Fintech funding isn’t slowing down anytime soon, according to Adam Carson, who heads up the West Coast fintech portfolio at Point72 Ventures. In fact, the fintech segment continues to draw in more investors, despite a relatively shaky economic outlook as the country rounds its ninth month of the COVID-19 pandemic. During this Premium Plus webinar, Carson sits down with <em>Bank Innovation</em> to discuss the hottest areas of fintech, where P72 is betting its money and other fintech funding trends. [toggle title="TRANSCRIPT"] <div class="transcript-scroll-box"> <i><span style="font-weight: 400;">The following is a transcript generated by AI technology that has been lightly edited but still contains errors.</span></i> Bianca Chan Hello, everyone. And thanks for joining us for this pulse of the industry event part of our new Premium Plus offering. I'm Bianca Chan, deputy editor at Bank innovation. Welcome everyone. Premium Plus is our newest service that offers exclusive webinars like this access to our conferences and startup demos, and we really hope you enjoy it. I am joined today by Adam Carson, a member of the point 72 ventures FinTech team, which is an early stage venture capital firm. Before his time at point 72. Adam worked most recently at JPMorgan Chase heading up the banks, digital and FinTech strategy and partnerships and before that held positions at Morgan Stanley Bain and company eBay. Today we're going to talk about fin tech and funding trends and exciting technologies catching the firm's eye. Welcome Adam. Adam Carson Thank you very much. Bianca Chan Yeah, as well as a sort of level set. Tell us about Point72 Ventures and maybe how the firm differentiates from other investors in the space. Adam Carson Sure, point 72 ventures as part of the broader point, 72 Asset Management fund. So there's a there's a large hedge fund, but inside that there's now a thriving ventures strategy. There's a few teams so you might see on our website or if you engage with us, there's a healthcare team now and AI team but the first team and the team that I spend my time on is the FinTech team. We're investing seed through series C, I guess we're pretty flexible in our mandate. And I think a few things that differentiate us. One, we're global in focus, there's not too many FinTech focused funds that are purely global, too. We we take subject matter expertise seriously, we all everyone on our team has sort of deep domain expert piece in financial services. We're playing flexible with our investment mandate. And so if we invest in this in the scene, or the A, we're able to follow investments with those companies up and continue to lead rounds, if we choose. And we spend a lot of time with our investments after we make them. So we're not just coming in with money, we really have a very conservative value creation strategy that includes expertise around go to market expertise around product around fundraising, and also business development. I would say the single biggest differentiator for points to ventures versus a lot of the industry is having sort of a history in corporate strategic venture, where the founders came from JP Morgan along with me, we realized that being able to understand sort of what the problems are, and start with the problem set versus starting with what startups are doing what and so we spend almost all of our time meeting with banks and fintechs and financial technology incumbents and lenders and asset management companies, trying to fundamentally understand what challenges they're facing, what their priorities are, and what problems they're trying to solve. And then we go find companies that are solving those problems. And it's that approach, I think that you know, brings the true differentiation of our venture fund. Bianca Chan Awesome. Yeah, perfect vantage point, you sit right in the middle and have a really deep look at what, what's driving the industry innovation today. I ran through a bit of your history. And as you said, most of your colleagues, if not all of your colleagues have a really deep experience in what they do. Can you tell us a little bit more about your life before point 72 ventures and how that impacts your work as an investor today? Adam Carson Sure, JPMorgan Chase is leading digital and FinTech strategy and partnerships, and it was mostly focused on the retail business of Chase, and so on whether it was mortgage or card or business banking, consumer banking, merchant services, I spent time trying to understand what was going on outside the firm. And that meant meeting with startups that were both trying to compete with chase that wanted to partner with chase that wanted to sell into Chase, and really bringing that knowledge back into the firm to try and help us set priorities, understand where we wanted to innovate. And then once we did decide to create a new product, or innovate in a specific area, then I helped find that partner and execute that sort of that partnership. And so I spent a long time meeting with companies like it was my job to meet companies, which wasn't, which was awesome working for a big bank. And a lot of companies wanted to meet Chase. And so over seven years, maybe I met 1000 companies. And, you know, in that first meeting, I got a really good sense from a founder of, do they know this space? Do they know what they're talking about? I got a good sense of, are they solving an important problem? Are they playing in an interesting space? And then lastly, I think I got a sense of, have they built a great customer experience, no matter who the end customer is? Whether it is the bank, or whether it is the sort of end consumer or small business? Have they built a great experience? And from those three factors I could get a good sense of, is this going to be a good company? Because even though we weren't directly investing, sometimes we did actually invest in the companies we partner with First and foremost, we're looking to partner. But we also wanted to pick winners, and we wanted to align ourselves with the best companies in the space. So I think that