Blockchain Propels Fintech's New Era: VC Perspectives - Akshi Federici

actually federici will be speaking on blockchain propels fintech's new era and vc perspectives let's hear it for akishing [Applause] hi good afternoon hope everyone's enjoying the conference um i'm really looking forward to the pitches tomorrow and judging them um eats denver is one of my personal favorite events and today i wanted to share with you our view or and our thesis on how blockchain is going to really propel fintech and how we don't necessarily see those two as competing or separate but more so converging so with that hello again uh my name is akshi fedorici i'm a partner at kraken ventures um three partners um we kind of spun out of crack adventures out of cracking this year and launched crack adventures before that i was at kraken for two years leading biz ops and then also helping um crack in with our ipo readiness and audit readiness prior to that i was at status not many folks here may remember status but it was one of the first applications of ethereum on mainnet and before that just like several folks that i keep running into at this conference i started off in the ethereum space with consensus in brooklyn um i launched the consensus academy program that certifies developers on solidity globally and that was right around in 2017 prior to that i was in traditional financial services at blackrock in new york and worked with the boston consulting group mostly for large asset managers hedge funds pension funds so that's a little bit about my background and i don't know if people are familiar with cracking ventures so i just wanted to highlight that we are not a corporate vc so we are not like paypal ventures or amex ventures or coinbase ventures we do have the brand name with kraken but um we are independent which means that uh from a strategic perspective we are a traditional venture fund focused entirely on returns our focus uh is still a little bit unique in the space in that we do both fintech investments and also crypto investments and hence the topic for for the talk today another thing that i wanted to highlight was that our relationship with kraken really helps our portfolio companies with respect to uh product integrations commercial opportunities and potentially even exits like acquisitions into kraken um and uh of course as a venture fund we have the advantage of having access to the three thousand plus employees of cracking across 70 countries globally in terms of deal flow so that's that's actually quite special just a little bit more about our focus in terms of verticals and stages we focus on the seed stage primarily with selective follow-ons into series a i'll come back to the verticals in a second but we're a global fund the team is truly global i'm based out of new york another partner kirill that a lot of people at the conference know is based out of hong kong and then our founding partner is based out of austin also covers the west coast we do have a head of europe um and then we also have another associate with me in new york in terms of the verticals we as i mentioned we do both fintech as well as crypto blockchain in the crypto blockchain space we're looking at digital economies um so that includes nfts it includes metaverse gaming etc i'll talk about that later as well web3 d5 to be completely honest our portfolio is a little bit light on that web 3 slash d5 vertical so if there are any interesting projects working in that space please do come and speak with me enabling technologies is the last one and that is regtech ensure tech cyber security etc this is a quick snapshot it's a little bit dated of the companies we've invested in so far um and again we're a brand new fund we launched last year we're launching a second fund this year and hope to do a lot more but as you can see we do both equity deals and token deals and this is a pretty good mix of the four verticals that i was mentioning earlier there are two companies that i want to highlight here that are purely or i would say sorry i've lost my voice in the in the one week of the conference but there are two companies i want to highlight here that are very much in the fintech bucket one of them is rocket dollar and the other one is pinwheel so rocket dollar is a is a self-directed ira uh provider and then pinwheel if you guys are not familiar with it is a payroll connectivity api um for all the devs here we are always for our portfolio companies helping them um you know staff up on the dev side so if anyone's interested in working at any of these portfolio companies that's another that's another point of interface that would be that would be great uh to speak about on this uh during this conference from a global perspective as you can see we've made several investments globally chingari is a company that's based out of india um fond bank is based out of africa and then we also have moral science that is based out of singapore but has now recently moved over to new york before i jump into the fintech um and you know crypto blockchain discussion i just wanted to highlight sort of you know and celebrate what has happened in terms of our view um of the highlights of of last year right and these are kind of like the five big things that happened from our perspective last year some of them are obviously still controversial in our experiments but i didn't want to highlight them the first one and i'm sure you guys have all you know read about this and are aware of this but uh but i you know i do want to tie this into the fintech um sort of trend and what's happening on the blockchain side so the first thing was el salvador you know legalized bitcoin as tender and this was um you know obviously there's a lot of controversy around it it's uh it's still an experiment the jury is still out etc but i do think personally that this was a big move for us and there will be other such experiments other countries following in these footsteps it's also really cool like i had a colleague who visited el salvador recently and it was actually really cool to be able to like speak with him about being able to literally buy a coffee using bitcoin and then a lot of the residents for example being able to pay taxes in bitcoin so that was an interesting development on the institutional and corporate adoption side um i know that this was a topic last year as well um just you know discussing when this corporate option and institutional adoption would happen and i think last year was really the turning point of this and from my perspective i break that down into four buckets of adoption so the first one was clearly the crypto focus the crypto only funds right and the aums there just in i think it was between january and october