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- [00:21]
A
All right, we are ready to go. So we're live here on the Sutton Capital Web Show. This has been just a fun journey. And hey, I'm at my last episode for the year. So honored to wrap up the show for the year with Akash, with Augmentum vc. Excited to learn a little more about your story, your journey into venture capital. I always kind of start with that story because we all got in through our own way. And as you know, it's not a super clear path, very opaque. There's no degree in venture capital. Right. You can't go to a college and major in venture or private equity. So we all kind of have to find our own journey. So excited to talk about that. I think we can talk about fintech and emerging trends, the UK versus the US I think those are a couple things that we can talk about. So, you know, as we kind of just do this off the cuff, feel free to stimulate the discussion with your insights. And, you know, this is a small group, so feel free to jump in with questions, guys. We'll just try to keep it interactive. So. But maybe I can tee up the conversation with you just talking a little bit about your story. Where did you grow up? What did your parents do? And, you know, how did that educational journey kind of break into your professional journey with Augmentum vc?
- [01:41]
B
Absolutely. I see Rob in the audience, by the way. Hey, man. We know each other. Yeah. So to start, I was born in Germany to parents who had immigrated there from India. And I grew up in Germany for the first eight years of my life and we moved to Canada after that. My parents thought that it would be better for me to grow up in an English speaking, predominantly English speaking environment and the opportunities would be greater. So I lived in near Toronto for four years, got into online gaming quite a bit when I was in Canada, which really distracted me from school, as it does for a lot of kids, I think. And that carried over to when we moved to the UK. So I, I came to the UK in 2009. We've been living in the same part of London, in West London since then. And yeah, so I, I kind of. My parents, my mom was working in a bank in retail banking. My dad has held different roles and most recently he was, he's, he's a private hire cab driver. And there wasn't, there wasn't such a strong finance pedigree or any pedigree really, which was a steer from my parents in terms of they did this, so I should do this. So I was, I was, I Never felt much pressure to decide on anything or go down any specific path. So I guess maybe in a way that was a bad thing because then I was really not motivated. And so in my teens, I wasn't really. Yeah, along with the gaming, I wasn't really that focused at school. And then I. And then when I was about 15, I stopped playing. I stopped playing at least as much games online and I started to pay a bit more attention at school. I then quickly realized that I need to start thinking about viable career paths. Accounting seemed pretty safe and steady. I had no idea of tech. I had no idea of even like deep finance roles like investment banking or consulting. In fact, the city of London was completely foreign to me from where I was at least. So I thought I'd do accounting. I did an accounting and finance degree and then I. Halfway through that, I did a year at Deloitte in their audit practice, which pretty much was a good way for me to learn if I'd enjoy that. It was, it was enjoyable in some ways. Obviously the client exposure is amazing. It's a, it's a huge corporation, really smart people. But I think I felt that I still wanted to look for what else is out there. And what that also alerted me to is the vast array of opportunities that I hadn't thought about. So I left. I graduated and joined Barclays bank on a graduate scheme which was in the wealth management department or the, or the private bank is probably better to say. And I rotated into Barclays Ventures in my first six months. And at the time, Barclays Ventures was a newly formed corporate venture arm. And I have to say, like, at the beginning, I was completely ignorant about tech and vc and I would know as much as the layperson who's seen Silicon Valley. That's probably, I think, a fair, fair way to summarize where I was at the start. And then I had a lot of colleagues who were PVCs. I was, I was, I was doing market mapping, I was attending demo days. Slowly but surely I was beginning to learn more about the industry. And as that was happening, I. It just continued to feed my curiosity. So over the six months, I became quite convinced that this is a really cool. Firstly, to work in tech would be amazing either on the operating side or on the investing side. And on the investing side, rather than private equity, the VC side is really cool and a great place to learn. And I became quite convinced that that's what I wanted to do. Quickly realized that it's a very, very competitive industry. It's competitive everywhere, it's it's the same in Europe as it is in the US I think. And what may be different is that in the UK and in Europe, most of the VCs come from traditional investment banking, M and A and consulting backgrounds. There's far fewer ex operators here that are in VC than in the U.S. although that's changing. But I was reflecting on my gaps, I didn't have either of those and I was thinking, well, you know, don't give up. At least you should see what the, what other routes are out there, unconventional routes into the industry. And I'm sure everyone here and many, many people who try to get into the industry, they'll read all the right blogs, you know, John Gannon's blog and various other blogs that advise you to do this, this, this. Obviously one of the main tips that they give is reach out to funds, build relationships and just figure out a way to be in the good books of some vc. So when a role does come up, they think of you and they share it with you. So I did that. I basically cold emailed a lot of funds and said to them, I'll source deals for you, I'll do market research for you, I'll do it on weekends and I'll do it for free. Just let me impress you. That's the sort of, I guess, state we're in where if you really want to get in like you'll have to go the extra mile. And so obviously none of them took me up on that offer. Logistically it's really hard to accommodate someone who's not on the payroll. But