19. External pressures continue to drive brokerages to become more operationally efficient, we expect this will expedite our pipeline and adoption exponentially as the new year unfolds.
–Adam Demos, towerIQ CEO
FRST Look at 2019
FRST enters an exciting phase with the new calendar year; we will be product-in-market around the time our Series A round of financing is set to occur. Many of our customers, investors, and partners are generally oriented toward active trading (rather than being fundamentally long BTC, for instance) and turbulence in the markets always brings with it excited volumes and new arbitrage opportunities – we strongly believe that rough seas create interest in these markets and also interest in tools that can be used to increase the signal-to-noise ratio on a busy day. Volatility in crypto markets is not new and it is not going away any time soon.
We believe identities – and, specifically, the ability to personify addresses and locations and traffic patterns on the network – will be the big change in blockchain in 2019 and that FRST’s technologies are at the center of this revolution.
Blockchain networks are quickly transforming from anonymous, trustless bazaars to reputation-centric, known-actor markets. What began as an environment where KYC and AML, regulator-driven activities were seen as an inconvenience (that were frankly often performed at the de minimis end of the investigatory spectrum) will soon become a place where being identifiable is an asset rather than a liability
Vestigo portfolio company CEO Karl Muth was recently featured on IBM’s blockchain blog. At Vestigo, we are lucky enough to have access to his thinking quite frequently, it is our pleasure to share his perspective with our readers.
Between our team’s obsession with data and industry backgrounds, there are few areas we monitor less closely than digital identity. We are excited by the potential synergies of blockchain technologies and AI in this space. Now if only we could find a FinTech use-case for 3D printing…
Human progress is defined by the desire to take risk — whether that’s getting married, buying a home, having kids, getting on a plane, taking a new job, even moving to earthquake country (where this talk originally took place, in Los Angeles, as part of the a16z Summit 2018).
Regulatory Evolution: Opportunities for Innovation in FinTech
There is much to do to keep America at the front and center of innovation. This month we focus on our thoughts on the shifting regulatory landscape and the corresponding opportunities for FinTech startups. The key need is to have ways to allow startups and incumbents to test their ideas. Some have suggested a “sandbox” that allows for experimentation by the various regulators for small scale tests. Arizona is the first US state to create a regulatory FinTech “sandbox,” joining countries such as Australia, Singapore and the UAE.
Another approach is to put into place lower cost regulatory structures like inexpensive bank charters which has been done in the UK. Singapore has lead the way for making it safe to innovate and get it right but be okay if you get it wrong. Switzerland has focused on digital assets and creating an easier way to let that industry grow.
We need our regulators, starting with the SEC, to pave a way for use of the new technologies and customer demands to practice, dare we say play? This needs to be supported by our banking regulators as well. They do so informally but need to create clear guidelines to avoid harm to consumers but allow for expansion of ways to serve them.
—Dave & Mark
Envision Interview with Matt Beecher
Matt Beecher from Vault (formerly Student Loan Genius) joins us to talk about how Vault is combatting student debt burdens and the regulatory tailwinds behind the company.
Cycles of Disruption
Investment decisions are easy when you meet founders whose product is 10x better than its nearest substitute. According to the efficient market hypothesis, opportunities like this only arise the moment a 10x technological breakthrough occurs. Fortunately for us, (and our LPs) we don’t have to wait for quantum computing to find great investments. Sometimes we just have to recognize when a meaningful group of potential customers are forced to rely on a terrible product. But where to look?
Consider some of the most painful transactions in your life: paying taxes, health insurance (claims or registration), anything that involves your cable provider. There’s a theme. Unpleasant customer experiences are ubiquitous in highly regulated (or government dominated) sectors which are in turn served by oligopolistic (often monopolistic) firms. These structures invariably suppress innovation, overcharge, and provide a bare level of service in return, for a while…
Incremental technological progress enjoyed by the rest of the economy reaches an inflection point when startups can delight consumers by circumventing incumbents’ regulatory bulwarks (you no longer need a medallion to drive a taxi, a license run a hotel, physical branches to own a bank). Thoughtful incumbents can avoid such a cataclysm by partnering with intrepid technologists to bring their customers the experiences they deserve sooner, before the levies break. Most will not. Vestigo’s raison d’être is to capitalize on the outsized influence of these dynamics in financial services today.
