500 FinTech Overview - 15NOV16
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Mike Sigal presented on digital transformation in financial services and 500 Startups' FinTech fund and accelerator program. He discussed how digital technologies have disrupted industries like media and telecom and are now transforming financial services. Startups are exploiting new technologies to build more efficient and customer-centric financial products and services, while incumbent financial institutions are struggling to adapt. 500 Startups is the world's most active early-stage FinTech investor, having made over 140 investments across 24 countries. Their accelerator program and global network provide startups access to capital, mentors, and customers. Financial institutions can partner with 500 Startups to gain access to FinTech deal flow, build innovation capabilities, and run corporate accelerator programs to source solutions from startups
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500 FinTech Overview - 15NOV16
- 1. / / November 15, 2016 Mike Sigal EIR & PARTNERSHIPS mikes@500.co *Please Do Not Distribute
- 2. / / About Mike Sigal EIR & Partnerships, 500 Startups FinTech Managing Director, Co-Creation Group Senior Innovation Advisor, SWIFT Innotribe 6x Entrepreneur
- 3. / / Agenda Perspective on Digital Transformation About 500 Startups Transformation in Financial Services How FI’s are Responding to FinTech 500 FinTech 5 Startup Pitches
- 4. / / Netflix vs. Blockbuster (2004-2010) Revenues in USD billion 2004 2005 2006 2007 2008 2009 2010 6.0 Physical rental 0.5 2.5 Digital rental Source: McKinsey & Company Digital technologies transforms industries…
- 5. / / ~40%of International Phone Traffic …even regulated ones. Source: Telegeography.com Jann 2014
- 6. / / Digital changes ALL customer expectations
- 7. / / Tipping point Start-ups exploit new tech Digital models proliferate Customers shift & Incumbents struggle Laggards shrink / die “New normal” New technology emerges Innovative startups disrupt Early adopters proliferate Advanced incumbents start adapting Mainstream customers shift Source: McKinsey & Company Industry transformations happen predictably
- 8. / /
- 9. / / Talent & Opportunity is distributed globally Historically, winners are rare • 1-2% return 50-100x+ (“Unicorns”) • 5-7% return 10x-50x (“Centaurs”) • 10-20% return 3-5x • 65-70% return 0-1x Early indicators are clear if you know the KPIs
- 10. / // Most Active Seed Investor in the World since 2010 $250M+ AUM 1500+ Investments 50 Countries
- 11. / // The title “Partner” is used in accordance with customary business practice in the venture capital industry and does not indicate a legal status as a “partner” in a partnership. Headcount includes employees, interns, and contractors as of May 31, 2016. Dave McClure Christine Tsai FOUNDING PARTNERFOUNDING PARTNER Khailee Ng MANAGING PARTNER Bedy Yang MANAGING PARTNER SOUTHEAST ASIA LATIN AMERICA 500 Startups Management & Investment Partners 130 people, 18 countries Hasan Haider MIDDLE EAST Santiago Zavala LATIN AMERICA Rui Ma CHINA/SF Marvin Liao SF Elizabeth Yin SILICON VALLEY Edith Yeung SF Sean Percival NORDICS Tim Chae SOUTH KOREA James Riney JAPAN Sheel Mohnot SF Pankaj Jain NYC/INDIA Matt Lerner UK Krating Poonpol THAILAND Natavudh Moo Pungcharoenpong THAILAND Binh Tran VIETNAM Rina Onur ISTANBUL Mat Johnson SF Eddie Thai VIETNAM SILICON VALLEYGLOBAL / SILICON VALLEY 25 yrs in SV as entrepreneur + investor Early Googler, strong operational experience Founded and exited two startups Recognized by Forbes as a multi-lingual, startup community leader
- 12. / // 4 Unicorns ($1B+ in valuation) 30+ Centaurs ($100M ~ $999M in valuation) * indicates companies that have already exited A Selection of Current Portfolio Wins * * ** * * Companies are a select sampling of investments across 500 Startups funds and will not be held in Fund IV. While Fund IV has not invested in the rounds of financing shown on this slide, at least one 500 Startups fund has invested in one or more rounds of financing for each of these companies. The valuations listed herein are estimated as at 12/31/2015 based on 500 Startups Valuation Policy as set out in the Appendix to this presentation. These numbers provide a snapshot of estimated valuation as at a particular time and may change. Further detail with regard to financing of companies listed on this slide can be found on Crunchbase.