it wasn't even a full year for crypto only focused funds went up from something like 35 billion to like 60 billion so it was roughly double but then also more interestingly the second wave of adoption that happened was traditional financial institutions so as you all probably know um blackrock bny melon morgan stanley everyone sort of increased their exposure opened the exposure to crypto and it wasn't just banks it was also you know foundations the soros foundation was also endowments sort of acknowledged and admitted that they had been getting exposure to crypto a third area in terms of corporate adoption was companies starting to incorporate crypto into their actual product so mastercard visa paypal etc so and then the fourth thing that that's i think in incorporating that is that a lot of this adoption wasn't geography specific it was truly global so that was a great sort of accomplishment for us last year as an industry the third thing was um the first you know pro shares was uh was approved last year was the first etf in the united states of course then there were others um that happened as well canada brazil uh singapore et cetera nfts i think everyone knows that this is this is uh this is going to be a trend that's here to stay we are seeing a lot of activity on the metaverse side on the gaming side uh that's starting to develop this year and then stable coin supply so very quickly at a very high level i'm sure everyone is familiar with what the word the word fintech and it at this point it reminds me a lot about the the term big data a couple of years ago right it's just morphed into this big catch-all and broadly speaking in the last several decades it's moved from defining back-end technology for banks and financial institutions to more consumer facing fintech and applications so one of the double clicks that i want to do here is what you know how do you break down consumer finance right and so from my perspective this is the way i was you know imagining sort of categorizing everything within consumer finance right so on the one end you have consumption and then on the other hand you have savings and investments and all the companies you see mapped here are coming from coming at this from the pure fintech origins right for fintech first i'm sure you recognize most of these names here so transfer is on the consumption side so that's essentially moving around sort of assets value and money um and then purchasing of course and then there are several applications there are several tools out there to help track that spending as well and then on the savings and investment side there's obviously investing and borrowing now what's interesting in terms of for me in terms of the convergence between this and blockchain and crypto is several of these traditional pure fintech players especially recently have jumped into the blockchain crypto world and are kind of converging let's say top down or in that direction so obviously robin hood uh paypal you know square several of these are you know gravitating towards um incorporating blockchain and crypto but then i thought it was an interesting exercise to try and remap this page but with only crypto or blockchain first companies to try and get a sense for how that how that merging is happening on the other end let's say bottoms up as well and it's it's no surprise that there are so many crypto first blockchain first companies out there that are serving every one of these horizontal rows here that was traditionally being served by fintech right and so for us as a fund this we are uniquely positioned and we are looking for companies on this map for example that we can help then bridge back to fintech given our personal expertise and and sort of you know that's what we're really excited about in terms of scale so you're probably familiar with a lot of players on this page um on the transfer side of course it's all the big exchanges um all the small exchanges too coinbase gemini and obviously kraken purchasing and tracking of spending in this space obviously purchasing right now is not necessarily referring to buying physical goods and that's getting better and it's changing for example the el salvador example with coffee etc but right now a lot of the tracking of spending is really portfolio uh portfolio trackers and portfolio management but there are players in every single horizontal um investing and borrowing same thing on the investing side i'm sure you guys um are at the very least familiar with this um from the super bowl commercials but yeah you have you know um community-based uh investing applications you have pure you know absolutely public companies like voyager et cetera so there is a lot of activity in this space um and it's really exciting to see how that convergence between fintech and blockchain crypto is happening really from both sides um and we had cracking ventures i know that this is a cliche phrase at this point where uh you know people say that all companies in the future are going to be fintech companies or um you payments companies and then we truly believe that that's going to be a step further and going forward pretty much every payments company is going to be a blockchain crypto company in some way shape or form like i feel like there are several there are several flavors several flavors of this that's going to exist going forward so if i within consumer finance if i double click even further into transfer and purchasing and just take a step back and think about the history of payments and i think several of us are obviously aware of this but um one thing a couple of things to highlight here first just like um just like pretty much every other industry when it comes to innovation the cycles of innovation are always condensing right so the the earliest innovations from bartering to coins to paper money those innovations and milestones were happening with hundreds of i guess centuries built between them right and then the next big massive innovation that happened with respect to transfers and payments was ach and swift and that happened in the 70s and it's also it's interesting to me personally that ach even though it got introduced in the 70s it really got digitized in the 90s so it took 20 years and in that time period it was literally ach was physical magnetic tapes and diskettes you know just we don't even know what the diskettes means anymore but it was physical data storage right and so it took 20 years for that to get digitized but it was definitely one of the the biggest innovations in in the history of transfers and payments and then the next wave that happened which was in the uh the late 90s um was mobile phones and that's what really brought finance and transactions uh into