I was very lucky that one of those funds that I contacted said that they'd be hiring for a full time role. I only became aware of that role because I had first reached out to them because they posted it on some obscure site that I'd never visit otherwise. So that happened and then I applied for that role. I was very lucky that just before I applied I had done the future of EC internship which you and I discussed, Joel, which had given me a really solid foundation of knowledge and some more practical skills. So I took that into the interview process. Thankfully I got it and then I started there last September. It's a small fund called the CAS Entrepreneurship Fund. It's a 10 million pound fund and primarily investing at Lay Seed. And I always intended for that to be a great place for me to learn and just get a crash course in vc. Eventually, of course I had the ambition to go to a bigger firm and really work on the best deals in London. And Europe. The pandemic happened in March, which really slowed down our deployment. I was able to work on one deal before I left, but I kind of got frustrated. I think the first few months of the pandemic, you sort of, everyone was just thinking, stay sane, take care of yourself. This is a crazy event. But then eventually the reality set in that this is going to be here for a while. So don't let that sort of temper you or stop you from being ambitious. So Augmentum fintech, we're hiring and I was open to at least seeing where I stood as a candidate. So I applied and then thankfully I got through the process in August and I joined the firm in October. And just a quick summary on Augmentum is we're investing at Series A and beyond in European Fintechs and we're the only listed fund that sector focused on fintech in Europe. So the listed structure confers a few benefits. The main one being we have a permanent capital vehicle so we don't have to harvest exits from the portfolio after five years finish. So it's been exciting to join this team because we've got some amazing investments in Onfiido Moniz Habito, some really big names and an excellent team that I'm learning a lot from and a really exciting future. So, yeah, that's where I am today. Two and a half years into my career and hopefully a longer career in vc.
- [09:58]
A
That's a really great story and I appreciate you sharing that. I think some of the people in this group might be interested in the interview process. So, you know, you, you had your own way of how you broke in with the, with the fortunate job opening. You know, you kind of looked at some of the internship programs that were out there. But then as far as the interview process, my experience is completely different. So I've had a role in VC where I just spent time with somebody for multiple hours and just got to know them and just started talking about a bunch of deals and, and that's how I got in. So I didn't do all these crazy financial tests or market mapping quizzes, but I just kind of got in through just some past deals that I did, but at Augmentum and maybe in the past couple internship programs because I think future VC is also selective. So are there any tips or advice that you would give as far as helping people put their best foot forward and be a strong candidate?
- [10:55]
B
Yeah. Yeah. So I guess to start, I would say later stage funds will definitely prioritize some sort of financial modeling, technical skills. I would say Series B plus funds would place value on that. So that's a big reason why they tend to hire ex investment bankers, because you have a set of financial statements that you should be able to analyze and it's arguably just as important, if not more than the team and all the other soft stuff that is more relevant at Seed. So with that I guess out of the way, I think I have Augmentum as a Series A plus fund. So that was somewhat important, but it wasn't as important as it would be for a pure growth stage fund. And my experience there was very similar to my experience when I was interviewing for Cast and also very similar to my experience interviewing for Future vc. The common thread to all of them was an expectation that you can talk confidently about certain sectors and certain companies that interest you and they are really looking for you to demonstrate through that. And it's usually open ended questions that they'll pose to get that out of you just how much depth there is in your thinking. So of course at Augmentum within Fintech, what was I interested in? That's what they were most looking to discover. And then was my answer sort of half baked or was it just really superficial or could I go a few layers deeper? If they had follow ups, that's something they were also looking to learn. And it was the same at CASA and Future vc, where with Future VC they asked me for a company that I'm really excited by. And I think everybody has probably seen this in the questions they're expected to answer on an application. But then there was several follow ups. Why, how do you see this to be different to the competition and so forth. So I guess what they're looking for in that context is just do you know, do you sort of breathe this or do you sort of just read up the night before and get ready on the day of the interview to like talk? Maybe like at a five at most you can talk about the topic for five minutes. Or is this something that you've been reading about literally every day like, like you read your Twitter feed but, but you're regular about it, you stick by it and you continue to have intrinsic interests and not like a forced interest. And if that is the case then that will always show in the depth of your answers. So I would say that is probably the thing that always used to give me somewhat of a, of an advantage if, and if anything it probably compensated for any other weaknesses. And then, and then I guess the other bits, I haven't had to do that much financial modeling there's always a case study. There's always a case study where they'll give you a pitch deck and they'll tell you to come back with something like an investment case. It may be in the word document format where it's more like an investment memo, or it may be in a PowerPoint format where it's like a slide deck of the high level variables with less granularity but still observations and analysis. So that's, that's like a given if you get to the later stages of the process.
