Until very recently, financial services have been relatively immune to the technology-enabled disruptive innovation that has swept through other industries over the past decade or so. This is now changing for a number of reasons, both technological, economic and societal:
continuing advances in communications and information technology – in particular ubiquitous cloud computing and smart devices – is enabling economically viable new approaches to delivering all types of financial services (payments, risk management, investing, banking, insurance…)
demographic change is creating a large addressable population of financial services consumers who have a different expectations (in terms of transparency, control, etc.)
the financial crisis of 2008 has broken many of the bonds of trust that contributed to significant customer inertia wrt financial services providers.
This is opening up one of the most important sectors of our economy to new entrants with new ideas, new approaches and new technologies.
I’m going to give a short presentation, hopefully setting the scene and getting some creative juices flowing before the more interesting part of the workshop where my partner Uday and I will be working with those attending to ideastorm potential new approaches, business models and services that are natively adapted to the technologies and economies of the 21st century. Attendance will be limited to 30 people so if this is something that excites you and you’d like to contribute, don’t wait too long to sign up. The workshop is at 9am on Friday, February 4th and of course you need to be signed up for the conference – if you haven’t already you can do that here.
And if you have any ideas for what you’d like to see or hear or discuss at the workshop, please don’t hesitate to comment below. Hope to see you there!
Update:
Workshop went well I think and I was really lucky to have such an engaged and interesting group. Would have loved to have had another hour to explore the ideas that emerged…here’s the presentation I gave as an intro:
Betterment ticks the box on so many of our investment themes and fits so well into our vision of digitally native 21st century financial services that they had us at ‘hello’…but the clincher was the amazing team and impressive execution to date.
When asked, I often tell people that we invest in the “emerging Apple’s of financial services”, ie that we look for companies who use technology to create powerful, intuitive, user-friendly customer experiences by essentially abstracting complexity away from the user (not ignoring it, but managing it – with skill and dexterity – behind the scenes) rather than exposing it in all its glory to customers with the implicit goal of profiting from then managing (exploiting?) their confusion and disengagement. Of course the Apple analogy is not perfect but probably can’t be beat in terms of a pithy soundbite summary of our approach.
So with this in mind, think of Betterment as having a Jobsian approach to savings and investment: combining a intuitive and powerful user interface with a robust back-end execution platform, Betterment allows anyone to quickly, easily and without mystery manage asset allocation and risk budgeting using a simple, multi-asset class portfolio. No hassle, no time wasted, no blizzard of trade confirmations. The first time I saw it, I immediately wanted to be able to manage all my cash balances using their platform. (Unfortunately they are currently only operating in the US so not super-practical for me personally but you can bet we’re keen to help them expand their horizons…) Say goodbye to the money market account. Indeed, if you are based in the US and have a bunch of your savings tied up in money market accounts or CDs, you should definitely take a very serious look at replacing these with a Betterment account. Have a look at their product tour:
But the most exciting thing about Betterment is that they have only just got started and it’s scary (good) to think what Jon, Eli, Kiran and Anthony, can and will do over the next couple years. And it’s a great fit with our nascent but growing ecosystem and we look forward to helping them work with other great digitally native financial firms like BankSimple, Blueleaf, FX Capital Group and others as they grow their business in the months and years to come. And the icing on the cake is getting the opportunity to invest alongside guys like Rob and Eric at BVP who bring a lot more to the table than just capital. Congratulations guys and thanks for inviting us along for the ride.
And was just thinking this might be the right track for their inaugural global marketing campaign…
Last week I spent the week in Amsterdam at Sibos 2010 where I had kindly been invited by Peter Van der Auwera to participate in the Innovation stream, and in particular in the Cloud Computing and Long Now streams within Innotribe. On Monday, I gave a short “scene-setting” talk on cloud computing and app stores in finance called The New Financial Stack (more on this / link hopefully later this week) and also I agreed to produce a video aimed at provoking and/or inspiring some original and non-linear thinking about the future of finance. Called “The Financial Reformation”, it sets the scene for two decades of fundamental change in the financial services industry based on the amazing democratising power of information technologies. I hope you like the result:
But as you might suspect if you have watched the video, this is just a start… Indeed, this initial video could be considered as simply the trailer for a longer form video which will look at the period from 2008 to 2028 in more detail; similar in some ways to the AmazonBay video of several years ago. The first draft of the script for this story is already written but I am very keen to build on and enrich it, not only with the fascinating concepts and insights that I absorbed in the Innotribe sessions at Sibos last week, but also – insofar as anyone is interested – with comments and ideas from the wise crowd of Park Paradigm readers. I’ve got a few ideas as to how best to go about this, and plan to post these later this week or next, but in the mean time if you would like to share your thoughts, please feel free to comment below.
