Has the Unicorn Machine Stopped Working

[Music] well good afternoon uh I'm Greg Smith with with ft partners for those of you that don't know us we are really the only Global Investment Bank focused exclusively on fintech we've been around for 22 years do nothing but help fintech companies raise capital or sell I'm extremely excited to be here with with my panelists um I realized I'm now in my fourth decade of fintech so I've definitely had an interesting seat at the table watching fintech develop from a Global Perspective and I'm certainly excited about about the region where in here whether it's the GCC broader broader Middle East we have clients here we're starting to spend a lot of time in the region so certainly excited about what's happening and just to be efficient with our time I'm going to introduce each of our panelists quickly and then we will jump right in uh we do have lots of different topics we could touch on but I think uh we'll have an interesting Dynamic panel so to my left is uh Jose Marin he's a Serial entrepreneur turned investor and he's the founder and managing director of FJ Labs where he manages over a billion dollars in capital um with a differentiated Vestor in Venture investing strategy doing Angel invest in at scale but he's got a great Global Perspective next we have Sonia golay who is a founding partner of venture sou which is a Mena based Venture Capital uh fund manager with a global portfolio she manages thematic funds especially focused on fintech and climate Tech and Sonia was previously uh a consultant of the global special situations group of Abu Dhabi investment Council and then on our far uh and we've got or lean who's a leader in the fintech and payments industry or has held prominent roles at Google and air wallix and he's currently driving air wallx expansion into new regions including the Middle East leverages leverages his extensive experience and deep understanding of the market so with that let let's just kick off from a very high level I'd love to just get each of your thoughts on sort of thinking about how the environment is to today versus maybe maybe 2021 obviously we're at highs some lows you know sort of where are we today and thinking about your business how you're operating differently what's really on your mind right now let's start with you Jose yeah thank you guys it's a pleasure to be here uh you know love what is going on here in the region so thanks for having us um what I can say here is that there the biggest driver uh of liquidity in Tech are interest rates and of course as the interest rates go up you know we finish an incredible set of years where there's where was an amazing Bonanza now the interest rates went up you know the US managed not by printing money not to go into a recession and and I think that that's starting to show now with a slight reduction of interest rates but I think that that's my personal opinion that the next coule years uh interest rates are not going to be as low as they were before and we're going to have to live with that new reality now having said that you know we start to see somewhat of a reactivation at least in terms of planning of liquidity and IPOs there's a number of IPOs that are lining up you know for next year having said that clearly the level of activity that we are seeing is dramatically lower no and you know for for an investor liquidity is probably the single most important factor that people look at no and when you have crisis outside of the US you know generally Capital goes back to the US and we've been seeing a very strong you know Reflow of capital and and and very strong reductions everywhere in terms of venture investing but more dramatically so outside of the US no so when you look to the amount of capital that has been invested has dropped much more outside of the US us than in the US so that doesn't mean there's not opportunity I think that the opportunity is to invest right now in potential new unicorns are amazing if you think about companies like Airbnb or or others were built in recession years so as an investor I think that you know this is an incredible time to you know to be aggressive and and and and I like the commitment of a lot of the investors here in the region you know where they are maybe a little bit less cyclical than what we see with institutional m in the US which I think it's going to pay back very very strongly uh for the investors here great great lots of good points we'll try to hit on a few of those uh further but Sonia what's on your mind how are things different today versus a few years ago this Market is a bit different from from the rest of the world there's idiosyncrasies of this Market that um are are important to note so yes we we did experience same interest rate issues you know we had a lot of capital that kind of stopped flowing into VC um and and and a lot of that was capital from outside the region that being said we had a cap a lot of capital inside the region that was continuous continuing to flow and continuing to go to um the ecosystem and that a lot of that is developmental um a lot of the sovereigns have continued to invest from 20 like 2021 to now so there was a bit of insulation in this in this ecosystem which allowed owed us in this ecosystem to continue to grow and innovate um what's interesting that what what's been happening here is is the market in the minina region particularly in the GCC is still still nent it's still growing it's still innovating we're still building companies here um that have existed in in other markets for a while that because of this the the support of the government the easing of