- [14:15]
A
Yeah.
- [14:16]
B
And at the earlier stages it's usually teasing out through questions like what do you like about us? What of our portfolio investments would you not make? What investments would you recommend? How would you add value to the team? What would be the first thing you do? So it's all, it's definitely not as cookie cutter as like a corporate. Because these firms are looking to add maybe their fifth team member, their sixth team member. We're not talking about big teams here. So they're very, very selective and oftentimes they'd rather not hire anybody than just hire somebody for the sake of it. So they're really looking for somebody who can answer questions well about fit. Are you going to be a good fit with the team as a person in terms of how you work, but also will you bring something unique to the team? If the rest of the team already covers, let's say in the context of Augmentum, all the different subverticals, but maybe they don't have somebody that covers, I don't know, crypto or something which the team has somewhat less expertise in. Or at TAs if they don't have someone who's focused on SaaS or new distribution channels or something that the team doesn't exist have at that time, then if you bring that, then at least you're contributing something unique to the team. And that's something you should always try to work towards. Having some kind of alpha that you offer to the team that they don't already have and would be a compelling reason for them to hire you. I think that will always come through. Ideally if, if, if the interviewer is asking the right questions, which they usually are because they're looking for that in their next hire.
- [15:56]
A
And talk about being publicly listed. So is this like a company that's publicly listed on the stock exchange or it's just publicly listed on the fund databases? I just wanted to clarify that when you say publicly listed.
- [16:10]
B
Yeah, we are publicly listed on the stock exchange. So you can buy shares of Augmentum and yeah, the closest comparison is Draper Esprit who are also listed, but they're a generalist fund, so they invest in tech generally.
- [16:23]
A
Sure. And when you say it's. So you said it was more of an open ended fund. So it's kind of like a corporate VC where they don't need to raise capital, but it's just kind of off the balance sheet.
- [16:32]
B
Is that so? It is, yeah, it's off the balance sheet and we raise periodically. So we raised when we first listed in 2018, we raised twice since then. And then we'll, we'll continue to raise as our, as we deploy off the balance sheet. And then of course any exits are recycled back onto the balance sheet to be deployed again.
- [16:55]
A
So I guess that would be more of us like American waterfall versus European. Right. Because European is based on the whole fund exploration. Right. So it's kind of. So you're a Europe UK based fund, but following American waterfall and then also structured kind of like a corporate vc.
- [17:14]
B
Yeah, somewhat like that. So it's definitely. We're not raising separate funds each time. So that's the benefit, I guess. And the companies benefit from knowing that we don't. If we're not unlike other funds maybe who are in their last two, three years of their first fund and then maybe feeling like they have to exit some assets. We don't have that.
- [17:36]
A
Yeah, no, that's great. And then the difference between that and Barclays, I would say is you're still acting like one of the early stage funds, probably from Silicon Valley or the tech ecosystems in London, versus being more of a corporate VC where there's probably a lot of bureaucracy because I was supporting a couple larger corporate VCs in the past. And the feedback and experience I face is a lot of times you have to go through five levels of leadership. You got to work with the corporate finance department to kind of, you know, approve any investments. You know, generally speaking, how, how is kind of the approval process and investment committee process when you guys are trying to make decisions on, on deals.
- [18:22]
B
Yeah. So I can contrast those. So I think at Barclays it's as you say, of course, more bureaucratic. There's more, more approvals you have to get. I think generally when you're investing as a big bank, of course there's reputational risk compliance and just a lot more stakeholders that you need to get consent from Ad Augmentum. And I think like many funds, we have a lean process because we have to have one. So many deals get closed really quickly. So if a deal is, if you're in a live round situation, you can't have something in limbo for too long because a round will close by the time you're back from holiday or until, by the time you arranged the subsequent IC meeting. So we have a fairly lean process. We have weekly IC meetings at which we discuss the deals that we're looking at. And then if we, you know, we come to, we have really healthy debate and within that weekly meeting we would often, you know, try to come up with some kind of resolution, next steps. And, and obviously when we're cognizant that a round deadline is approaching, then we will even have sometimes, you know, another meeting if we need to, to make sure that we've come to some kind of conclusion. And you know, as a team, at least in the two months I've been here, I've observed that we have healthy debate. Not everyone has to think the same way. It's all about, you know, having diversity of views and having a robust discussion on what's a good opportunity and what isn't.