ps I’d like to give a special thanks to the amazing team at Motherlode who were instrumental in turning my ideas into reality and who worked tirelessly to deliver the video in time for the world premier at Sibos; I’d also like to thank and congratulate Peter, Kosta and the rest of the Swift Innotribe team for what was simply an incredible four days. I hope Swift gives you the recognition you deserve!
And so it’s hard to blame them when they ignore it. Still, call me crazy but I can’t help but being somewhat surprised and disappointed when one of the smartest, most reasoned leaders of the financial world writes that “the signs of a deep transformation in the financial landscape are very visible” and then ascribes this to two main driving forces without once mentioning the impact of changing technology (Mario Draghi from the Financial Times, 17sep10):
The first is a different perception of risk. For many years an optimistic view that underestimated the level of risk and overestimated its dispersion across participants had become the conventional wisdom; that view has been wiped out by the crisis. A re-pricing of risk of all sorts, higher volatility, reduced valuation of certain assets, more careful examination of credit quality and greater attention to the longer-term sustainability of debt positions – as highlighted by the recent sovereign debt crisis in Europe – are all manifestations of this changed perception. Business models are being reassessed according to their ability to manage risk. Complexity and opacity of financial instruments are no longer rewarded; the demand for transparent, complete and accurate information has increased.
The second source of change is policy driven. After Lehman, any remaining doubts on the need profoundly to reform the financial sector were dispelled. It became clear that a common, internationally co-ordinated approach, involving both advanced and emerging economies, was needed.
I’m not taking issue with his two drivers – they are clearly both important and relevant. I just think he should have added a third driver. And the fact that he didn’t, just confirms my conviction that way too many of our leaders – political, economic, financial, industrial – are increasingly disconnected from the world as it is (as opposed to the world as it was.) Which in my opinion can’t be a good thing. Indeed it’s worse that ‘not getting it’ – it’s not even knowing it is there…
Of course this throws up a multitude of opportunities, but it also carries with it the risk of more a more volatile and dangerous transition from old to new paradigm as our leaders remain blithely unaware of the sphere that is about to envelope their plane…
Buttonwood has posted an excellent analysis of why financial markets are unlike other markets for goods and services:
This apparent contradiction can be resolved. Financial markets do not operate in the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the price of a financial asset rises, demand generally increases.
Which explains why bubbles develop and burst and why ‘market fundamentalism’ does not generally serve us well when thinking about financial markets (as opposed to other markets.) Buttonwood also alludes to the fact that bubbles often develop at times of great change (has he read Perez???):
Why not just let the markets rip? Some would say that bubbles tend to coincide with periods of great economic change, such as the development of the railways or the internet. Individual speculators may lose from the resulting busts but society gains from their overoptimistic investments. However, this argument is harder to sustain after the recent bubble in which society “gained” some empty condos in Miami and holiday homes in Spain.
His conclusion is that because of these structural characteristics of financial markets, central banks (and possibly regulators and/or governments) have a natural, pro-active role to play in trying to mitigate or counter these problems.
Of course a few investors – the most high profile being Warren Buffet – have successfully arbitraged this weakness in capital markets buy being countercyclical, being “greedy when others are fearful, and fearful when others are greedy”; but as most people know this is bloody hard to pull off and exposes the investor to significant liquidity/solvency risks if they get the timing wrong. As Keynes said, “the markets can stay irrational, longer than you can stay solvent…” If you have an edge, even a small one, doubling down will usually work as long as you have an infinite bankroll. Ooops, small fly in the ointment. (Besides, if you have an infinite bankroll, what the hell do you need to bother about worrying about returns!)