Regulation um the flow the capital that continuing come from the sols uh it's been able to allow us to continue to grow and develop and build companies even during these low these low these high interest rates environments when now when we see that coming back then we'll see a lot of the capital from the rest of the world flowing back into this region um because you know we've continued to grow these companies are now getting to a place where they can attract US capital or or Global Capital um we've had you know the considering we're talking about unicorns right now hosam who was on the panel right before for us is uh you know portfolio company Adventure um is uh Tabby buy now pay later has done extremely well even during these these these these interest rate times h and has you know became a unicorn and then some their last round they think they they were valued at 1.5 billion they and have grown significantly since then so we' value them probably much higher now they got they attracted us uh sry Global investment into uh into their their company uh and so even during this this kind of rough time they they were they were still able tocel so there's a bit of insulation in this region that we've been able to benefit from great great or you've got a little bit of a different perspective as a an operator how how are things different for you and what you do at air wallet kind of today versus few years ago so you know we're talking about unicorns here and air wolx is one of the most successful unicorns that came out of Australia back in 2015 we're uh B2B payment uh infrastructure to manage all of our customers basically Financial operations end to endend and I think we see similar similarities to what was discussed here before it's basically about moving from growth at all costs to efficient and smart growth more focused on the revenues more focused on the profits that we can deliver and staying true to our customers at the end of the day and because we're a global company there are Pockets where the situation uh is starting to get much better in recent years versus where we were before and uh we're working very closely with our clients to you know scale it but I think that I do agree with our panelists here about the situation you know the the situation today is different than before the cost of capital is still higher than what was before but we see optimism in the markets you see companies like Clara and other talking about IPO so waiting to see how that you know develops got and if I if I might just add something I think from the perspective of entrepreneurs outside of the US it has become and I as you know as it has been said this region is probably a bit insulated but it's been a very dramatic transformation of how easy it is for companies you know to raise capital and that's something that you know has put down a whole bunch of companies that had great Concepts but they just couldn't raise money yeah no and and we've seen a very tough situation for Founders outside of the US even in the US you know that were facing this and the type of things that investors are looking for have also changed dramatically you know before people wanted to see Topline growth people were not thinking about unit economics h capital efficiency was not necessarily that relevant and I think probably you can attest running a business today you know you have to think about things very very differently no I mean you have K matter how do how do I make money you know and how do I make sure that you know the capital that I'm using has a payback you know and and in a lot of cases how do I bring my business to profitability how do I raise enough money to be able to get the company uh you know self- sustained no so it's it's a it's a very different world but that doesn't mean that there's no capital and that there's not amazing opportunities I said before I but that's also a good thing it's a really good thing that we were able to get companies now now to like reset the way they think uh have a bit of a correction in place and now let's let let's now focus on building profitable companies which was just absolutely not happening in the in in in the past um and now we're able to we as investors are able to say okay look show me show me your gross margin show me show me this company as how profitable it's going to become and and we're we're we're all better off for it to be honest we all got a little sober which is a good thing I think I think to that you know what worked well for us is because we started in apaki which is a different environment than the us we were very focused from the beginning about on those kpis basically which allowed us to come into this uh season I would say in a much better situation and our product is also pretty wide so we have different angles to the business then if one's having difficulties another one kind of comes up so great you know the the title of this panel is has the Unicorn machine stopped working and hopefully everybody agrees the answerers no but just thinking about a unicorn what what does it take what is really the most you know sort of the most important characteristics is it is it really about profitability you know how should you think about growth The Tam uh just just help us understand how you as investors you both really think about what it kind of takes to become a unicorn today I mean let me let me just say that the only way to make money inventure at least in our model is not necessarily by only only investing in unicorns no I mean you can make a lot of money by investing in successful businesses that I that are priced right you know and there's there's a lot