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…
—Frazer
Long Game
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.
—Mark
FINRA Innovates
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
Vestigo’s favorite tax SaaS received a glowing write-up on BitcoinExchangeGuide. If you actively traded crypto last year, you’ll already know that you need this.
Vault COO Romy Parzick joined thought leaders to discuss issues and solutions to the consumer debt crisis at the Aspen Institute’s event “Lifting the Weight: Solving the Consumer Debt Crisis.”
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.
Yogi Berra understood that we tend to “make too many wrong mistakes.” A system that empowers regulators and entrepreneurs to make micro-scale mistakes would catalyze large-scale benefits for everyone.
We were pleased to see that FINRA is delving into the world of FinTech. At Vestigo, we view the change coming to this industry as a unique opportunity; regulatory clarity is a welcome development.
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.
Some people think VCs sit around making big decisions all day. At Vestigo, we prefer to spend our time culling our data for signal and insights, but do occasionally indulge a FinTech fantasy or two…
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.”
We are looking forward to Money2020 this year in Las Vegas. Maybe not the spot we would pick but what a great gathering of many FinTech influencers.
We appreciated the great turnout for our first post fund closing LP’s meeting. With 70 in the audience, we got great feedback and good connections made between our portfolio companies and our investors. Thanks to Nutter, our law firm, for providing the space for our meetings.
What a great surprise! We appreciate the recognition of NASDAQ on our fund closing on their Times Square billboard.
We have been studying blockchain and crypto/digital assets in depth. We see so many talented people coming into the space that it makes us hopeful for breakthroughs in applications using these tools. We are looking into ways to monetize our learning.
—Dave & Mark
Our portfolio company CEO’s did an amazing job explaining their company’s advantage to our LP’s in two panels for the event. Their dedication to their mission and their absolute belief in the market opportunities they are seeing is infectious. It is one reason why I was so excited to establish Vestigo Ventures. We appreciate all they did to show what great leader’s they are for their company. We are privileged to provide capital and our network to them.
Dave and I opened with an overview of what we have learned about deal flow, teams, and new technologies. We discussed how important it is for our Vestigo team to evaluate and find the best ideas to fund. We are seeing about eight deals a week from our network plus an additional five a month from our Cogo Labs data.
We discussed how the leadership of the start-up interacts. What culture are they trying to build? Are they so connected that they even know their co-leaders dog’s name? That deep connection helps teams in times of stress keep their focus as well as belief in each other.
Finally, we covered new technologies that we are seeing in action. There are smart applications of AI. There are the beginnings of applications/protocols in blockchain that are interesting. These are not quite there yet but emerging. The belief that digital assets will come to define an alternative asset class is starting to take hold. Hedge funds are trading actively additionally many institutions are investigating the space.
Ian and Mike did a great job discussing deal flow, funding levels, and valuation. We are balancing the portfolio among our four core themes: markets, operations, worksite and wealth management.
They also unveiled XPLR. This is our proprietary algorithm to find FinTech companies that are going viral. We can investigate them further and potentially take a stake in them.. This is thanks to the work of Frazer and Farrah.
We appreciate our Limited Partner’s belief in our early-stage focus and in FinTech. We are working hard to find and fund the best companies to help bring change to financial services.
-Mark
ZenLedger, the No. 1 tax software for cryptocurrency investors and their accountants, is now part of the Vestigo portfolio. We lead a $1.5 million round with Castle Island Ventures as a co-investor.
ZenLedger is lead by Pat Larsen as its CEO. Pat is a US Air Force Academy graduate and former Navy helicopter mission commander. More recently, he was an Amazon business manager with a $100 million p&l.
The co-founder of the firm and CTO is Bryan Starbuck. He is a serial entrepreneur and CTO with two of his startups acquired. He is also an early crypto investor.
They are joined by Drew Nordstrom, President, and Saqib Rasool who is the CRO. Drew has many years of startup investing experience while Saqib brings his business development skills from Microsoft.
