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Where Are the Disruptive Companies in Asset Management?
 

Where Are the Disruptive Companies in Asset Management?

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Notes from a ff Venture Capital Idea Dinner

Notes from a ff Venture Capital Idea Dinner
David Teten, Partner, ff Venture Capital
ffventure.com
blog: teten.com
@dteten
New York, NY

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    Where Are the Disruptive Companies in Asset Management? Where Are the Disruptive Companies in Asset Management? Presentation Transcript

    • Asset Management Is a Bizarre Industry Overdue for Disruption David Teten, Partner, ff Venture Capital ffvc.com / / teten.com @ffvc // @dteten New York, NY April 14, 2014 http://www.flickr.com/photos/marieswartz/4228616284/sizes/z/in/photostream/
    • © 2014 David Teten. More at ffvc.com and teten.com Asset management is a bizarre industry. •  The asset management industry collectively adds minimal value to its clients above the option of investing in index funds. •  Investors typically pay asset managers far more compensation than is appropriate for their real value-add. •  The VC industry collectively has a structural incentive to destroy value … and does. •  Most retail investors underallocate to the single-highest-yielding asset class, angel investments. http://teten.com/blog/2013/11/15/asset-management-is-a-bizarre-industry-ripe-for-disruption/
    • © 2014 David Teten. More at ffvc.com and teten.com Investors want many jobs done, not just return generation. Disruptive companies often emerge from startups that focus narrowly on one job. •  Job security (of the investor) •  Capital preservation •  Returns •  Exposure to target sector •  Transparency •  Investment team stability •  Tax minimization •  Social welfare •  Relationships with other investors and executives •  Networking
    • © 2014 David Teten. More at ffvc.com and teten.com Examples of Asset Management Innovation (both disruptive and sustaining) * ffVC company Index funds Vanguard Credit default swaps BlueMountain; Saba Improving and centralizing the back office Addepar* Crowdsourced financing Indiegogo*; Kiva; Kickstarter Discount brokerages Charle Schwab Principal-protected products JP Morgan Junk bonds Drexel Burnham Lambert Outsourcing of risk Blackrock taking transaction risk onto its own books Expert networks GLG; Circle of Experts Research firms that leverage public internet data Majestic Research; Navon Partners; Privco Quant hedge funds Renaissance Technologies Private company markets Angel List Online wealth management Wealthfront ETFs iShares Theme-specific investing Motif Investing
    • © 2014 David Teten. More at ffvc.com and teten.com Over time more asset classes become investable. Domain names Oversee.net, GoldNames Human equity Upstart Litigation Law Finance Patents RPX, Intellectual Ventures Receivables ReceivablesXchange Personal loans LendingClub Virtual Currencies –In-game currency IGE.com –Frequent flyer miles Points.com –Carbon credits CarbonTradeXchange
    • © 2014 David Teten. More at ffvc.com and teten.com Appendix The Innovator’s Dilemma, by Clayton M. Christensen
    • © 2014 David Teten. More at ffvc.com and teten.com The Innovator’s Dilemma, by Clayton M. Christensen The Innovator’s Dilemma identifies two types of innovation. Sustaining •  Improve performance of established products •  Meet demands of mainstream customers in major markets •  Vary in difficulty, cost, time, etc. •  Established firms Disruptive •  Generally underperform established products in mainstream markets •  Have new features that fringe / new customers value •  Cheaper, simpler, smaller, more convenient to use •  Entrant firms
    • © 2014 David Teten. More at ffvc.com and teten.com Disruptive innovation usually follows a few key principles. •  Companies depend on customers and investors for resources •  Small markets don’t solve the growth needs of large companies •  Markets that do not exist cannot be analyzed •  An organization’s capabilities define its disabilities •  Technology supply may not equal market demand The Innovator’s Dilemma, by Clayton M. Christensen
    • © 2014 David Teten. More at ffvc.com and teten.com Disruptive technologies are often not rational investments for an incumbent. •  Disruptive products are simpler and cheaper, and promise lower margins •  Disruptive technologies are first commercialized in emerging or insignificant markets •  Most profitable current customers are not interested in the product The Innovator’s Dilemma, by Clayton M. Christensen
    • © 2014 David Teten. More at ffvc.com and teten.com Examples of Disruptive Technologies •  Personal computers vs. mainframes •  The disk drive industry •  Steel minimills •  Mechanical excavator industry •  Motorcycles •  Insulin •  Department and discount stores The Innovator’s Dilemma, by Clayton M. Christensen