- [19:57]
A
Sure. And for me, thinking about the investment thesis, I look at it almost like a living organism and I think for me my opinions have changed and evolved over time. So I really liked your comment about just having a deep passion and sector knowledge that just kind of grows and evolves. And I think you have to look at tons of deals, I guess. Do you agree with that point too, that it changes? And if so, you know, do you have any examples of a time where maybe you thought a certain way about fintech or a certain sector of fintech, but then maybe you look at two or three other companies and that changed or evolved. Any examples if you have them? I know it's an off the fly question, but.
- [20:36]
B
No, no, no, it's, I mean, I should, I should definitely feel prepared to talk about that now? I think absolutely that's the case because, you know, the quickest, the quickest time to. The quickest way to. Sorry, I Slack notification no. 1 people. I think the quickest way to educate yourself on a space is to, is to, is to speak to founders who are building in that, in that market at the early stage. Because ideally, if you're speaking to the better founders in that market, they are domain experts who can pretty much give you a narrative on how that industry has evolved to where it is today, what's wrong with it, and therefore why the problem they're going after is such a big opportunity. So it's, it's, it's like it's like finding ideally, you know, some one one of the handful of people who is most qualified to talk about a specific subject and then telling you for 45 minutes as they pitch you what's wrong and what, what's, what could be, what could be done about it and therefore why it's a good investment. So speaking to founders definitely can invalidate some of your existing convictions about a space which you might have formed because of reading or podcasts or whatever information you've consumed over time, which is all static and always the backward looking. Yeah, so I would say, I mean I can, I can, of course, just speaking for myself, I think insurance, you know, on the face of it, it's, it's very similar in the us, Europe and everywhere that as it is, the NPS score for the insurance industry is terrible. Our experience with it isn't great. We know that when we have to go claim, make a claim against our insurers, it's usually a very fraught process and it's inconvenient. It's just not something which you associate with speed and efficiency and pleasure and satisfaction. And you take that and just realize how much of an opportunity this could be. Given the total size of the insurance industry globally and as a consumer proposition, you would easily think that, wow, if you come up with a really trendy, digital first completely ground up, infrastructure rebuild type proposition with no legacy infrastructure that relies on modern architectures, modern tech, you would have something which is going to infinitely improve on the existing solutions, 10 times better product. And therefore you should become, I guess like what Tesla has done to the car market, a big company. And that was something which is very easy to believe. So if you take that as a proposition or a conviction I had, and then you look at some of the companies like Lemonade who have listed and Roots listed recently, and some of the more mature insurance companies, insurtechs that are in the market, you will easily find that there is a big problem when it comes to actually taking on some of these incumbents and that is that acquiring customers profitably is very difficult. So Geico and some of the big insurers in America, they spend about $150 on keywords. So if you are searching, I don't know, auto insurance or some of the main words you would associate with insurance, these big insurers have paid a lot of money to make sure that they appear first. And as a new insurer, it's very hard to go up against that unless you have deep wallets and basically huge investors backing you. Until you can build some kind of brand yourself. So there's huge capital barriers to entry. But also separately, once you get to the scale where you've been able to really sell and acquire customers and really sell them a line of insurance, that's typically not a big enough market to actually become a venture scale business. And then you have to enter and sell other lines of insurance, but you'll often find that your customers are not, as they're not taking up that other line of insurance you're trying to sell. So Lemonade has tried to sell other lines of insurance to its customers, but actually they've only been able to cross sell a very small proportion of their customers. So, you know, a bit like the Neo banks, it's very easy to think that the Neo insurers are clearly going to take over the market and all the millennials and younger people will of course gravitate towards them and in time the older people will as well. But it's just not that easy. And actually that skepticism or cynicism that I should exercise is, and we should all exercise is quite easy to lose. When you just think of first principles, that this seems so big, this seems so broken. Therefore surely it would be a huge and easy problem to solve, but actually it's not. And actually acquiring customers profitably is hard. Having the capital on your balance sheets, hard. So I could go on, but I think that's something where I've definitely evolved in my thinking.