Well I have neither an infinite bankroll nor the skills (and/or luck) to adopt a Buffet-esque investment strategy. But I do have some skills. And some experience. And I can recognise patterns reasonably well. And I have conviction. And a reasonable track record for building new markets and adopting and executing novel business models. So a few years ago I figured out that by focusing these modest talents and skills on investing in and helping to build new businesses, with a lot of hard work and days and months of research and reading I could generate pretty decent financial returns that were (almost) completely uncorrelated with the massive tides that buffet the world’s financial markets. And most importantly, this lack of correlation is structural – ie it doesn’t disappear in violent bear markets when almost all mainstream asset classes discontinuously jump to near perfect correlation (much to the chagrin of the VaR boys.)
It’s not hard to understand why. In fact it’s pretty obvious. For a new business, the ups and downs of the market, GDP, etc. have at best a second or third order effect on the company’s value. These factors are overwhelmed by the single most important factor driving value creation which is of course, can the company successfully sell it’s products or services to paying customers (or be more and more clearly on that path.) As someone wise once said: a “start-up is not GM” ie They are not correlated to GDP.
Now don’t get me wrong, I’m not suggesting that investing in new companies is without risk. In fact as most people would glibly observe, investing in start-ups is ‘very risky’. Well yes, but the risk is almost entirely idiosyncratic and manageable – much much less dependent on vast, uncontrollable, macro-economic trends and forces. And just because the risks are easier to identify and name, doesn’t mean it is easy to manage them, just that they are potentially (more) manageable.
So if this is true, why have venture capital returns generally been so poor (at least in the last decade or so) and why don’t more smart people try their hand at this (rather than trading/managing other types of assets)? Answering the second question first, I suspect this is because failing together is much nicer than failing alone, and so if the global financial crisis wipes out your hedge fund or investment bank or savings, well that sucks but, you know, shit happens. If however you pour your own (or worse your investors’) capital into a couple of dozen new companies that crash and burn, well that’s just a very lonely place to be. The answer to the first is not simple and you could probably write a book on this (perhaps Paul Kedrosky will?) but with the disclaimer that I don’t pretend to really know, my short and dirty take would be that there are two related factors at the heart of this failure. First, investing in new companies is hard to scale – at least compared to many/most other asset classes and secondly, the traditional structure of the industry is poorly adapted to this reality. Private equity legal and economic structures (which is how most venture partnerships are structured) doesn’t really fit the risk/reward/resource profile needed to invest successfully in new companies. Of course their are exceptions – both temporal and human – but just because their are some investors clever and/or lucky enough to make it work doesn’t make it right.
I could of course be wrong. And I could fairly be accused of hubris, especially as at this point I don’t have a long enough track record and/or enough exits to prove without doubt that my approach is correct. And while I am confident in my own abilities and have backed that up with a lot of “skin in the game”, I am even more confident in my larger analysis that while the venture capital industry might be broken / poorly organized, the risk-adjusted returns available to those who chose to invest – methodically and with a well-calibrated capital and incentive structure - in new companies, are excellent and, for the VaR-boys out there, truly uncorrelated to mainstream asset classes. The challenge is of course to find these investors and not to swamp them with too much capital. This problem isn’t solved but it looks a hell of a lot like the problem facing hedge fund investors (in most strategies that also do not scale beyond certain amounts of capital) and the asset allocation community would do well to try some of their more successful solution there on finding and seeding managers in this asset class.
And if you ask me, the rise of the ‘super-angel’ much talked about in venture circles these past months, is a step in the right direction and perhaps an indication that asset allocators are (finally) waking up to this opportunity.
Today I had the opportunity to be on the other side. Presenting our CiRX idea at mini-seedcamp London; attending as a ‘founder’ and not an ‘investor’ or ‘mentor’ for the very first time. And it was totally worth it. Not only was it valuable in the normal / traditional ways that seedcamp can help a founder but interestingly – although not altogether surprisingly – as an investor, it was very enlightening to sit on the other side of the table for once. I learned a lot. About CiRX of course but also about how a founder perceives the world (as opposed to an investor.) The only regret I have is that I don’t think I did a very good job of being mentored, especially with some groups and wish I could have another go. (Basically I talked too much. I know. Shocking.) Partly because well, I unfortunately do that sometimes, sorry. Partly because at almost a subconscious level, while I was supposed to be the mentee, my default tuning in this context is to be the mentor so sometimes I perhaps did both! And partly because I haven’t yet nailed the best way to succinctly articulate the value we see in the CiRX proposition.)