They see an opportunity to provide CPA’s and crypto-asset investors with a smart way to report their gains and losses to the IRS. It is clear that these are taxable events that need to be reported.
They are seeing early traction from their target audience. They will push hard to partner with exchanges to provide their services to their customer base.
Check out a recent blog by Pat Larsen here.
The number of events tripled this year for the second FinTech week in town. Mark was on a panel discussing the DNA of Boston’s FinTech scene. They covered ways that startups can be successful. There was a good review of how start-ups are helping incumbents innovate. Jim Urquhart of Bowdoin Group convened the panel to kick off the week at the DCU FinTech Innovation Center.
Check out the panel here.
Both of us led events later in the week. Two of them were:
Coffee with Venture firms and FinTech Professionals
This was a sold out session. Ian led two separate groups to share perspectives and answer questions from entrepreneurs and financial services leaders.
Insurance technology:
This was an experienced panel including: Mike Kryza- Vice President, Business Development at the Guardian Life Insurance Company of America, Jim Gow- Vice President, Head of Innovation, at MAPFRE Insurance, Sam Das, Principal, CMFG Ventures, LLC, CUNA Mutual Insurance, and Dan Hurwitz- CRO, at TowerIQ. The discussion was around four areas: Greatest areas of opportunity, Major trends today, Internal innovation Vs. external opportunities, Perceptions vs. the reality of the insurance industry.
Vestigo partnered with WPI to sponsor Universities and Innovation Life Cycles. The panel included both local university leaders as well as entrepreneurs who founded their companies while in school with two companies tackling the $1.5 trillion student loan problem.
FinTech week keeps us in front of the growing Boston startup community and helps us build relationships globally.
-Mike & Ian
Oracle Pushes FinTech in NYC and BostonIt was a productive week with Mark able to co-MC an event with Oracle that brought together over a dozen leaders to discuss their views for startups and incumbents. This is part of Oracle’s push into this sector. They are focusing on bringing a family of FinTech startups to the market in partnership with their cloud services customers. We are working to gain access for some of our portfolio companies.
SS&C’s Black Diamond, which is a key player in the advisor technology business, has integrated the Taxficient Score into their wealth management platform.
We received a great deal of coverage on the closing of Fund I. This piece from RIABiz looks at our thesis for investing as well as the companies we have in our portfolio.
We are excited that we have closed Fund I. It is comprised of corporate partners (51 percent), family offices (28 percent) that recognize the power of fintech and want a stake in companies that are transforming financial services, as well as individual investors (21 percent) who represent a “who’s who” of the industry. It has been a great lesson in helping investors understand the opportunity in FinTech while being clear how unique we are with our operators experience and the data assets of Cogo Labs.
The fund is at $58.9 million in assets vs its target of $50 million to focus on early stage startups. We are excited to back entrepreneurs who are out to massively improve financial services. It has been very rewarding to hear their stories and share their excitement for change.
Thank you to Ian and Mike for such hard work to get to this point. Our partnership is founded on bringing together different points of view from our varied backgrounds to make the best decision to drive value for limited partners.
—Dave & Mark
Envision Interview with Farrah Nekui
What a summer our PhD candidate intern is having at Vestigo. Farrah discusses her work at the firm as well as her thesis.
Last year we celebrated summer by providing our nerd approved book list which many told us they enjoyed. Here is this year’s list of suggested reading.
Checklist Manifestoby Atu Gawande- for all our focus on erudite strategy, it’s easy to overlook blocking and tackling…Checklist Manifesto is a simple and effective as it gets. It is easy to see why Frazer enjoys this one given his organization skills.
Mira Wilczek’s dad Frank wrote a book for the masses: A Beautiful Question– very fun read that makes you feel good about fundamental science again.
Sean Hanlon of Hanlon Investment Management highly recommended the somewhat hard to find classic the E-myth by Michael E. Gerber which gets off to a slow start but has a great second half. It makes a point that is suddenly timely again which is that great companies often have only one innovation followed by decades of “franchising” and scaling the idea. If you read it or skim it and think about Booking.com (now worth $100B) while you do it, you will be rewarded for your diligence.