of philosophy that has been shared by Peter thel and others where they say hey should I be a very big Market shareholder of a small Market or of a small vertical versus you know an incredibly big Market where you know where you have a much smaller market share no so the only way to build value is not necessarily by tapping into a very big Market you know you can tap into a slightly smaller Market but own 80% of it you know and you can still create value um I think that that that the discipline that that that that has been used in the last years is very important for companies you know to succeed and grow fast and when you have Capital available is very easy just to think about hey you know we are passing from one you know from from from valuation of 20 to a Val valuation of 100 to evaluation of a billion but but in a market like today as we said before you know it has to be much more backed by numbers no so so it it it it is a different reality yeah yeah this this Market is um is a little bit interesting in order to build a big a big company unicorn or or or close to um we're a collection of companies countries here so any one market is not really large enough to build uh a company of you know the size that we as investors are are looking to so we need each company to be able to you know operate in UAE operate in Saudi operate in in in all of the the Mina the Mina um countries and and you know in a in a regulated space like fintech this is not an easy task because you have to get regulated in each one of these markets um so it does take time to be able to build that that unicorn because you need to get regulated in each one of these markets um but and then the interesting about these markets is that not only do you have like the GCC countries which have fixed fxs um you know High GDP per capita so they're very different um you know customer base than like in Egypt for for for difference where you know in this time right now has hit you know large devaluation of currency which makes it a little bit more difficult to you know raise Capital raise debts um well and and and build so there's been a lot of focus on um especially in this in the in the last few years on the GCC and building the companies there and be able to go between those those companies for so for us what we think about when we're looking at unicorns or building unicorns is how easy is it for the how can these companies go from one country to another and build within within them um and and that's how we think what you can you can build big big companies here great well let's uh in the time remaining I I definitely want to talk where everybody's seeing opportunities globally or in this region specifically what you're excited about you know what what's what's coming where do you see growth whether it you know could be involving AI or anything else or what do you start from the air wallx perspective yeah so for us it's about focusing on the right stuff basically I think that the first thing is about globalization this is something that is here for and to stay and just going to continue and since we're a global company we need to take our customers to different markets and expand I think that's one area the second area for us is what we like to call the Narrow Path there are specific verticals that we see that we're able to deliver significant value be it marketplaces and Retail verticals like uh travel SAS B2B and also finex and I think the last thing for us is I won't talk about ni AI sorry I'll talk about embedded Finance so we are able to power other companies that are fexs or marketplaces that want to develop their own Financial products and basically through regulation that we go through in every region we're able to give that platform and they can grow on top of that platform so those are the things that we are very excited about awesome awesome Sonia you want to um these markers are interesting because there's still so much to be done here there uh there's still a lot of white space and so it's important to kind of pick which sub sectors within fintech that we're looking at um so what we've done uh internally is we kind of looked to see where where is the government where is the influence um spending their time and energy uh and kind of like where their because they all come up with these Vision plans for the future um like Saudi has Vision 2030 you know we have the U has their their Vision plans and that's where the government is now spending their time so a lot of it is on savings to increase savings um by for the people in these markets a home ownership is an Al also um something that's been a concentration on Capital markets another thing that people con these are three verticals that we are now concerting on because this is not not only is are there important they are important sectors that they can be enabled with tech and fintech specifically and it's it's it's also something that the the governments that are are spending time to encourage their people to to build and uh and so we we we've been spending a lot of time on those on those sectors Jose what are you excited yeah I mean for me I continue to always think about innovation no and and as I said before um where is innovation coming from today um I have to say that it is hard to compete with the us when you have a very significant part of your GDP being invested you know into Innovation but it's also very true that we start to see a lot of innovation coming from outside of the us as well no so we are bullish on that trend of you know being able to see companies that will emerge as global leaders that are not necessarily coming only from the US