    • © 2014 David Teten. More at ffvc.com and teten.com Macro changes in economy are creating new opportunities for disruption. •  Capital shift to Asian, seeking growth –  Is the future growth already priced into the assets? •  Reduction of trust in US bond market •  Longer lifespans- greater need to increase payments from pension plans •  Transfer of wealth from baby boomers in US and Western Europe •  Tech Innovations, aka “the supercycle” –  SaaS, mobile, social media, DNA reading, big data analytics, mass customization •  Green tech •  Greater correlation between asset classes because of computer-linked trading
    • © 2014 David Teten. More at ffvc.com and teten.com Any questions ? Slides at teten.com/disrupt Sign up for updates at ffvc.com and teten.com @ffvc @dteten
    • © 2014 David Teten. More at ffvc.com and teten.com David Teten (teten.com) •  Partner, ff Venture Capital, early-stage technology venture capital fund •  Founder and Chairman, Harvard Business School Angels of New York . •  Co-founded Venture Capital Access Program, introducing women and minority entrepreneurs to Harvard-affiliated angels (JV with National Association of Investment Companies) •  Lead author of first-ever research study on best practices in private equity/venture capital deal origination •  Lead author of first-ever research study on best practices of venture capitalists in increasing portfolio company value through operational support •  Lead author, The Virtual Handshake: Opening Doors and Closing Deals Online (TheVirtualHandshake.com) •  Harvard MBA 1998, Yale BA, both with honors. •  @dteten
    • © 2014 David Teten. More at ffvc.com and teten.com Disclaimer This Presentation is for the exclusive use of the recipients to whom it is addressed.   References to the “Presentation” includes any information which has been or may be supplied in writing or orally in connection with the Presentation or in connection with any further inquiries in respect of the Presentation. This Presentation is not intended to serve as basis for any investment decision. While the information contained in this Presentation is believed to be accurate, the Preparers have not conducted any investigation with respect to such information. The Preparers expressly disclaim any and all liability for representations or warranties, expressed or implied, contained in, or for omissions from, this Presentation or any other written or oral communication transmitted to any interested party in connection with this Presentation so far as is permitted by law.  In particular, but without limitation, no representation or warranty is given as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, analyses or forward looking statements contained in this Presentation which involve by their nature a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied in this Presentation.  By its acceptance hereof, each recipient agrees that none of the Preparers nor any of their respective Representatives shall be liable for any direct, indirect or consequential loss or damages suffered by any person as a result of relying on any statement in or omission from this Presentation, along with other information furnished in connection therewith, and any such liability is expressly disclaimed. Except to the extent otherwise indicated, this Presentation presents information as of the date hereof.  The delivery of this Presentation shall not, under any circumstances, create any implication that there will be no change in the affairs of ff Venture Capital or HBS Alumni Angels after the date hereof.  In furnishing this Presentation, the Preparers reserve the right to amend or replace this Presentation at any time and undertake no obligation to update any of the information contained in the Presentation or to correct any inaccuracies that may become apparent. This Presentation shall remain the property of ff Venture Capital and HBS Alumni Angels. This Presentation does not constitute a recommendation regarding the shares in ff Venture Capital or HBS Alumni Angels. No securities commission or regulatory authority in the United States or in any other country has in any way opined upon the accuracy or adequacy of this Presentation or the materials contained herein.  This Presentation shall not form the basis of any contract. The distribution of this Presentation in certain jurisdictions may be restricted by law and, accordingly, recipients of this Presentation represent that they are able to receive this Presentation without  contravention of any unfulfilled registration requirements or other legal restrictions in the jurisdiction in which they reside or conduct business.