- 13. / / How We Deploy Capital General Investment Strategy of All Funds • $50-150K First Check, $150-500K Follow On Checks Selection Criteria – Data-Driven Process Based on Pre-defined Metrics • Functional prototype (or previous product success) that solves a specific customer problem • Scalable internet-based distribution (search, social, mobile) or proven ability to scale sales • Capital-efficient business; operational at less than $1M in external financing • Measurable traction: engaged users, some revenue, and attractive unit economics • Cross-functional team with design, engineering and marketing expertise Investment strategy and criteria represent current investment model and may vary at the discretion of the 500 FinTech general partner. Terms noted on this slide may vary by investment. Accelerator Seed Distro Follow-On Angel Pre-Seed Seed Post-Seed Series A/B Growth
- 14. / / 500 Startups Family of Funds Global Funds Fund IV – Flagship 500 Mobile Collective 500 Fintech Regional Funds 500 Canada 500 Falcons (MENA) 500 Istanbul (Turkey) 500 Kulfi (India) 500 Kimchi (Korea) 500 TukTuks (Thailand) 500 Startups JP (Japan) 500 Startups Vietnam
- 15. / / World-class Accelerator is a critical success factor Accelerator Overview • 4-month program in Silicon Valley (4 cohorts / year) • $150K investment for 6% equity • Overall: >1500 applications > 250 interviews > 40 accepted = ~3% acceptance • Fintech: >300 applications > 10-15 startups/batch • Many post-launch, revenue-generating companies (no “idea-only”) Investment strategy and criteria represent current investment model and may vary at the discretion of the 500 FinTech general partner. Terms noted on this slide may vary by investment. Accelerator Seed Distro Follow-On Angel Pre-Seed Seed Post-Seed Series A/B Growth
- 16. / // Accelerator Deliverables Community Advice Curriculum Support Connections Money
- 17. / // CONFERENCES + EVENTS1 TEAM MEMBERS More than 50 events with 300-1,000 attendees per event, for a total reach of over 35,000 people in person + digital channels Design, technology, marketing, and product experts from top companies in Silicon Valley and elsewhere From 50+ countries around the world, our founders provide peer review and feedback on products, industry verticals, platforms, etc. 250+ 3,000+ MENTORS FOUNDERS 7 ATTENDEES 35,000 EVENTS 50+ 1. Conferences and Events are produced by 500 Startups Incubator, L.L.C. The 500 Startups funds do not participate in any revenue generated by these activities 2. The numbers represented on this page provide a snapshot of some of our Community-building platforms as at a particular time. They are estimated as of 12/31/2015 and may change. 500 Startups Events and Community Platforms COMMUNITY
- 18. / / The Case for Transformation in Financial Services
- 19. / / $13T
- 20. / / US Loans Originated Online Source: Wall Street Journal June 2016
- 21. / /
- 22. / / The best and brightest don’t want to work for incumbents.
- 23. / /
- 24. / /
- 25. / / FinTech: Technology-based solutions to make financial services more efficient, whether by disrupting or enabling incumbents.
- 26. / /// Source: McKinsey & CB Insights
- 27. / / 2014 Areas of Innovation - Global
- 28. / / Digital delivers superior margins…
- 29. / / …and customer satisfaction Source: OnDeck company filings 76 46 19 9 OnDeck Community Banks Regional Banks National Banks Net Promoter Score US customers n=100
- 30. / /// Source: KPMG & CB Insights
- 31. / / Payments Lending PaymentsPaymentsPayments ‘GAFA’ anchors customers’ digital lives…
- 32. / / 434M Customers 8.5M Merchants 12.7B Transactions/Year Payments Credit Scoring Lending Banking Investments $60B Market Cap Sources: http://expandedramblings.com/index.php/alibaba-statistics/; Wall Street Journal Market Watch Apr 26, 2016
- 33. / / 27 FinTech Unicorns - $137B+ in Market Cap http://www.bizjournals.com/sanjose/news/2016/03/09/19-fintech-unicorns-that-might-end-up-being-real.html
- 34. / /// Source: CBInsights data 0 10 20 30 40 50 60 70 80 90 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 FinTech M&A Activity: 2011-2015 M&A IPO Exits in the space are climbing 300 in 2015 vs. 100 in 2011
- 35. / / Different subsectors & regulation = different industries Tipping point Laggards shrink / die “New normal” New technology emerges Innovative startups disrupt Early adopters proliferate Advanced incumbents start adapting Mainstream customers shift Source: McKinsey & Company & Mike Sigal Analysis Capital Markets Full Stack Banking Lending Wealth Management Payments
- 36. / / FinTech will decimate Financial Services margins. Source: PwC Global FinTech Survey 2016 28% 24% 23% 22% 21% Fund transfer & payments Banks Average Asset/Wealth management firms Insurance firms % of Top Line estimated to be lost
- 37. / / How are FIs Responding to FinTech?