now regardless of that and that excitement I still believe that most of the Innovation is still going to come from the US and that's why we like to play our cards the way we do no I mean that's why we are very Diversified and we like to play certain markets outside the US but at the end we remain coming back now in terms of sectors everybody who is an investor has been deploying 80% or 90% of their Capital into AI over the course of the last three or four years we've been very counter cyclical I mean not because we don't believe AI is amazing we do agree that AI is absolutely transformational but we have our particular views and I talked a little bit about this yesterday on how do we make money on AI we don't we don't think that we will be making too much money by betting on generative AI we are more players that are you know using H AI as enablers or you know investing in pigs and shovels of the industry are you encouraging your portfolio companies to be leveraging high 100% 100% there's there's such an incredible opportunity for companies to be able to do things efficiently and people underestimate what some of the incumbents are doing as well I mean people like Etsy for example these guys have been amazing utilizing AI for the last six seven eight years to do matching of supply and demand no so so there is there is already a lot of incumbent that are utilizing AI but there's an incredible opportunity to invest into the pics and shovels of the industry and also to invest in businesses that are dramatically enabled by Ai and that's the way we have played AI Now by everybody investing in AI they open up opportunity you know to to make money in other sectors and we've been quite active in taking advantage of that we are marketplace network effect business experts you know and we've been playing or cards strongly in a bunch of B2B businesses why because we think a lot of companies H you know that are large businesses are somewhat obsolete in terms of the way they build and they have to be disrupted so we've been playing quite a bit of that and we've been seeing a number of other interesting Trends H when I started my first company we always talked about cross B Commerce it's only starting to be a reality now and you know and it can be attested by by the payments you know you are starting to see real players like Vinted you know there's another company that that do secondhand AO Parts called Oco in Europe you start to see real crossborder e-commerce and and we are betting we're putting some bets into things that are related to that infrastructure but also businesses that are leveraging that um couple of other things life comp life Commerce has been a reality in China and it has not been a reality in Emerging Markets no even in the US so we start to see companies that are successful by going vertical utilizing life Commerce in places like the US and we've been placing some bets on on stuff like that and continued verticalization of horizontals we continue to be surprised by how many new verticals can continue to be built we invested in a company called Al paga which is you know a Marketplace for secondhand kitchen utensiles you know and and the market is significantly bigger than what people expect so we continue to be surprised by new verticals that could be built and we're backing um and and I think we are also very surprised by seeing companies that are playing categories that are very traditional in a very different way we invested in a company in France called buo Libra so when when you listen something about books you say what do you mean these people want to sell books yeah but these people are playing the category differently because what they do is they go to people that have restrictions of space you know and they say okay uh you know give me your books I'll pay you a little bit of money and then they take those used books and they resell them no so so we are seeing a lot of opportunity in people that are playing categories that are existing in different ways and that's kind to wrap it up how do we see on the a side and you know opportunities that are related to what we do excellent we just have one minute but as far as exit Sonia are we going to see a Resurgence in fintech IPOs in 25 or you think IPO markets still going to be held back in the region both let's talk about the region that's always a big question um especially from investors that come from outside of the region it's where are the exits where are the exits um and we are starting to see them there's a lot there's there's a so we've got our exchanges here and now people are now listing on local exchanges which makes it EAS easier for for company for companies to exit uh and that's that that this whole this is all changing it's probably too too much to say in the time that's left but it's it's it's it's amazing how um the the the the local uh exchanges are now allowing it make it easier for the tech companies to list and um we and so I we we see some ones that are coming up we've had a few uh listings for tech companies in you know the last couple years and they're they've done well we' actually T about uh uh we just had one yesterday um that uh that that that we know is is we're watching to see how that how that does as well um so in the region it's happening it's all coming uh and and everything is going kind of Full Circle we're seeing we're seeing the exits coming yeah yeah just having spent a week here the excitement about the local IPO Market is is pretty tangible um so great unfortunately we've run out of time but I just want to say thank you very much for to all of my p and thank you all than [Music]