people's hands and so that's that's kind of what we are seeing right now but from my perspective the next wave of this and the next big revolution is going to be stable coins and um and i will and i have a data slide to show where i think that uh it's kind of supporting this hypothesis but why would that be the case why stable coins um even though so much of today's transfers and payments are already digital and they're online they still have fundamental issues so for example last year with covid especially with kovid there were i think double there was double the the amount of transaction volumes with respect to online transactions and online payments um even if we discount for the fact that that was uh the spike during covid that number is only going to rise and with that rises online fraud and just last year there were 20 percent extra like 20 higher fraudulent cases and transactions online than the year before that and this is when digital payments already exist it's all online it's digital right it's just not blockchain enabled um and so you know we're losing 20 billion dollars every year and increasing on just online fraud the second thing is obviously settlement times and even if you factor in um swift and whatever else in the back end it still takes 24 to 48 hours to settle transactions and then of course the last thing is you know crypto as we know it and blockchain it's 24 7 and not just that with stable coins what's really exciting and interesting is that people have access to usd and that's this is a whole other i guess like political question in my mind in terms of access to usd and what that does um from from a global access perspective and so for all these reasons um obviously there are questions and i think the the panel right before this talked about scale and it talked about just throughput and those are issues that currently exist but they're being worked on um and i think that that's that is why this is the trend that's happened in stable coins and it's absolutely fascinating where in the last i think it's a 15 month it's not even 15 months i think it's like a 14 14-month period where the supply of stable coins has gone up literally from 5 billion to 170 billion and that is i think that that's just a trend that's here to stay there are a lot of interesting applications that can be built on stable coins that can truly transform um use cases uh in the payments and and and sort of the uh the transfer space as well so then zooming out because i want to leave some time for discussion and questions zooming out from that what are some of the other areas that we as cracking ventures are heavily focused on um we are looking primarily at infrastructure and tooling and so what that means is and this is tying back with our four verticals um absolutely um excited about the dow space looking mostly at dow tooling um we are also looking at infrastructure when it comes to games and collectibles and also web 3 infrastructure and then on the traditional fintech side payroll infrastructure is something that we absol we foresee being disrupted and there are several companies that are already working working on that and you know with pinwheel obviously we are we've kind of indicated that we're interested in that space um and then the last slide that i have here is just about i we get a lot of questions about what you know what criteria we look for um when it comes to investing in projects and it's actually not that different in the crypto blockchain space from a vc perspective as in the traditional financial services of intel in the space because it's all the same factors for success so um in no particular order we look for these kind of five things across all of the the projects that we that we source product market fits so what is the total addressable market what is um you know what what can your customer base grow to what is their willingness to pay what is the need that is being served the second one is valuation i think that there's been a lot of discussion already at this conference and we've seen it in the market in the last several months where evaluations are skyrocketing not just especially in crypto blockchain but also in in tech and so we're very sensitive to valuations and have some really fun conversations with founders about why valuations shouldn't be the numbers that we are that we're looking at and then of course the team it's extremely critical for us that it's a team that is dedicated to the project and not kind of spread across multiple different different projects we look for dedicated teams we look for teams that are ideally repeat founders and we look for teams that are passionate and deep in the space and then the go-to-market plan extremely important i think that a lot of teams that we speak with at the especially at the early stages at the seed stages haven't yet formulated someone on the team to really think about go to market plan from a bd perspective partnerships and also phasing i think a lot of times when we speak with companies the phasing is extremely important in terms of you know immediate short-term term and so on and the last thing is differentiation um i think i think there's so much um great technology in the space right now um and there so so we always have to constantly think about is this something is this product that is where the defensibility is about the tech or is it about partnerships or is it about being the first mover what what really is a differentiator what is the moat so those are essentially the five things that we look at when we're looking to invest um and i guess from my perspective as you know as as closing remarks go i think a lot of times i speak with other vcs that are only focused on fintech or uh they they sort of ask us these questions around you know why fintech and blockchain and crypt and blockchain encrypted at the same time and i i guess i kind of wanted to wrap up with we don't necessarily see the two as distinct at all um for us blockchain and crypto is an enabler to fintech and if there's a fintech project that's essentially going to have a ton of scale and a ton of consumer adoption blockchain and crypto will inevitably be incorporated in that project at some point or the other and so we want to be the fund that can help both sides bridge that gap so to we want to be the fund that gets blockchain and crypto projects tons of consumer adoption and on the other side help fintech companies make sure that they're thinking about incorporating blockchain and crypto because that's inevitably going to be the case um so that's that's essentially the end of my formal presentation i'm happy to open it up to uh a couple of questions or even discussion amongst yourselves [Applause] we do have about