- [26:02]
A
Yeah, I got a story to piggyback off of that too. I mean, there was a couple insurtech companies that I looked at. And those companies, you could literally hover over a claim and it would automatically issue the claim in real time. And I looked at the market size, looked at the problem it was solving, I even back calculated how much cost savings you would offer to like the insurers and the carriers. And then after talking to some of the incumbent insurers, they just don't care. It's like, hey, great, you know, you replaced humans and now we don't need humans to do claims, but that's like on the lowest priority of like their stack of priorities. And they just don't care because they just, they, you know, they're okay with just paying for humans and making the errors because it just doesn't really put a dent in their business. But like, you know, first principles, like innovation, like digital transformation, you would think kind of like you said, off the surface. Exactly. Wow, this is going to change the world. But I think talking to the customers is like a Huge thing, especially the incumbents. So totally agree with that. And you know, and then, you know, we made that decision and we ended up being right after kind of validating it. So that's a really good example. What are some other trends that you're seeing at a macro level when it comes to fintech? I know I was on a fintech panel a couple weeks ago and just unpacking fintech, we pulled up a diagram that had almost like 80 different sectors and components and sub components. So just how do you tackle fintech as a whole? And then what are some of the maybe sub sectors or sub components that you're maybe focusing on and what are the trends?
- [27:46]
B
Yeah, for sure. So I guess to start at a really macro level, I saw a tweet from Shield Monot, which if you guys don't know, you should definitely follow him. He's the general partner at Better Tomorrow Ventures who just raised a $75 million fund, very active on Twitter and is a really good thinker. He posted a tweet saying basically the most highly valued private companies in different countries. So he went through China, Latin America, the us, Europe and I think other parts of Asia as well. So I think he hit about 6, 7 different regions. In each of those, the most highly valued private company was a fintech. So Klarna in Europe, in Latam, it's nubank in China, it's AMP Financial in North America, of course it's Stripe. And then there's others. So I think it's very easy to forget that actually fintech is probably the most successful example of tech, basically disrupting incumbents and it remains the most lucrative opportunity in investing, clearly. So I guess to start there is good and I guess what we've seen this year, and CB Insights pulled out some really good data on this, is that a lot of funding is now going towards later stage fintechs. So the ecosystem has matured quite a bit where there's a huge number of fintechs raising 100 million plus rounds, mega rounds. And it just shows you that one companies are staying private longer, they're taking longer to go to the public markets because there is just an abundance of capital out there. And then secondly that we've seen such a maturity in the ecosystem that you have a huge number of fintechs at that later stage raising these healthy rounds at probably valuations in at least a single digit billions, if not double digit billions, which is another important trend to observe. And then at the same time we're still seeing, I think 2018 was the peak of this, but we're still seeing a really robust early stage ecosystem with the formation of new fintechs at seed and pre seed and Series A. So I think that's still fairly healthy. But I think 2018 is when we really crested and it's slightly come down a bit, but still beyond any levels in the early 2000 and tens. So I guess those are some macro tailwinds. And then what's really exciting is something which I still am educating myself on, but decentralized finance is something definitely that we should all look out for. Because if you take the thesis that technology and then software has disrupted financial services today in fairly incremental ways in some ways, but because the opportunity is so huge, even though incremental disruptions are huge opportunities, then decentralized finance is not incremental at all. It's revolutionary because it's completely displacing or in many ways it's displacing various parts of the financial services stack and it's removing intermediaries. And you're able to borrow, lend, invest, pay, insure and carry out various other financial services on these protocols, primarily on the Ethereum blockchain, without any intermediary, without the fees that those intermediaries would take. And we've seen it go from a billion dollars in value locked on DEFI protocols at the start of this year to 15 billion today and over a million users globally. So I think it's, I mean I shouldn't compare it to what Bitcoin was like in its early days, or I shouldn't compare it to any other precedent, but it's definitely feeling like it's the early days of something which could really take off from here. And this year is definitely where it's gotten more attention. And then another really I think quite widely observed trend is embedded finance. So the, so the idea that financial services and products could be embedded into the user journeys you have with other brands that you wouldn't actually associate with financial services. So I guess if you take, I like to give this example because it's not that often cited. So I like to think it's somewhat original. Strava, you know, you use Strava for running, you go run cycle and primarily you associate it with just tracking your performance and your fitness. But actually at some point it would be very easy for them to embed some kind of lending or some kind of financial services product into their platform because they've built such a trusted relationship with you. You could borrow on Strava just to finance maybe A purchase of a certain smartwatch or a certain fitness equipment item, whatever it may be. These brands and others have built such strong relationships with their customers now like Uber and with the Uber wallet experiment, which has failed. But it doesn't invalidate the concept that they could easily see the value in selling financial services even as a cost center, just to improve stickiness and retention. So some will see it as a way to monetize you as a customer more. And I think you know, when it comes to that debate, a friend of mine, he's writing a very good blog post and I'll definitely circulate that when it's done. But he's writing a blog post on if your goal is retention, then maybe payments is better or a certain financial services product is better. If your goal is monetization, then a certain financial services product is better. And then there could be other goals you have. And based on that you can decide what financial services product to embed. But what's interesting from an investor standpoint is that the guys who will be providing the banking as a service or these other financial services products are the startups that are emerging and are interesting to invest in because this is a huge market opportunity. If we see brands and non fintechs and fintech brands take up this trend, then you'd have, you know, billions in value to be created for some of these, some of these startups to step into and provide. And I think in Europe we're already seeing quite a few early stage players. In the US obviously there's bond unit just raised some funding move is another one. So it's very easy to say that this is like a logical first principles conclusion you can come to that embedded finance is here to come. But even then it's not a foregone conclusion because there's a lot of hurdles to this. And Stripe has recently announced treasury which will definitely threaten some of those players. And you could easily see Goldman Sachs with their recent announcement that they're making their APIs more developer friendly also stepping in. So it's easy to say that these startups are the ones who step up, but that's not at all, you know, a foregone conclusion.