that's translated into venture investing pretty well. We are identifying problems, we are going to the market to see who's solving those problems. And then when we look at companies we are looking at, does the founder sort of have a great vision and know their space? Are they playing in an interesting space, which we've already validated? Do they have a great customer experience no matter what that is? And then we add sort of a fourth dimension being an investor, which is Does this make sense? Is it a good investment? Is it at the right valuation? Is the company raising the right amount of funding? What is our ownership all those things that good investors need to think about as well, but I think we start with the first three and we're flexible on the fourth. Mm hmm. Bianca Chan Cool. And so given where you sit at point 72 ventures now and your history in financial services and working with, you know, exciting technologies and fintechs Why is FinTech so hot right now and give us your current take and and also your perspective on the past decade of FinTech? Adam Carson Yeah, I think you know, The answer to why it's so hot and why it's not slowing down, it's only picking up speed is because Financial Services is such a massive industry globally. And it still hasn't fully been disrupted by digital and the internet. And so we're kind of still in the early innings of financial services being disrupted by digital, the Internet, and in other industries, whether it's media and entertainment, or whether it's media, sorry, whether it's like, even travel, or food, we're seeing this massive dislocation, but in financial services, you know, for regulation, because of customer behavior, because of the different generations that actually bank you know, and have their money with, with banks. We haven't seen that that sort of, as people were looking for the, you know, Uber to the taxis, like we didn't see that in financial services. But slowly, but surely, we're seeing a dramatic, a dramatic transformation of financial services to digital. So it actually if we just go back 10 years, it started with this first set of companies that say they did set say we're going to come out and kill the banks. And you can imagine that was the robo advisors like well, front, and that was the online lenders like Lending Club. And they had this notion that they were going to be the Uber of financial services, and the banks are all going to fall down. That didn't necessarily happen. But there's a lot of those direct to consumer bank competitors that, you know, have scaled and continue to scale. And, you know, we even see companies like PayPal and square in that world that have scaled, we see chime and Robin Hood, you know, we see Credit Karma. So, you know, hasn't the mission hasn't completely failed. On the other hand, it hasn't sort of overtaken Chase and Bank of America and wells that are still sort of these huge behemoths. So first wave, I'd say was disruption of financial services. The second wave, which just built on that was now Okay, banks need to transform. And now there's a set of companies that say we're gonna sell software to the banks to help them do what Lending Club and wealthfront and Credit Karma and all these companies do. And so that's where you see this notion of the the b2b, FinTech or the Enable the enablement, FinTech calm. And they have their they don't have financial services, business models, they have software business models, so their SAS models or their, you know, API platforms, but they're really not trying to disrupt the banks, they're trying to enable and help transform, that would be the second layer. I say, the third layer, which recently started maybe over the past three or four years, and sort of, again, layers on top of those first two layers is now this notion that there's an entire set of companies that are that are essentially enabling both non banks and technology companies to integrate financial services. And so it could be that they want to integrate investing, and they use a company like Dr. wealth to do that, or they want to integrate banking services, and they use a company we invested in like product fi to do that. But there's this whole notion that now FinTech is selling in is selling into software. And they're doing that via generally API platforms. And just like, you know, developer first tools, and so I would say you know, you got disruption of financial services, you got the enablement of bank transformation. And then you have this new layer of embedding financial services everywhere. And I don't know, we're trying to figure out what that fourth layer is going to be. But I think this third layer has another few years to ride before we see like this next big sort of layer of the platform. So that's a little view back and I honestly think, you know, there's been this question, are we in a bubble, you know, what's going, why is why is FinTech so hot? It's just so huge, and it'll continue to be hot. And the next 10 2030 years, we'll see massive changes in financial services. Bianca Chan Interesting. I on that roadmap of, you know, 10 2030 years, when do you think we're going to the banking industry is going to find that Uber for taxi, like, what are we going to have that actual disruption that, you know, everyone kind of talked about 10 years ago? Adam Carson I don't actually think we'll see that moment. Right. I think that the big banks will still be around and they will still have a lot of customers yet. We have the squares and the papers and the chimes and the Robin hoods and, you know, the soap eyes of the world that are, you know, the revolutes that, that continue to build and build. And they will continue. I think what's most interesting is not necessarily looking from a active user or a customer perspective where the big banks still rule. I think what's interesting is to look at it from a valuation perspective because that's more about investing. Looking at the forward cash flows of these companies and the future of these companies. And from that position, you know, if you add up alipay