This last bit was a great takeaway because even though I probably knew that before, I definitely know it now and having muddled through a half-dozen live sessions has already now given me some ideas of how to better describe and deliver the value proposition of CiRX. Indeed it was funny to fall into the exact same trap I’ve (patronizingly? hope not!) warned so many founders about myself: ie to remember that 99% of the people you will speak to about your vision haven’t spent the last 6 months bathed in it and so the threshold of obviousness is much much higher than you think it is. What you take as given, is anything but to most people you will meet. In any event, I would highly recommend that anyone investing in early stage companies walk a mile in those shoes. A bit humbling, but more importantly very enlightening.
I’d like to thank all the mentors whom we met and really underline how much we appreciated their forthright opinions and incisive analysis. Farhad and I got a lot out of it and I suspect that we will tweak our plans based on some great insights and suggestions we received throughout the day. Also at the risk of sounding a bit soppy, I’d really like to publicly thank Reshma and Saul for the incredible job they have done building the seedcamp community and ecosystem. I am reminded of the summer of 2007 when I made a rash decision to invest in this new thing a guy I barely knew named Saul (who admittedly had come highly recommended) was organizing and thinking now what a terrific investment that has been. And that’s before getting any of my capital back!
Finally, I just have to say how impressed I was by the quality of the other teams that were invited. Really really impressive. Not so many in our investment space (although Subsify is a company that caught our eye and we’ll be interested to learn more about) but the two that really stood out for me were Editd and Memrise. Would be very surprised not to see these two make it through to seedcamp week in September. Eyequant too.
As for us, well we certainly have a lot to digest and a lot to work on…but that’s exactly what we hoped for.
You may have noticed, I haven’t been posting much here lately. It’s not that I don’t have anything to say, probably just the opposite (!) but have be full out from dawn until dusk working on a number of exciting new projects including our own development (more on that in a few weeks.) One project that has been front of mind the past few weeks is a new company we are developing that is directly inspired by Paul Graham‘s great advice to “solve problems that affect you directly”.
A bit of background. When I was in banking, one of the achievements I was most proud of was effectively using web technology to transform how (debt) capital was raised (at least in Europe*.) At DrKW, we built what for many years was the state of the art capital raising platform, whose core product was our eBookbuilding platform (now in Commerzbank yellow!) It completely revolutionised what had heretofore been a disjointed, manual, somewhat ad hoc process into a seamless, collaborative, mostly painless process. Initially it met with enormous resistance from other (much bigger and more successful) banks and syndicate managers, who as ‘guardians of the temple’ jealously guarded their power, derived (in their minds) from the information asymmetry they enjoyed (vs issuers and investors.) However – and despite being at best a middling player in the fixed income new issues market – our disruptive technology was such a big improvement on the status quo that eventually the market adopted our standards (with everyone then rushing to build their own analogous platforms.) In the spirit of making sure these platforms could ‘play well together’ we even published our XML-Schema for new issues and invited all our competitors to contribute to it and use it. (Which had the effect of basically freaking out our competitors. They thought we were crazy – like Ali – because they didn’t have the slightest idea what it means to compete in a world of information abundance and platforms, but that story is for another day…)
Anyhow, when I became seriously and then professionally active in ‘venture capital’ or more generically speaking, in investing in private companies, the lack of technology available to manage workflows surprised me; I was particularly puzzled because ostensibly this was a world populated with techophiles, early adopters and people who ate disruption for breakfast (quite unlike the world of institutional capital markets). Further, there is much talk (and consensus) around the fact that it is hard/impossible to scale venture investing. And while I think this holds at some level, it struck me that a significant number of the gating factors limiting the ability to scale could be vastly improved. Not to infinity but substantially, perhaps by an order of magnitude. Pulling out an example from my old career, when I started life as a bond trader 20 years ago (ack!) the number of bonds that a typical good trader could manage numbered in the dozens at best (and even then, you would find that a trader really traded 10 to 20 bonds 80% of the time and sort of went through the motions for the other bonds hoping most of the time not to trade.) Then came Bloomberg. And excel spreadsheets. (And later bespoke pricing and analytic tools and platforms.) And all of the sudden, a trader could manage a book with hundreds of securities. There was still a degree of 80/20 but everything was an order of magnitude bigger.