- 38. / / Tipping point Laggards shrink / die “New normal” Advanced incumbents start adapting New technology emerges Innovative startups disrupt Early adopters proliferate Mainstream customers shift
- 39. / / Corporate Innovation Objectives • Access top-tier technology talent • Upskill current organization • Bolting on products that are tough to build/operationalize in a traditional setting • Access to new customers Avoiding Disruption Human Capital Product Customers
- 40. / / FinTech Startups Strenghts Utilizing emerging technology Disintermediating Disaggregating Democratizing • Technology at core of business • Faster adoption • FinTechs deliver services at a lower cost • Separate services to bypass regulatory constraints • Targeting non-traditional customers
- 41. / /FinTechs want to partner with corporates Scaling Regulation Customer Acquisition • Scaling taking longer than other industries • Regulatory compliance = cost and risk (Founders don’t want to go to jail) • Institutional customers are slow to adopt • Retail customers are tough to mobilize
- 42. / / How banks are responding to FinTech (Jan 2015) Source: https://medium.com/@avinashswamy/how-are- banks-reacting-to-fintech-891617c69321#.76i2kfq51
- 43. / / Accelerators PR & Sponsorships Competitions & Events Silicon Valley Outposts Investing in VC funds Human Capital Product Customers Partnerships Investments M&A 4 Innovating Like & With Startups
- 44. / / Accelerators PR & Sponsorships Competitions & Events Silicon Valley Outposts Investing in VC funds Human Capital Product Customers Partnerships Investments M&A 4 Most incumbents must develop startup-like capabilities
- 46. / / Target the right vision/objectives Don’t mistake ‘Digitalization’ for ‘Digital’ Get some startup/VC “mojo” Conduct disciplined, rapid experiments Engage customers & stakeholders Pick the right KPIs for the right time Find ideas globally #GET500STRONG Rules for Building Innovation Capabilities and Culture
- 47. / / Financial Services for the Rest of Us!
- 48. / / Source: https://www.cbinsights.com/blog/fin-tech-funding-growth/ World’s Most Active Early-Stage FinTech Investor
- 49. / /// 140+ investments • 24 countries • Exceptional Results Wealth/Investing Financial Management Payments/Transfers Lending Crowdfunding Insurance Red outline > $1B in value - Blue outline $100m-$1B in value Blockchain
- 50. / / Selected portfolio company vignettes Portfolio Companies Entry Valuation Current Valuation Follow-on Investors $50M $18.5M $3.5B (70X) $100M (5.9X) $9.5M $117M (12.3X) $1M* $85M (85X) $6.5M $36M (5.5X) Acquired by * Accelerator Investment. The first investment in Conekta was from Mexican.vc Date Aug, 2012 Oct, 2010 Sept, 2010 Nov, 2013 Aug, 2015 $5M $175M (35X) $1.5M* $75M (50X) Ashton Kutcher $26M $130M (5X)Oct, 2014 Dec, 2009 Aug, 2014 $130K* $19M (146X)Oct, 2012 Multiples are valuation increases in the company, not the increase in our investments valuation
- 51. / / World’s Broadest FinTech Deal Flow • Staff in 20 countries / 25 languages • 500 Startups micro-funds (Canada, India, Thailand, Vietnam, Japan, Korea, Turkey, SE Asia, MENA, LatAm) • 50+ startup ecosystems events globally/year • Global Brand / Position as Most Active FinTech Investor • Referrals from angels, VCs, CVCs, Founders & LPs • FinTech Accelerator Applications • Batch 16: ~100 applicants • Batch 18: ~350 applicants • Batch 20: ~50 applicants (1 week)
- 52. / / Sample FI’s Affiliated with 500 FinTech
- 53. / / Platform for Transforming Financial Services $50-75M Early-Stage VC Fund 200-300 FinTech Startups Globally Disruptors & Enablers across financial services World Class Accelerator 500’s Traditional Accelerator Curriculum FinTech Team, Mentors, Curriculum & Partners Corporate Partner Program Portfolio, Community & Knowledge Access