- [35:16]
A
Can you clarify what treasury is the new product that Stripe is offering?
- [35:21]
B
So treasury, from what I understand is a, essentially if you, their partner at the moment with Shopify and Treasury will allow Shopify to offer their merchants financial services products such as a checking account, such as lending. So treasury is a banking as a service solution where Stripe is sort of an intermediary that's partnered with Goldman Sachs, Barclays, Citi in the back end. And Stripe is providing the API toolkit that their customers, I.e. platforms like Shopify, can call upon to then get these financial services. And at least what I understand Stripe's role in this is that they are the ones who built the plumbing and the infrastructure to plug into these banks. And they've made it so easy to plug into those APIs that you as a brand or platform can just plug into treasury and say, I want to call. You can do an API call to say, Goldman Sachs should create a bank account for my customer. And Stripe are the ones like their PSP service who are going to make that so easy to do that you just don't have as a headache anymore. So that's what they're doing. But it's primarily for platforms at the moment like a Shopify or like an Etsy. But in time I'm sure they'll expand.
- [36:42]
A
Is it so that Etsy can offer like a loyalty debit card plus a credit card as well?
- [36:49]
B
Exactly. I'm not sure yet if credit cards are included, but like a debit card is definitely included.
- [36:55]
A
That's huge. That's huge because so over here, you know, if you go to Macy's, it's Christmas time. If you open up a debit card or a credit card with Macy's, a lot of times Macy's in return, they give you these massive discounts. So I think you can kind of get the loyalty you can give them. Hey, sign up for our credit card. We'll give you 50% off on your next purchase. That'll probably just make a bunch of people load a bunch of money in that account. And people probably won't move it out because the loyal shop. But especially if you can give those customers the savings, that makes it super sticky. I saw myself doing this. I mean, there was when I was like back in college, like Express used to do this crazy thing where if you spend $100, they give you like $50 free. So I'd end up spending like $250 because the savings was so massive, but I ended up doing it on the customer card. So I think that's, that's a pretty big innovation because especially these brands, they can kind of do the same thing that like big department stores are doing. So.
- [37:53]
B
Exactly, exactly. So it's definitely, it's definitely advantageous in many ways for them.
- [37:59]
A
That's great. And then as far as the ecosystem in the US versus the UK and just Europe, I think that would Be good education from you to kind of just learn the general difference that you see with maybe Europe versus the UK and then just the whole European region versus America just because we're on the other side of the pond, most of us.