I don’t know if our new initiative will definitely achieve that degree of change in the private investment market, but we are convinced that there is a better way and having a fit-for-purpose platform to help company management, non-executive directors and investors communicate, collaborate and manage their positions and responsibilities would be a huge step forward. It’s not that nothing currently exists, but I would say we are at the ‘excel spreadsheet’ phase to use my bond trading analogy – with many firms and people starting to use things like Google Apps or Basecamp and the like to better manage information flows and collaboration. But while this (and excel for traders) is (was) a good start, the real juice comes when dedicated, purpose-built platforms emerge. If you have a screw that needs driving, a hammer is better than nothing (or a rock) but a screwdriver is even better! (A power screwdriver better still!)
So we conceived of (what has been provisionally named) CiRX – the corporate director and investor relations information exchange:
CiRX is a purpose-built platform enabling private companies, directors and investors to communicate and collaborate more efficiently saving time, money and effort. By streamlining processes and connecting stakeholders in an intuitive and context-rich environment, CiRX offers a tailored yet consistent solution to the challenge of managing information and documentation flows, reducing administrative burdens and creating opportunities for a richer, more dynamic and flexible approach to corporate governance and strategic management.
Over the past few months, we have been developing the concept, the business model and have done a significant amount of macro research to identify the potential size of the market opportunity and now have started to take the next step and ‘talk/think details’ as they say. In order to support this next stage of development, as we are poised to start ‘cutting code’, we wanted to get more direct feedback from the community – of company executives and founders, non-executives, angel and institutional investors – to better understand how their experiences and perceptions were both similar and different to our own. To do so we created a short(ish) survey and have sent it to a number of our contacts across all these communities, but if we missed you and you are a company founder or non-exec director or investor in one or more private companies and you are interested in contributing your views, you can find the survey by clicking here.(We’ll leave the survey open for a couple weeks probably but if you are so inclined to complete it, we are excited to be presenting CiRX at mini-seedcamp London next week so would be great to have as much feedback as possible before then.) Of course you are also welcome to share your views – good, bad and ugly – in the comments below.
* That e-bookbuilding (generic) never gained acceptance in the US (at least not while I was still in the market) is in my opinion a telling manifestation of the oligopoly of Wall Street (which gives us things like 7% IPO fees with the spooky consistency of North Korean election results) which absent the pressure of competition, allowed the dominant underwriters to resist this change tooth and nail. It was even more glaringly apparent when these same US firms operating in Europe adopted e-bookbuilding as strongly as everyone else once it was obvious it was an evolutionary winner…
Where is Goldilocks when you need her? On the one hand you have high frequency and algorithmic trading dominating the world of listed companies with market shares often exceeding 50% of all volumes traded and with increasing instances of unstable trading and extreme volatility in liquidity as these machines enter and exit the market creating a complex, unstable chaotic system where long term investors who aren’t careful can literally be run over in both directions like Wile E. Coyote on an Arizona desert highway… On the other hand, in the world of private investments – in particular in the broad category known as venture capital – liquidity remains elusive with (too) many practitioners having a disfunctional and often irrational set of beliefs as to how and when liquidity is acceptable and when it is not, with the end result making naturally illiquid investments even more so. And yet, wouldn’t it be nice (for investors and companies) to have a long term capital market where liquidity was “just right?”
So what would just right liquidity look like? Can you have your cake (all the typically enormous strategic advantages that accrue to a private company) and eat it too (the advantages of being listed, afforded by having a periodic mark-to-market and the ability to use your equity as a real currency)? I think you (mostly) can and am very encouraged to see this sweet spot slowly emerging and gaining traction outside of a handful of what previously would have been considered exceptions to the rule. In my opinion, the answer (as I have mentioned before) lies in further developing secondary markets in private company equity.
The two most successful companies I have had the privilege of investing in – Markit and Betfair – despite being multi-billion dollar companies and market leaders, are still today private companies and have provided liquidity to investors, management and employee shareholders (in different ways) which has gone a long way to allowing them to remain private and reap the associated benefits. The flexibility of Facebook’s management to run their company for the long term optimal outcome has I suspect been a direct function of the liquidity that secondary investments (from DST) and a relatively active secondary market in Facebook shares on platforms like Second Market and SharesPost have provided to early investors and employees. And it’s not just about cashing out – at least half the value of these secondary markets comes from providing a credible mark-to-market and the reasonable expectation that – if needed – an investor could access liquidity. Perhaps paradoxically, with these two factors in hand, more often than not, investors will actually have a higher propensity to hold on too their investment, not lower.