From Here to Securityby Robert L. Reynolds who runs Putnam Investments put out this book to provide a blueprint on achieving retirement security in America. This one caught Ian’s eye given his focus on workplace savings. Maybe not a beach book but still thought provoking.
For another take on the financial system Mike suggests Red Notice by Bill Browder. It tells the story of Russia’s markets and its brutal realities. Mike visited Russia for the World Cup so found this page turner a good way to better understand the culture.
“If you want a new idea, read an old book” is precisely what Frazer Anderson has done this summer. He is thoroughly enjoying Livy’s Ab Urbe Condita Libri(History of Rome). The great Roman historian’s commentary on the social and military strife faced by the early Roman Republic is perhaps more relevant in today’s political climate.
Mark enjoyed Niall Ferguson’s The Square and the Towerwhich discusses the struggle of networks vs hierarchies. He found the comparison’s of today’s technology revolution to the period just after the printing press was invented quite enlightening but a bit frightening.
Dave’s friend Peter Diamandis of xprize fame wrote Abundance along with Steven Kotler. It provides a roadmap that is still relevant several years later on finding solutions to the world’s most pressing issues.
Enjoy!
Some firms may head for a whale watch for their summer outing but the Vestigo team spent time with amazing thought leaders. John Werner set up meetings with Alex “Sandy” Pentland and Alex Wissner Gross to open our thinking about blockchain, digital assets and technology changes. Mike was unable to join us due to a family commitment but we will make it up to him in the Fall.
We did find time for a fun lunch at Lil Donkey. Perfect spot to discuss what we learned since they are a fusion restaurant bringing the best together.
Mike Nugent lead our investment in Mirador. They are passionate about helping small businesses grow through access to reasonably-priced business loans. Mirador’s leading small business, digital lending platform powers a new relationship between small businesses and lenders. It provides a smart, fast and secure cloud-based experience that turns burdensome paperwork into a ‘wow’ experience, enabling banks to make a decision on loans in 24 hours or less. The Mirador Network is a digital lending marketplace connecting small business organizations with lending options. Mirador works with leading financial institutions and has processed more than $1.35 billion in small business loan applications. These come via their customer base includes Zions Bank, Hanmi Bank, Tompkins Financial and First Foundation.
Mirador has a senior team of executives with significant small business technology experience in product, sales and software development. Mirador’s key team members are as follows:
Trevor Dryer, CEO & Co-Founder
Both his professional and education background have set him up for success as a first-time founder. He began his career at Bain & Company before going to law school at Stanford. After two years as an attorney at Munger, Tolles & Olson, he went on to become the Head of Product Management Mobile Payments & Point-of-Sale at Intuit, a fintech software company.
William Beaver, PhD, CTO & Co-Founder
Beaver developed a deep expertise in AI & ML prior to co-founding Mirador. In 2011, he completed a PhD in Computer Science at UC San Diego. After completing his PhD, he held senior data scientist positions at Trapit and FlightStats.
Carol Glover, Chief Revenue Officer
She became the CRO of Mirador in January of 2018. Carol brings an impressive leadership experience in business development for fintech companies. Previous roles include SVP Strategic Partners and Business Development for Bill.com, Director of Business Development at Intuit and VP Business Development at PayCycle.
Mike Camacho, Head of Product
Mike joined Mirador as Head of Product in January of 2015. Prior to joining the firm, his longest stint was six years as Senior Product Designer at Jive Software. Mike holds a BS in Product Design and Computer Science from Stanford University.
We are proud to partner with Mirador to help small businesses grow with their banks/credit unions.
While not a typical summer read, it is a great guide to what is on the minds of our Washington DC regulators for startups in FinTech. The report encourages experimentation and innovation for the financial services industry.
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.
Ray Wang-
Innovation is about where you can automate the greatest dissatisfaction that earns you the permission to take on the other parts of the business.
Darlene DeRemer-
Incumbents need to innovate or die. They need to cannibalize their own business to be disruptive.