- [38:25]
B
Yeah. I'll do my best to sort of comment, of course, on Europe and then I'll try to guess, I guess at what the US landscape is like based on my reading and how they compare. So I'd say, I guess I'd start with the first comparison I made earlier, which is that in the US you have a lot more operators on the investing side. And I do think that that's something that's almost part of the, part of a cycle really that an ecosystem goes through. And in time it got to that point, whereas maybe at the beginning it was a lot of bankers and consultants like we have here. So I'm confident that we'll follow in the footsteps of the west coast in that regard. And so that's definitely one difference. And, and obviously the biggest difference, the elephant in the room, is that there's just way more money in the US and the prices are higher. So, you know, there was a really good tweet I saw from Harry Stubbings a few months ago where he said he looked at two companies, two SaaS businesses, very similar products, identical traction, more or less and similar growth rates, similar forecast, almost an apples to apples comparison. And one was a UK based company, was a US One was a US based company and the US based company was valued at like five times multiple of the UK based company. I don't remember the exact number, but it was much higher. So, you know, one thing you're definitely, you're definitely, you'd observe if you, if you were to visit both ecosystems is that the prices are still much lower here. Although that's, that's definitely changing. The prices are going up and the introduction of US VCS here like Sequoia and Bessemer is going to only drive that up further. But the pricing discrepancy is huge because I think if you are a European company and you managed to raise your seat in Series A from European investors, but you're at this fortunate point where you can expand to the U.S. prior to your Series B, it's very, it's very possible that you could raise your series B from US VCs and get a much higher price than if you were raising just from European VCs. In fact, you wouldn't even have to expand to the us. You could just, you could just sort of make sure that you solicit some interest from US VCs and sort of really, you know, do good job of the whole sort of the dark arts of fundraising and make sure you really make sure word spreads. And US VCS will pay much more than European VCs will. There is definitely, I think, I mean, everyone is starting to see the writing on the wall that pricing is going up because there's just a lot more money and it's just a supply demand issue. There's only a few good companies, everyone's chasing the same ones, especially a growth at Series A and beyond. And so if you're going to be, I guess, intransigent and not really be open to flexibility on pricing, then it's possible that you miss out on a lot of good deals. And so that's definitely one other thing. And then I think in terms of sectors as well, Europe is definitely the leader in fintech. I believe so. And I think it's also a widely held belief because of the regulations that we have here, the friendly environment, in terms of a sandbox and being able to innovate without too much risk of failure, the abundance of capital for fintech. And I think the US is, of course, you know, has produced probably just as many companies and just as much and more. More unicorns, probably. But in terms of per capita and sort of pound for pounds pound, you would say Europe is doing better there. And then the other main difference is, of course, I think there's two other main differences I'll touch on. One is regulation, which in the fintech context has been very positive, but in many other ways it can maybe be somewhat harder to scale a company across Europe, because if you're expanding to different regions in Europe, oftentimes you're encountering new regulations. In the US you have federal laws and federal regulations and it's not that difficult or it's easier to expand across the US than it is to expand across the European continent. And then finally, this is a point that I've heard recently and I've seen anecdotal evidence of, is that in Europe, maybe we don't champion our companies as much as the US does, especially not as much as China does, where maybe we criticize some of our companies for not being profitable enough early, or whether they have high turn or whether they have some bad practices. Whereas in the US obviously you saw Coinbase, you've seen many companies that have had some pretty big controversies, but that doesn't mean that the media narrative suddenly goes totally against them.
- [43:34]
A
Sure. So you think there's a difference in the media coverage with the UK and US as far as how they stories about the company?
- [43:44]
B
At least, at least somewhat. I mean, I wouldn't say it's dramatic, but there's definitely a slightly more critical lens here. And in the US maybe it's slightly, I wouldn't say it's, it's not at all critical, but it's a little bit less political.
- [43:58]
A
Yeah, that's really interesting. Let me see what other questions I have. So what do you think? You know, you talked about Defi, you talked about native digitally, native finance. Any other just trends that you think are going to be emerging in the next couple of years? I still think we need to figure out payments, you know, just to send a payment to somebody overseas. I feel like the fees are crazy. And it's still a challenge, you know, with it being 2020. And I know this because I run a company and I take payments internationally and I have to be able to have like four to five different channels. But anything else in investment management, financial services, do you cover those sectors too or is it mainly just kind of payments and what are the general macro sectors that you cover and what you're excited about?