and PayPal and square, then it's probably bigger than JPMorgan and Wells Fargo and Citi and Bank of America. And I don't think that five years ago, anyone would have ever thought that. So I think that there's an interesting notion, the big banks aren't going away, maybe some of the small banks do continue to consolidate. And ultimately, we sort of lose the banks of the only ones playing here. And maybe there are hundreds of Neo banks, there are hundreds of different fintechs that all get to a million users, 3 million users, 5 million users over the next five years. And then there's a bunch of enabling technologies that also power the banks to continue to sort of upgrade their offerings and try and keep up with these new tech waves. So I don't think the banks topple they will continue to transform. And at some point, they're really going to just continue to need to increase their investment in digital to keep up with the startups in the technology companies. Bianca Chan Yeah, awesome. Well said, I'm so thinking about points me to what segments of FinTech are particularly exciting for you know, Adam Carson I think where we, you know, we play in a few specific spaces, you know, this enablement of bank transformation. And essentially, the disruption of incumbent financial technology is one place that just is near and dear to our heart. So, if it's mantle who's doing digital account opening, or fly bits, who knows digital personalization, or click switch, who is automating direct deposits, or russified, that's doing digital mortgage, all of these companies are software companies selling into the incumbent world, trying to sort of help them transform, you know, we have brace that does mortgage servicing. So we have extend that does commercial virtual cards. So there's, that's one big sweet spot that we absolutely plan. Amex helps with aggregation and digital banking technology. So I'd say that that's like one space if you're really comfortable. And that's that sort of second layer, that's that enabling the banks to transform software company layer. When it comes to disruption in financial services, we have made a few bets in that space. Some of those are outside the United States, where we find that there's some underserved markets, maybe not as strong of incumbent leaders, like here in the United States. And we've made some investments in Neo banks and direct to consumer FinTech offerings, such as tonic and credit giusto. And then that third layer of embedded finance, we're playing on both sides of that we have a bunch of small business software companies that are embedding financial services around the world, we have flair and sprout and basil and constantly say, and then we also have sort of the enabling platforms of product fi and drive wells that are powering some of those. So that's playing on both sides of that fence. I think we're playing in all of those spaces, but the one that is sort of least exciting to us is sort of the next consumer app that wants to do PFM plus neobank type stuff. Bianca Chan Right? Do you think that a lot of your interest in like, the heart of what you guys do live in that second level that you know, the enabling of the digital transformation at the banks, because it's just a bit more of a mature market, because it happened because it was, you know, the second layer, and now we're kind of in the face of this third layer? Adam Carson I think a lot of it actually comes to the fact that you can build real technology businesses there that have these recurring SAS revenues, that are building sales organizations, and that, you know, ultimately have a lot of potential acquirers or potentially, as we've seen, with names, I can see no, you know, and, and some of the public names, you know, could go public. So there's just like really strong software businesses being built at that layer with valuations that we can really understand, and also companies that we can help with our financial services network and with our sort of value creation efforts. One of the things that we've learned from our hedge fund, who spends a lot of time in the public markets is they know how to value pure play financial services companies. So whether you're a bank or a lender, we know how banks and lenders are valued. And there's often a mismatch between public market and private market valuations and some of those companies. And so it's hard for us to get behind some of these early stage direct to consumer evaluations that are more like high growth internet companies, when we know that at some point, they're likely to go public and someone's gonna say wait a second, what's the business model is this model is bank transactions and lending Oh, we know how to value that it's on book or they are lending. We know how to value lenders and so on. So we've seen that play out. And I think the big question is what's going to happen with the Neo banks in that space? Because we're seeing some pretty high valuations right now. So we feel really comfortable in that in a second layer, and in that third layer more so than down at the disruption of the banks, because of the business model. Bianca Chan Yeah, that makes sense. Um, so what advice do you have for founders looking to raise venture rounds in today's environment? And I guess, a prerequisite question would be, what is today's environment? I mean, obviously, it was a strange times, how does today's funding environment kind of differ from what you usually see? Adam Carson There's just a lot more FinTech investors out there, either pure play like point 72 ventures that have dedicated teams for FinTech and big FinTech portfolios. There's also a bunch of non FinTech investors that are looking at the space for the first time and saying we want to increase our exposure to financial services. So in some ways, no better time to raise money. In the world of FinTech. You know, there's two approaches, there's the try and generate a lot of buzz, try and get a big funding round, and then go build it, or go build it and go prove yourself and then try and raise the right amount of money