Jarrett Lilien-
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.
George Wilbanks-
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.
Pete Mattoon-
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.
Andy Putterman-
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.
John Werner-
These are new times for incumbents, that have not been like the past. Experiment with all the emerging tech.
Tom Gavin-
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.
Maliz Beams-
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.
Artificial intelligence is reshaping how we work, interact and share information and content. AI can be a threat and opportunity for incumbents. Momentum will continue to build for AI.
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.
Feel free to share your insights with us by sending along a note with your best advice received to mcasady@vestigoventures.com.
—Dave & Mark
Envision Interview with Mike Nugent
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
AI Adventures
Google Cloud provides a good primer on AI.
The Basics
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.
-Mark
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.
-Ian
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.
We live in a world of ever expanding data. Data is being generated at an exponential rate from our connected homes, connected cars and wearable technology. Every day, the global data set grows.
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.
The New Industry Standard for Tax-Efficient Household Portfolio Management Launches at the T3 Advisor Conference with Riskalyze as its First Integration Partner.
Micronotes, Inc., an AI-enabled marketing automation firm today announced that Rebecca Yale Taft has joined the Micronotes advisory board as a database expert.
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.
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.
vestigoadmin 
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 
We have been studying blockchain and crypto/digital assets in depth. We see so many talented people coming into the space that it makes us hopeful for breakthroughs in applications using these tools. We are looking into ways to monetize our learning.
—Dave & Mark
We appreciate our Limited Partner’s belief in our early-stage focus and in FinTech. We are working hard to find and fund the best companies to help bring change to financial services.
-Mark
ZenLedger, the No. 1 tax software for cryptocurrency investors and their accountants, is now part of the Vestigo portfolio. We lead a $1.5 million round with Castle Island Ventures as a co-investor.
ZenLedger is lead by Pat Larsen as its CEO. Pat is a US Air Force Academy graduate and former Navy helicopter mission commander. More recently, he was an Amazon business manager with a $100 million p&l.
The co-founder of the firm and CTO is Bryan Starbuck. He is a serial entrepreneur and CTO with two of his startups acquired. He is also an early crypto investor.
They are joined by Drew Nordstrom, President, and Saqib Rasool who is the CRO. Drew has many years of startup investing experience while Saqib brings his business development skills from Microsoft.
They see an opportunity to provide CPA’s and crypto-asset investors with a smart way to report their gains and losses to the IRS. It is clear that these are taxable events that need to be reported.
They are seeing early traction from their target audience. They will push hard to partner with exchanges to provide their services to their customer base.
Vestigo partnered with WPI to sponsor Universities and Innovation Life Cycles. The panel included both local university leaders as well as entrepreneurs who founded their companies while in school with two companies tackling the $1.5 trillion student loan problem.
FinTech week keeps us in front of the growing Boston startup community and helps us build relationships globally.
SS&C’s Black Diamond, which is a key player in the advisor technology business, has integrated the Taxficient Score into their wealth management platform.
We did find time for a fun lunch at Lil Donkey. Perfect spot to discuss what we learned since they are a fusion restaurant bringing the best together.
Mirador has a senior team of executives with significant small business technology experience in product, sales and software development. Mirador’s key team members are as follows:
Trevor Dryer, CEO & Co-Founder
Both his professional and education background have set him up for success as a first-time founder. He began his career at Bain & Company before going to law school at Stanford. After two years as an attorney at Munger, Tolles & Olson, he went on to become the Head of Product Management Mobile Payments & Point-of-Sale at Intuit, a fintech software company.
William Beaver, PhD, CTO & Co-Founder
Beaver developed a deep expertise in AI & ML prior to co-founding Mirador. In 2011, he completed a PhD in Computer Science at UC San Diego. After completing his PhD, he held senior data scientist positions at Trapit and FlightStats.
Carol Glover, Chief Revenue Officer
She became the CRO of Mirador in January of 2018. Carol brings an impressive leadership experience in business development for fintech companies. Previous roles include SVP Strategic Partners and Business Development for 
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.
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.
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