- 54. / / Building your Innovation Capabilities with 500 FinTech Corporate Partnership LP Investment in 500 FinTech Fund Upside: Corporate FinTech Accelerator
- 55. / / 500 FinTech Corporate Partnerships Portfolio Access Global deal flow & insights Influence company selection with your solutions ‘orders’ Community Access Entrepreneurs, investors & peer relationships Leverage 500 Brand Equity Knowledge Access Strategic Advisory & Brainstorming Accelerator Apprenticeship & Corporate Acceleration Training
- 56. / / Strategic Benefits for Corporate Partners & LPs - DRAFT LP Investment (OR) <$2.5M $2.5M $5M $10M+ Annual Partnership Price (1-year commitment with no investment) $100K $125K $250K $500K Portfolio Access Quarterly Portfolio Newsletter & Reporting ✔ ✔ ✔ ✔ Custom Lists 4 6 12 1-to-1 Introductions 5 10 20 Accelerator Office Hours or Workshop (2x/year) OH-only OH-only OH-only Both Limited Exclusivity ✔ Community Access Invitations to Private FinTech Preview & Summit events 1 2 3 4 500 Startups Event Access & Discounts for LPs ✔ ✔ ✔ ✔ Invitations to participate in Geeks on a Plane programs 1 2 Complimentary Pre-Money Registrations 1 2 3 Distribute Product Discounts to Startups Portfolio Portfolio + Applicants Logo Exposure at FinTech Fund Events Silver Gold Platinum Knowledge Access 500 Insiders web-seminars delivered by 500 Partners & Staff ✔ ✔ ✔ ✔ 500 Startups Educational Program Discounts ✔ ✔ ✔ ✔ Secondment at Accelerator 2 weeks 4 weeks Private Conference Calls 1x/year 2x/year 3x/year 4x/year Executive Brainstorming Sessions 1x/year 2x/year
- 57. / / 500 FinTech LP Investment Opportunity Partnership Benefits + Financial Returns Co-investment Opportunities For LP prospectus, please contact mikes@500.co
- 58. / / Upside: Corporate FinTech Accelerator Your challenge(s) Your team 500’s targeted startups & techniques Deloitte’s innovation ‘sandbox’ 1-3 Proofs of Concept Build your Innovation Capabilities in just 6 months
- 59. / / Get #500STRONG Questions? Want to introduce Startups to 500 FinTech? Want to invest in our FinTech Fund or partner with us? Mike Sigal mikes@500.co Join the 500 Fintech Community and get our updates http://bit.ly/2c3Q9s6
Editor's Notes
- Talk to you about what’s all this fintech fuss is about Particularly for incumbent banks and insurance companies, why it’s urgent and how to build a business case to get your organization actively engaged Then some tips and hits for startups, incumbents and would be ecosystem builders to take advantage of what’s going on in financial services innovation
- What does that look like, well it only took 6 years after the emergence of streaming video for the video rental business to disappear.
- And lest you think regulated industries are immune, remember it only took about 5 years for skype to decimtate the internaltion telecommunications business
- Digital changes ALL customer expectations
- Industry transformations happen predictably
- Since 2011, Wells Fargo employees created 1.5 million bogus bank accounts and another half a million fake credit card accounts to meet sales quotas and earn incentives (The Wall Street Journal). Banking (and all business) depends on trust; the more stories like this people hear, the faster they will flee big old institutions and seek new alternatives. Facebook plays the censor.
- So today, there’s about 14K fintech startups that are cutting into different parts of the financial services industry It started with payments, then moved to lending, and now we’re seeing stuff from front office to the back office across retail, commercial, invesmtnet, weath, insurance…you name it. CB Insights and McKinsey
- And in general, their operating model is better.
