Fintech - Where's the Opportunity for Fintech Startups? The VC Perspective...

foreign such a delight and honor to be here welcome and we are well aware I believe we are the last thing sitting between everybody and lunch so we'll make this enthusiastic and we'll be very efficient with the time I wanted to Jump Right In what a wonderful uh panel uh let me start over again I'm Vince Molinari founder and CEO of fintech TV and again an absolute delight and honor to be moderating this panel with such an esteemed crew here today let's go right down Arjun and Sethi who's the co-founder and CEO of tribe Capital we have John Medved who is the founder and CEO of our crowd and Sonia go clay got that right yes yeah thank you Sonya Adventure suit I'm just going to have everybody take a quick 30 second and introduce themselves um give a little foundation and we'll Jump Right In or June uh but uh based out of San Francisco and New York for about a billion and a half in AUM pretty generalists or mostly considered a technology data-driven Quant Venture Capital uh deployment and then at the same time I run a blockchain company called Nibiru great thank you John I'm John Medved I'm the founder and CEO of R crowd we're one of the largest online Venture investing platforms we're based in Israel we now have Offices here in Abu Dhabi and we're planning all kinds of great things for this Market we represent about 220 000 Global Investors managing about two billion dollars in assets and have almost 400 portfolio companies and 40 funds under our umbrella my name is Sonya go clay I'm one of the founders in the general Partners at benger suit venturesouk is a Dubai I'm sorry in Abu Dhabi base VC we are one of the first fintech funds in the in the region for sector-specific funds and for spintech funds in the region we launched our first fintech Fund in September 2020 and then now our um and now we have our second fintech fund brilliant well let's start right off and we have this great question when we look at the opportunity for fintech startups particularly from the lens of VCS I think we have such a great composition of global views here uh maybe you'll start off Arjun when we look at VC investing from your lens I know quite a bit as I looked at tribe really looking deep at analytics modeling from a quantitative standpoint maybe you can share how do you take that approach and where does that lead you when you look at opportunity yeah I mean the it's a loaded question but if you if you take a look at Financial Services it's roughly 60 to 70 of the world's GDP um and so then and then you sort of take a step back and you trace her out and say how much of that has software enabled in it versus typical brick and mortar in the Western countries there's a lot more brick and mortar and we're moving towards digital in the Emerging Markets so Latin America southeast Asia sort of India more predominantly today they're moving at a sort of a speed of light for access to Capital and the the the the the things that we take a look at um you know if you take a step back don't think about financial services just think about you know companies that have scaled over the last 20 years so Google Facebook Airbnb Etc and you and you take that to its logical extreme and think about all of the types of opportunities that have software proliferating into Financial Services what you're really looking at is we're in that stack to be the most opportunities so in India specifically we have about you know 10 to 20 percent of our capital into companies that are software but it doesn't mean you're building software for banks you're building software in order to enable Capital Access so that's on the that's on the fintech side so you know I I look at Shopify as like a fintech company as well because they're you know offering access to capital for merchants they're shipping and logistics companies for e-commerce so you kind of go down every single software stack that has some sort of vertical application and then there's fintech enabled in it the same way you would think about you know machine learning and AI like financial services and ingrain in some specific way that's not that's on the typical what I'd say fintech 2.0 and then you think about crypto there's these new Financial rails that are being built um and how does that sort of interact with what I'd say you know interest rate swaps or mortgage-backed Securities or credit lending whatever it might be uh and those are also sort of being invented in the OR sort of reinvented or re-thought of um you know for Enterprise and B2B style thinking I want to come back to that crypto point in a minute uh given all that's going on Sonia talk to me a little bit about uh our earlier conversation you talked about how supportive the government's being around fintech investment what are you seeing and how does that help formulate your strategy yeah in the last about a lot prior to Colvin and Colvin has has absolutely accelerated this is we've seen fintech in the region kind of leapfrog full forward and there's many there's many reasons for that and a lot of it is because of the government support that they've had towards the fintechs um in our in our ecosystem we uh and this has helped us especially because we because I know we're a fintech specific fund um we've seen what was that what happened before covet and during covid is a lot of Developmental capital from the governments here in in Abu Dhabi and in the region have trickled down into our ecosystem and because of this the quality of Founders and the quality of companies that we've seen um is 10x what we've seen in in the past so if you're uh you know a great you know individual with a great idea or or that has an entrepreneurial spirit and you're sitting and you're working in a financial position or a bank job you're more likely to leave that position if you know that there's funding for startups and because of that funding for startups has become much more available the quality of those startups have have like it's not the same difficulty as finding those first few checks as it was you know three four years ago so that that alone has helped build this ecosystem in ways we hadn't imagined and then also because of covid everything moving to digital has really helped accelerate that also we've had you know the government that have been helping build regulations around around the fintechs and being on the Forefront of that to to help our fintechs grow and build uh and build here so the support here has has really