Whether it’s a SaaS that seamlessly calculates your tax liabilities from crypto speculation, a platform that empowers you and your employer to minimize your student debt burden, a frictionless portal for fast small business credit underwriting, or a digital bank that makes you financially responsible while you play animated games, several things are clear. Innovation is on the rise, costs are coming down, and customers are beginning to experience an order of magnitude improvement in the quality of their products and services.
So far, we are having a lot of fun identifying weak points in our industry and the teams that will enchant underserved consumers and enterprises. We expect that we will find a way to cope with the profits from our efforts as well…
On October 5, 2018, VVF1 invested in a convertible note for Long Game Savings Inc. Long Game is a prize-linked / goals-based personal finance app that allows users to play games to win cash prizes and rewards for good financial actions. The Company is not pursuing a financial literacy or financial education strategy, rather they are pursuing financial improvement through action.
To date, Long Game has acquired 200,000 users, of which 50,000 have activated savings accounts. The Company is highly focused on customer acquisition and engagement. As a result, Long Game has created an incredibly cost-effective customer acquisition strategy translating to a massive lifetime value (LTV) to customer acquisition cost (CAC) ratio.
Long Game was founded by Lindsey Holden and Ashby Monk Ph.D. Holden has been involved in startups since 2011 when she joined Formation8 (a digital-focused VC) as a founding associate. She started her first company, Innovative Auctions, in 2013 which she lead to a successful exit in 2015. Monk has held top research positions at Stanford since 2011 and has founded three startups prior to Long Game.
Long Game is the first investment sourced from Vestigo’s recently launched XPLR algorithm. Our co-investors include Collaborative Fund, M Ventures and Thrive Capital. Mike Nugent, Managing Director, will serve as Vestigo Ventures’ Board Observer.
Money 2020 is Quite the Show
I attended the Vegas show of about 12,000 disrupters at Money2020. It was fantastic to see so many focused on the same goals of improvement of our financial system. The expo hall was massive and the meetings were well attended. The only disappointment was T-Pain who gave a less than exciting show the second night. How could he not perform “Hey Bartender”?
We used it to reconnect with fellow venture capitalists, discover new startups and meet potential LP’s for Fund 2. It was excellent for networking.
Two of our companies presented to packed audiences. I was impressed with their performance and intensity. One is Long Game which we announce in this issue of our newsletter. We found them in XPLR, which is our new way of leveraging Cogo Labs data to find early stage FinTechs, and had invested by the time we got to Vegas. Since they do gamification, it was a great fit to be there
We would say it’s a great event to attend to network on all things FinTech.
Not a headline you might expect about the US regulator for brokerage firms. They put on an impressive gathering of thought leaders in FinTech as well as other regulators. Mark is on the committee for FINRA along with a variety of startups in FinTech and consultants on the topic of innovation. It makes for a great discussion.
The host presented several thoughtful topics to draw out the participants on a variety of topics. This setting allowed for lots of give and take on digital assets, tech company plans to enter financial services, data protection and ways to expand innovation.
The most interesting talking points came from an ongoing FINRA study on digital assets like cryptos and ICOs. Of the more than 2,600 crypto firms surveyed by FINRA, only a tiny percentage have reported that they are distributing to accredited investors ICOs in a Regulation D format. Feels like an early wave in the use of this new alternative asset.
We will continue to support FINRA in their efforts to learn about how the world is changing. We encourage them to form an office of innovation and to create ways to allow for a “sandbox” approach to helping retail investors as well as markets make progress.
—The Vestigo Team
Micronotes CEO Devon Kinkead was a keynote speaker at the Raddon Conference in Chicago on Tuesday. His talk focused on communicating what AI and ML is and how it can be applied for maximum competitive advantage in partnership with people.
We have refined our algorithms for sourcing FinTech companies and are now getting five or more startups monthly to investigate. We will be announcing our first investment discovered by XPLR soon!