- And lest yo think that these companies don’t have the resources, FinTech funding is up 10x in 5 years Source is data I pulled from cbinsights so there isn’t a source URL
- Finovate data wrong 8 lenders, 6 payments
- Source is data I pulled from cbinsights so there isn’t a source URL
- Industry transformations happen predictably
- -----OLD Recommended time: 2-3 minutes Transition to Dave: Dave will discuss our and Deloitte’s thesis on how corporates can best work with startups This graphic is in the background but it illustrates the point well – banks used to win by having the most expensive real estate in town and being a trusted place to go. Utilization of emerging technologies: While it may seem inherently obvious, successful FinTechs utilize the latest technologies (i.e. cloud, open source, data analytics, etc.) in ways that are directly linked to the core business.The winning formula for FinTech will be situations where technology truly is central to the business plan. Disintermediation: The ability of a FinTech company to perform a task or to deliver a service at a lower cost is a key factor to success. In the cases of marketplace lending or asset management, for example, tremendous opportunities exist because traditional businesses are conservative, enjoy strong profit margins, and are often beset by difficult economic conditions. Disaggregation: As a corollary to disintermediation, disaggregation is also a powerful success factor for Fin Tech companies. For example, peer-to-peer companies like Lending Club or Kickstarter break the traditional chain of delivery in such a way that they do not face the same regulatory constraints (e.g. SEC, Federal Reserve or local banking regulators, etc.) of the incumbents. Breaking the chain offers challengers the opportunity to focus on the most vulnerable or lucrative areas of an industry and incumbents have a difficult time in responding because their integrated operations cannot be so easily disentangled. Democratization: The application of technology makes it possible to deliver products and services that were previously only available to high tier clientele to a mass audience in a cost effective way. A great example exists in wealth management and investing, where educational tools and complex algorithms make it possible to deliver a wide range of services to a large group like never before. Being able to go down-market in a cost-effective way presents great opportunities in many fields. Customer Experience: It has become table stakes for consumers to receive solutions that are intuitive, personalized, and integrated across all delivery platforms, from desktop to mobile device. However, user experience is easier said than done and the difference between winners and losers in a particular offering will likely come down to the one that provides the best experience for the customer. In many cases, a powerful UX interaction can create a unique customer interaction that was previously unattainable and represents an opportunity for a Fin Tech entrant to not only meet but also beat the incumbents.
- FinTech businesses don’t scale quickly. If you look at all the successful and hyped verticals of fintech and compare the marketshare of those startups vs the incumbents, its almost laughabale. Add all the loans originated by marketplace loan companies (LendingClub, Sofi, Prosper, etc) and compare them to one of the US banks. It’s not even close. Add up all the assets of the roboadvisors (wealthfront, betterment, etc) and compare that to just Merrill Lynch — its not even close. There are even individual team FA’s that have more assets than the entire robo industry. Do the same in payments, exchanges and trading. I LOVE all these businesses, but they are so far from truly distrupting. Customer acquisition is hard to hack. FinTech companies broadly have some of the highest customer acquisition costs. Very few companies have been able to find a way to truly grow viral and many have found that the need to spend to acquire actually grows over time, unlike most industries that see CAC decline once scale is hit. This makes sense though. It’s really hard to convince a random person to hand over their bank info, DOB and personal info. No matter how great the product is, that’s still a tough sell. I once remember talking to an execuive at Bank of America who told me that BofA offers $500 referral fees for brokerage accounts, his bet was all the online investing sites (lendingclub to the robo) would end up there eventually. I think this will get better over time, but its an enormous challenge. The sale cycles are really long. Sales cycles in fintech are often long because they involve individuals’ finances, the movement of money or something involving a regulatory body. Large companies take their time deciding and in FinTech its even longer. This can kill a teams morale, deplete cash and I think also dramatically slow innovation. A long sales cycle hurts even more because it doesnt allow your product to get feedback quickly and hence iterate fast enough to maintain an edge. This makes being an investor very hard because you often times findyourself funding a second round before you’ve had REAL product feedback.
- So they build startup dealflow with tools such as accelerators, competitions, etc. What they forget is dealflow can’t be solved by spreading money around Partnering, Investing in, and acquiring startups takes different people, skills, processes than what corps have
- So they build startup dealflow with tools such as accelerators, competitions, etc. What they forget is dealflow can’t be solved by spreading money around Partnering, Investing in, and acquiring startups takes different people, skills, processes than what corps have
- Quarterly Driven Hard to engage business units
- We’re also the world’s most active early stage FinTech investor with 140 companies in 16 countries, inclding 2 unicorns and 8 centaurs. One of our early exits was Simple to BBVA who was also an investor in our fund.
- 2 unicorns, 7 centaurs
- And we operate as a platform to financial institutions and infrastructure providers to find relevant startups and accelerate their transformations to more effective innovators
- Should a sponsorship cost and the management fees be equal? No, management fees should be more expensive. 2.5M => 62500/year 5M = 125000 10M = 250000/year Co-investment rights
- It comes down to two ‘C’s’ Skyrocketing Compliance Costs and Changing Customer Behavior