Another benefit of secondary markets would be to improve the health of the overall venture investment ecosystem which while evolving in fits and starts, most recently with the rise and rise of “super-angels” and “seed funds” still mostly remains in the eyes of this industry outsider, static and prone to herding around the notion that one-size-fits-all in terms of capital structure and financing paradigms is somehow optimal and should not be questioned. In particular, I fail to understand why the received wisdom of the venture capital community seems firmly stuck on the concept of “nobody exits until everybody exits”. It’s a dumb concept and worse, quite frankly is at odds with the interests of the various investors and stakeholders in a private company, including later stage investors (aka mainstream venture capital funds.) I believe much of the angst surrounding seed stage investing and (traditional) venture capital investing, arises as a result of a dysfunctional transition mechanism. (ie There isn’t really one.)
What I would like to see – and quite frankly have never heard a good counter-argument against – is a more dynamic and flexible financing chain, one that pragmatically combines both primary and secondary elements. Practically speaking, what would this mean? At its simplest, it would mean that at any given funding round, the possibility of existing investors exiting part or all of their holding is considered objectively and without undue emotion. Having participated in many such transitions in companies going from “seed” funding to “series A”, or “series A” to “series B”, etc. the relationship between existing shareholders and the new shareholders is far to often one of conflict – to the extent that this is often seen as just the normal way of things – when there is no reason that this ever need be the case. Venture capital firms often talk of “needing” to invest a minimum amount of capital and/or “needing” to own a certain minimum stake in the companies they invest in. While I think the case is sometimes overstated, if you understand the dynamics of their business model, their attitude is easily understandable and basically rational. And yet, I have never yet seen a venture capital fund offer to buy-out the early stage investors in whole or in part when more often than not this would be an ideal outcome for everyone:
the company: not needing to raise more new capital than strictly necessary
the early stage investors: (whether professional angels or seed funds or friends and family) allowing them to reduce risk, recycle capital and retain focus on the market segment (early stage) they know best and which corresponds to their capital base
the venture capital funds: allowing them to simplify the capital structure, deploy more capital and ease negotiations
If this became the norm, I think it would drive a massive downstream benefit which would be to create a more dynamic, focused and intelligent early stage investment paradigm as investors in this ecosystem niche could really focus on funding two types of companies:
companies that have a plausible case to become successful but modestly sized businesses worth $10-40 million; and
companies that have a plausible case to become “VC fundable” where the goal is to exit in a series A or series B at $10-40 million
This would considerably improve both the availability but also the quality of early-stage capital as the risk / return dynamics would become much less random and the impact and velocity of the best investors in this space would increase considerably, providing more, cheaper and easier access to capital to entrepreneurs while at the same time providing a fantastic “farm-system” of talent and corporate development to later stage VC’s, perhaps even allowing (the best amongst) them to deploy their hundreds of millions or billions of capital efficiently as their ecological niche becomes better defined. I am absolutely convinced that this paradigm would create a much healthier, more vibrant capital market for innovation and disruption, improving returns for everyone in the ecosystem.
What I am not saying is that buying out seed investors would be appropriate in every situation. Nor that all seed investors would always be happy to sell all or even part of any individual investment. Nor that later stage investors should always look to buy out early stage investors. What I am saying is that this discussion should always be a part of the financing tool-kit, this option should always be on the table, and dismissed only when and where it is objectively inappropriate. Let’s get rid of the dogma and let markets work. Liquidity: not too much, not too little, let’s get it right!
You may have noticed that I haven’t posted much in the last couple months and given all the interesting things going on in the world it certainly wasn’t for lack of material. Breaking my arm obviously didn’t help increase my productivity (or make typing very easy) but it wasn’t the main reason for the silence. It’s much simpler than that: I was busy!