Thanks to the hard work of Frazer Anderson, our associate, and Farrah Nekui, our summer PhD candidate intern, we have deeper insights from our Cogo Labs data on consumer activity on the web. In addition to finding companies, we are monitoring in real-time how consumers are becoming educated and businesses are working to solve the financial needs of individuals and other enterprises.
We are making real progress deploying capital into our portfolio companies. We have now called 40% of the fund. Word appears to have gotten out, and we have enjoyed an increase in the number of referrals we are receiving from other name-brand VCs to join them in their investments, or take on an early-stage company to nurture to its A round. These are high-quality deals with serial, successful entrepreneurs at the helm. Our reputation in data science and our operating experience is resonating with the startup community. Ian Sheridan and Mike Nugent continue their excellent work digging into these opportunities.
—Mark & Dave
Envision Interview with Ian Sheridan
Customer value chain insights from Managing Director Ian Sheridan
A FinTech View for the Value Chain
We are often asked what will allow an incumbent to succeed in these fast-paced times. We need look no further than the value chain. What distinguishes your company from any other in financial services?
Certainly you have an advantage with your brand and company culture, assuming it is well thought of by consumers and employees. This is not enough now that the consumer is demanding better value and a better experience especially with technology. She has learned that life can be easy when buying a book from Amazon or getting a ride from Lyft. Why aren’t financial services the same?
This is where many of our portfolio companies come into play in the value chain. They can bring two key attributes to incumbents: lower costs and improved customer experience.
They do this with creative engineering that leverages advancements in AI, Big Data, IoT and blockchain technologies. They bring scale oddly enough by being focused and heavy users of automated, multi-tenant solutions. We believe these two attributes are key to changing the customer value chain in our industry. We are finding and funding those startups that can make this new chain a reality.
—Ian & Mike
We are pleased to welcome FRST (and their puppy! designed by Simon Oxley whose portfolio includes logos for Twitter and GitHub) to Fund 1. Vestigo was co-lead on a $3.5 million seed round with CMT Digital. FRST is an enterprise-grade, trading floor-ready technology suite that enables professional traders to perceive, categorize and act upon transactions involving digital assets. The company’s technology rapidly identifies digital currency token trades before they are moved from a wallet to an external party or exchange, providing important insights for firms trading cryptocurrencies.
The infrastructure necessary to ensure access to trusted, transparent and actionable information is the void in the crypto market that FRST is successfully bridging. They have a clear customer focus starting with high performance trading floors. They are in a beta rollout with the goal of coming to market in a few months.
Founded by Patrick Gorrell and Jonas Frost who are both serial entrepreneurs, they brought on Karl Muth as CEO. Karl founded Haystack and has extensive experience in financial services from American Family Insurance, Starwood and Corus Bankshares.
Karl is also a University of Chicago JD and MBA as well a PhD from the London School of Economics. Gorrell’s technology experience includes development roles at eekoh, Wildlife and Speakr. Frost co-founded Playahead AB which was the first viral social-media platform in Scandinavia.
We believe the tools needed to successfully trade these new asset types will be in demand as the market normalizes over the next several years. Recent announcements by Fidelity and Goldman Sachs demonstrate the ever growing need for infrastructure.
New look, same genius! We are pleased to share the story of Vault’s successful rebranding and are confident that the team will continue to aid their customers in tackling the suffocating problem of student loan debt.
Vestmark recently announced the acquisition of Adhesion Wealth Advisor Solutions. Adhesion is a complementary portfolio and practice management SaaS for RIAs. The acquisition will only broaden Vestmark’s robust portfolio of customer solutions.
Netcapital has recently expanded its addressable market with the landmark offering of Braidy Industries. Netcapital has historically focused on empowering early-stage entrepreneurs. With Braidy looking to build a $1.6B aluminum rolling mill in Kentucky, the team at Netcapital has demonstrated that they can delight large-scale enterprises as well.
In this month’s interview, Vestigo Principal Ian Sheridan articulated how we think about the customer value chain as investors. One of Vestigo’s cornerstones is approaching high level concepts from as many perspectives as possible. This often involves putting on our well-worn corporate strategy “hats.”