helped build this this ecosystem and has helped us um you know help our contact companies terrific thank you John we know known each other for a while and going back to the early days of the U.S of the jobs act and democratization of access to Capital uh what you've done at our crowd has really been just amazing in that growth we talked a little bit about looking at the region here Sovereign wealth funds very large pools of capital are you looking at democratizing access to Capital in the same way when your opening office is here yeah I think the opportunity here is absolutely spectacular and in fact I want to do a very I unscientific uh survey of this audience how many of you by a show of hands have ever made an investment as an angel in a tech company raise your hand okay so it looks like if I'm not mistaken about 30 30 40 25 of this audience this is a perfect audience right you're here at Abu Dhabi Finance week the fact that probably three quarters of you have never written a check for a venture-backed company is an angel or whatnot is really indicative of worldwide problem which is that Venture Capital which we all love and the people on this you know panel are practicing has not changed itself as an asset class management tool really in 50 years if you went back to guys like Arthur Rock and you know Fred Adler and the the big you know old uh deans of this asset class they'd feel very comfortable with the structure of today's venture capital and yet there are almost 90 trillion dollars of capital and individual hands that says wait a minute what am I chopped liver how come the returns which we all know are outsized when done well okay are only available to the sovereigns or only available to the big institutions what about the rest of us and so it's both an opportunity to develop enormous amounts of new capital but as well to provide returns to investors but it goes beyond that because when you properly manage an online platform you can actually get value add in a way to the portfolio Company by getting Network effects that you've never been able to see before so I think that in this part of the world the potential is enormous everybody looks at the sovereigns here and they're spectacular we all want to work with them but what about all the family offices what about all the wealthy individuals don't they want to develop and and be part of this you know complete Revolution that technology and financial technology represents so I think there's huge upside here please jump right into that a little I think the The Angel Network here is is a very interesting one interesting topic to discuss there are and and it is part of the evolution of interested we actually started as an Angel Network and initially it was myself and my partner at montnal Partners investing together into into various opportunities and then we started bringing more people in and more friends in and that's how we we eventually built Venture suit but we actually started as an Angel Network and there's a lot of interest in this region region there are lots of pools of capital that are not that are not being tapped and this is how we build this ecosystem in is by these Angel checks the the new companies the early stage companies rely on these checks to to help them build and help them grow amazing companies so what we noticed was was the issue early on here in the region is just the lack of knowledge and ability to understand how to invest in Tech properly how to build your portfolio how to build a diversified portfolio so we spend a lot of time with NYU Abu Dhabi building education programs for for these angels and doing events for these angels and the events that we do are not not Network events that we actually have people come in with notebooks and they sit there and they take notes and they really you know there is it's an Engaged audience that is looking to invest so that's something that we should as an ecosystem in the startup ecosystem especially in fintech too is to is to try and you know engage these angels early on because you're right there are very a large opportunities for them to to make larger large gains and now and and to bring to bring these returns into people outside of these the institutional investors that are that have been benefiting for a while I couldn't agree with that more Sonya when we talk about education awareness and demystifying new investment practices particularly when we're talking about access to private Securities or or instruments that aren't readily available uh in part of our traditional trajectory so education awareness certainly foremost origin maybe uh if it's not giving away uh Secret Sauce I'd love to hear from everybody about this when you look at whether it's a geography whether it's a sector the core question what is a VC looking at today and is it different today perhaps as we've looked at this uh I think largely globally massive reset and valuations what's the VC to do today um so I want to hit um what they had mentioned about access to Capital and democratization I think um I choose the other side which is that I think concentration and constraints matter I don't think that everyone in the world can invest in early stage startups like if you do the math there's like 40 to 50 000 companies that get started a year and out of that 95 have an attrition rate so why would you want to invest in an asset class I wouldn't um and then the next stage is a quick rate out of the out of the top 10 percent that stick around how do you assess the risk of those companies at that stage and how do you risk uh assess the risk at each stage and um and there's a certain expertise level for you know future of innovation and software and the types of companies that you're investing in that's it's actually pretty constrained there's a very small amount of people that can do it so if you're like a doctor or like my uncle who says like I want to invest in this company by the time they think about investing in a company it's usually not a good idea right so crypto or speculation of tokens or you know like when Robin Hood was at like 30 billion dollars in the private markets and everyone wanted access to it the issue is that you don't have the same access to information because it's private you don't have the ability to assess the risk of that asset because it's private and then there's liquidity issues which is because it's private you're not able to get liquidity at the same rate that you have in the public markets or you know frankly crypto token markets