based on where you are, and don't over fund your business. And I think, could probably see success in both worlds from from our perspective, we certainly like the ladder, which is like, funding a company appropriately through its lifecycle, and having them prove through milestones and different, like ways that they can spend that capital efficiently. We're, we, you know, we want to help them succeed. But we don't feel like throwing ridiculous amounts of money at companies pre product or pre revenue is necessarily the right thing to do as an investor. So I'd say My advice for founders is to go build your business and funded appropriately and prove that you can do what you say you're going to do, so that the next time you go out to raise money, he said, last time we went out, we asked for $5 million. And we said we were going to do this, and we did that. And now we're gonna ask for 10 or $15 million. And here's what we're gonna do. If you continue to build that track record of ask and execute, then sky's the limit, and you take a lot less risk, you take risk off the table for for investors, Bianca Chan right? versus like asking them build, Adam Carson ask and then hope you can deliver. Bianca Chan And what advice do you have for banks going through digital transformation? Now? Adam Carson I think banks are still generally holding on to their previous business models and ways of thinking. And still under investing in digital, whether it's the digital customer experience, or digital marketing or digital servicing, they're still being under invested compared to retail, and advisor based models. And so for those banks that want a little taste of the sort of market valuations of some of these fintechs, they really have to take digital seriously. The problem is that banks are not technology companies, inherently THEY HAVE IT departments, but they don't act like technology companies and that that there's the conundrum, right? It's different. If you're a big bank, you can slowly but surely transform and you have enough technology, a lot of the smaller banks are beholden to some of the legacy technology providers and court providers and digital banking, and they don't actually own any of their own stuff. So the advice is just to take digital seriously from the top down, if you don't understand it, learn about it. There are plenty of fintechs out there to help you transform. But ultimately, it's a mindset of we're not going to just keep doing stuff the old way, we really need to change and we're going to invest in that in that transformation. Bianca Chan And thinking back, you know, this past year, what has been the biggest lesson that points me to has taken away and that you're going to be, you know, thinking about in in 2021 and beyond? Adam Carson So, it's a good question. I think it's been a challenge for everyone. personally, professionally, you know, there's been a lot of challenges. And even those companies that have done well, in this time have struggled and gone through a pretty massive dislocation. You know, in that perspective, working with people who you like and who you trust is like really important, both as an investor working with, you know, the my colleagues and my my partners, but also with the companies. You know, one of our criteria, I guess, that I didn't mention, in terms of investing is like, do we like the founding team, like do we actually get along with them? Do we think that they're good people, we want to spend time with them outside of the venture business. And so I think that that's important that you just like Enjoy your job, there's going to be a lot of Rocky bumps in the road and twists and turns. But I think in the FinTech world, you also really got to love FinTech. There's just, if you don't love FinTech and don't want to make your FinTech your career dabbling in it is going to be difficult. So I think that those founders that, you know, dabbled might have trouble versus those that are deep in it or dedicated to Bianca Chan how much I'm curious how much weight does the cultural or like personal connection, have on your, you know, evaluation of whether you want to move forward with the company, if there's a company if there's a fin tech with like, a really great idea, but, you know, there's no a lot of chemistry between you and the founder, let's say, I mean, how much does that impact your decision? Adam Carson It doesn't ultimately end up being a decision, because we don't even get far enough in the process where we've gotten enough information to make a decision, we might come out of that meeting and say, well, they're building something great. That's not for us. We don't believe in the same things, or we don't like that style, or we don't like that personality. And that's where, you know, fundraising becomes like matchmaking in some ways, like, there's a lot of reasons why investors say no to a company, it could be a conflict with an existing portfolio, it could be the wrong stage, it could be the wrong, the wrong, you know, valuation or ownership hurdles, it could be partnerships, you know, how they view the founding team, or just personality. And so, you know, that's an art. There's no science to that. But it's pretty easy to tell when we meet companies, whether we, whether we like the founder, and the ones that don't pass that sort of that sniff test, just don't even make it far enough in our process where we're like, but we love the business. And we don't like that. We never get into those conversations, because this company is sort of just we move on and cut it before it gets there. Bianca Chan Right. Well, Adam, thank you so much for joining us during the screen plus webinar. Really appreciate spending time with you and all of our viewers here, please don't forget to catch our January webinar as well with Pam Perdue of Continuity. Adam Carson Thank you for having me. And if anyone wants to reach out, I'm available on LinkedIn. And we'd love to talk to people inside the banks, entrepreneurs, startups. Now anyone in the ecosystem would love to hear from you. </div> [/toggle]