Busy investing in a whole bunch of super exciting and interesting new businesses. Busy working on the sale of ODL Group (where I was the lead independent non-executive director) to FXCM to create a true global leader in FX trading. Busy working with my partner Uday and FT Advisors on a number of interesting strategic advisory projects, in particular focused on the electronic and algorithmic trading space. Busy helping two of our portfolio companies raise follow-on financing. Busy working on our own corporate structure and capital raising where I hope to be able to communicate some exciting news in the not too distant future. Busy.
So what have we been investing in? Here is a quick rundown (in alphabetical order):
Babuki – 2008 seedcamp winner, launching soon (will update) with an innovative platform for social gaming
BankSimple – “an easy, intuitive, and social bank for people who appreciate simple online services. Unlike other banks, we don’t trap you with confusing products nor do we charge any hidden fees. No overdraft fees. We use sophisticated analytics to help you better manage your finances by providing you a individualized service, catered to your needs and goals.” Recently got some attention when they announced that Alex Payne of Twitter fame has joined as CTO. They also got a great write-up from @maxableson in the NY Observer.
Blueleaf – investment information management and planning software “to help people like you see all their savings and investment accounts in one place; understand their financial information more completely, more quickly; securely share information and collaborate with spouses, family or advisors; save their data, even if they change financial institutions; and maybe most importantly, help them stay financially safe and secure.”
Timetric – builds services to make sense of time-series statistics, based on the Timetric Platform: a proprietary service for publishing, analysing, and performing calculations on very large quantities of time-varying statistical data. Have a look at this neat little demo website they have built for tracking equity portfolios.
Metamarkets – provides global, real-time media price discovery by aggregating billions of electronic media transactions in order to deliver dynamic price data, proprietary price and volume aggregations, and comprehensive analytic media market views to sell-side media principals.
[not yet closed - will update soon]
Over the next few weeks or so, I plan to do a proper write-up on each of these businesses and the reasons we think they have bright prospects. So watch this space.
There’s nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you’ve found a gold mine. As with an actual gold mine, you still have to work hard to get the gold out of it. But at least you know where the seam is, and that’s the hard part. - Paul Graham
In the latest of his series of great essays, Paul Graham makes the obvious – but all too often overlooked – point that one of the best ways to create value is by working to “fix things that seem broken.” He also highlights the fact that sometimes it pays to step back from your daily environment to get a clear picture of what is broken:
You may need to stand outside yourself a bit to see brokenness, because you tend to get used to it and take it for granted. You can be sure it’s there, though. There are always great ideas sitting right under our noses.
At the end of 2006, after a long, successful, and mostly exciting and enjoyable career in capital markets I took that step outside. And my suspicions became convictions. Finance seemed broken to me. And it bugged me. It still bugs me. It bugs me when super smart people (who aren’t financial or market professionals) resign themselves to accept crappy advice and ill-suited products and services when it comes to their finances. It bugs me that so many bright, energetic, ambitious people working within the financial services sector continue to be trapped in the status quo of 20th (even 19th) century business models, their talents misdirected when the alternative is so much more appealing.
And so I thought I should try to fix it. Not all of it. Not all at once. But more than just a single facet. I haven’t got it all figured out yet, but I think I’m headed in the right direction and most importantly I’ve learned more – about the industry, about people, about building value and about myself – in the past 3 years than in the 10 before combined. I’ve never worked harder and I’ve never had more fun. And I’ve met some pretty amazing people too.
A few days ago, Fred Wilson commenting on the (ridiculous) inclusion of venture capital in the financial stabiliy bill wrote this:
The only systemic risk the VC business is creating for the financial system is attempting to put the current one out of business by financing entrepreneurs with new ideas for banking, brokerage, insurance, and other financial services. I’m not joking about this. I believe entrepreneurs will use technology to reinvent the way financial services are provided to consumers this decade.
“Using technology to reinvent the way financial services are provided to consumers this decade.” Nice. In fact that is our elevator pitch. I just hope Fred doesn’t mind if we use it.
I’m going to give a short presentation, hopefully setting the scene and getting some creative juices flowing before the more interesting part of the workshop where my partner Uday and I will be working with those attending to ideastorm potential new approaches, business models and services that are natively adapted to the technologies and economies of the 21st century. Attendance will be limited to 30 people so if this is something that excites you and you’d like to contribute, don’t wait too long to sign up. The workshop is at 9am on Friday, February 4th and of course you need to be signed up for the conference – if you haven’t already you can do that here.
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