um and so you know when we when we think about expertise is there or even when we think about venture capital I mean our whole job from day one when we're investing in a company or partnering with any of the people around the table is to be long duration investors right so our funds are you know 14 years it's 10 plus two plus two um and you have management fee and Carry On Top of there's an incentive alignment to make sure that you can build craft uh in your firm it doesn't mean that everyone's good at it but the idea is that the top 25 percent of um Capital allocators can think about how to assess the risk at different stages of opportunity and then you can try to figure out where you concentrate your Capital whatever the portfolio might look like and so it's it's actually I would actually say it's extremely hard to make Venture Capital successful in certain areas where an ecosystem doesn't exist right so if you take a look at even the Middle East or Saudi or um you know what they're trying to do today it's been years in the making it's been like you know 20 30 years that I've been thinking about how do we how do we sort of make it work and then you take a look at India and China they've been going through their own sort of maturations and it's very hard and the reason why that's the case is that you need a concentration of capital you need a concentration of expertise and then you need a concentration of talent to go to very specific select set of companies it's not 50 companies it's not 500 companies it's usually five to ten so again historically we look at China it's you know to JD it's Alibaba it's Baidu it's a set of folks that you know set the tone for the industry and then started going from there you know including tencent in India they went through three waves of failures and like total loss of capital for 20 years before you could sort of get to the next stage and so when I think about like you know the asset class of venture capital I think of it as like there's a certain amount of inherent risk and then at a certain stage it becomes a little bit less risky but that's because the risk associated with investing in you know company that's worth half a billion in EV is similar to you know when companies went public 20 years ago I love when we have a panel that doesn't agree and I know John's going to have something to say and so yeah so let's wind it up and jump right in uh look I mean what you're describing is the world as it is what I'm describing is the world as it's going to become there's no way you're keeping them out of this asset class it's not going to happen and the idea is that basically no one's saying that these people are as good as you or other top Venture managers the idea is why wouldn't you take a fifty thousand dollar investor into your fund the reason is because you don't want the hassle it's much easier for you to raise a 10 or 20 or 50 million dollar LP check and you're done okay and let give me my money and let me go do my work and I don't want to manage this headache but that's why they're people like me because I want the headache and so we have 40 different Funds top tier top decile performing funds where we take fifty thousand dollars of retail if you will but they're accredited or mass affluent money and then we aggregate it and we write you with 30 or 40 million dollar check you never need to see sure we take care of that so that is one model but the other model I think my pushback there is that that model has already existed for a long time right you have wealth managers you have passive Capital no they're not they're not here you can't pick up a phone and call Morgan or Goldman and put 50 Grand in a venture fund sure it doesn't it doesn't work that way and it will work that way what's happening look at private Equity every major private Equity Fund in the world is now going after direct investors okay because they realize that there's so much money and this is the future so it's going to happen but we'll we'll get back on I think can we do a business deal here maybe sure I'm sure we will I think the issue is that you have a lot of folks um and I can't speak to um your guys's business model but as you mentioned you have a lot of private Equity that go out to retail but the issue is that I'm sure they won't be charging in a carry but they charge an exorbitant amount of fees so that by the time you get a return profile it ends up being less than the index that being less than the other asset classes that are in the liquid markets right so if I was to pair my Capital with should I just put it into an index S P 500 or NASDAQ versus one of the private Equity Funds I would just choose this all day long yeah I mean the the reality is that on our platform you don't pay a fund of funds override in other words we I I totally object to excessive fees three and thirty should be outlawed okay it's it's a it's a it's sort of a crime against nature and therefore we charge 2 and 20. okay so that if we ever do a deal God willing inshallah okay it will be that people will be able to invest in your fund at 2 and 20 how I make that work I'm happy to share with you I have to jump over to it I'll add a little a little a little here um like you're saying that could the issues with your uncle who's the doctor who gets you know people people probably come up and say can you invest into in in in in my company um that's the the knowledge part and the access part and that at that and so that's why platforms like our crowd like Angelus are available to them to invest into companies that um are been vetted to a certain a certain degree you still get to pick which companies you want to go into and that but you take a look at Angelus and Republican I'm investors in both they don't work and the reason why they don't work uh is that like you go for retail and then you go towards institutional very quickly because it's expensive and then part of the issue is that like again liquidity to the information how long it takes for that duration is sort of the issue again I think the I think the I think there's a way to sort of think about it is yeah I think hold on one side I think we're getting our Q are we ahead of time uh self-promotion here we're gonna have to continue this conversation on fintech TV so we're going to do a special episode we have to bring it we've got pages of conversation here so uh I'm sorry that that's all we have today folks uh it was great to get started here and have this conversation thank you all thank you [Applause]