- [44:50]
B
Yeah, I think definitely we look at payments and payments and insurance are like, I guess the ones I tend to top the most because we don't have exposure to those yet and we'd like some. And as you say, I think it's clear that those are both still ripe with problems and payments. I would definitely just add exactly to what you say, that if you're a business in, I don't know, the north of England, near Manchester, let's take some obscure place you're banking with a local co op and say for some odd reason you want to send money to some obscure part of Nigeria or even a lesser known part, a lesser known country in Africa that doesn't also have a big bank that has international connections, then the correspondent banking system is actually really, really lengthy and extractive in terms of the fees that they add. So cross border payments completely is one of the main issues that still exist today. And it's actually sometimes hard to fathom exactly how that hasn't been solved for yet because as a business then it makes it harder to manage your cash flow. It makes it harder to manage working capital if you're an international business. So that's definitely something which we're trying to educate ourselves on and continue to look for opportunities. We just made an investment in vault banking and that is quite exciting because you may. In Europe we have legislation called Payment Services Directive and the second version of that was released in 2017 and it came into effect in 2018. And what it does is it forces banks to make their APIs open to third parties. And open banking, which is the trend that's emerged since then, has a lot of use cases. One of them is of course, things like account aggregation. On an app like Revolut, you can aggregate all your bank accounts, get one financial dashboard, budget, invest out of there and just have like a really holistic view of all your bank accounts because now all that information isn't siloed any longer. But another use case which is really exciting and actually has huge potential is called Account to Account Payments. So if you take any online shopping you've done probably recently, we're still using Visa, MasterCard, Rails, so we're still paying with cards. Usually we're paying with cards entering our card details every time, unless you're shopping on Amazon and you save them. But every time you go into a new merchant, you're entering your card details for the first time and you're incurring fees. You don't know it, but you are incurring some small fees. The merchant is receiving their money usually three days later, not instantly, unlike the money that's instantly debited from your account. And there's many other issues in terms of how that process works out. So account to accounts payments. What it allows is for your money to be for you to make a payment directly from your bank account into that merchant's bank account instead of it going through Visa, MasterCard, Rails. So instead of Visa and MasterCard being an intermediary, speaking from the issuing bank to the acquiring bank, so the issuing bank of your card to the acquiring bank of the merchant, you would pay directly from your Barclays account to that merchant's HSBC account and it would be real time settlement, there'd be no fees or less fees and the merchant will receive the money straight away. So that's the use case for open banking that's very exciting. And we backed vaults. Who's a company doing that? And then there's a lot of innovation definitely still to be had around investment management and robo advisory. And essentially if you look at the market of people in the UK, let's say, who are under 100k of household income, most of them aren't investing yet, they're still holding their money in savings. There's a huge segment of the population which isn't making their money work hard enough. And Nutmeg and others have tried to convert some of those people to investors, but there's been a messaging problem, there's been a communication problem. They've just not been able to crack this nut. But I think there's still a huge swath of the population in many Western countries that can be convinced to take a longer term approach to investing. Not like the Robinhood types, but actually making your money work harder. You could make in a 5, 10 year horizon much more by putting your money into an ETF than you would if you put it into savings account. So that's something which I think is definitely still there to be a problem to be solved. I think the robo advisors have done an okay job, but they can definitely improve on that. And I think we, I mean we cover every sector of fintech so it's almost hard to get good coverage on everything. But you know, supply chain financing, of course, insurance, but also even innovative lending propositions, innovative regtech propositions of financial services infrastructure. So yeah, I mean there's still so much there to be had. And really if you look at the, we have a really good stat that we tend to cite which is 91% of financial services revenue still goes to incumbents. So there's still a huge, huge opportunity there.
- [50:29]
A
Sure. Well, we got around six minutes left. This was amazing. I've got two really quick rapid fire questions and then we'll open it up for the audience if there is any remaining questions. One is just gestures. Like I've been thinking about this a lot with COVID and just kind of making payments easier. When you go to Japan you can just hover your phone over any kind of terminal and process your payments. Why do you think we're not doing that in the other countries? You know, it's not in the US yet. They have Amazon go right where you can just kind of walk in and jump out. But do you see retail incorporating just more seamless gestures? And what do you think the friction points are? I'm thinking probably the legacy tech. So quick answer for that one. If you think hovers or gestures could improve payments or retail. And if you see that happening. And then the final question I always ask every speaker is any piece of advice from a mentor or from somebody that you look up to that you want to leave with us, that would be great too. We'll go through those and then I'll open it up.
- [51:36]
B
Yeah, for sure. I'm just pulling up some notes because I was reading about this in the context of the US contactless payments. So Something which is definitely quite, I found it quite hard to believe this, but Contactless payments in 2018 represented 3% of transactions in the US versus 64% in the UK and 96% in South Korea. So I think up until Covid, it was astonishing that the US was so far behind. But that has jumped up dramatically since COVID So I think that number has gone up quite a bit. And now visa say 50% of their consumers wouldn't shop at a store that doesn't have touchless checkout. So I think what you've said is basically being felt by many, many people across the us. So why that's the case, it's very hard for me. I mean one, at a very, very high level macro observation. The Chinese population came online digitally native. They came online on their phones, whereas we have come online with, on our computers. And in the west we've come online incrementally, whereas they came onto the Internet entirely on their phones. And they have a trust with their mobile phones that we maybe as a population in the west don't really have. And we're developing that for sure. But they're very happy to use biometrics and use QR codes for everything and they, and they trust. And obviously there's a sense of, a sense of a lack of alternatives where, you know, you either use a certain payout option, pay, pay option, or you don't really pay at all. And some, I think it's gotten to that point where the Chinese population is really obedient and I think they'll follow whatever they're presented with. Whereas in the West, I think we've always been slower in adopting certain trends and it has to be thrust upon us for us to really take up new methods. But with this contactless payment method trend, it's, it's promising. I think that's the sort of thing which we're also seeing in crypto with more adoption of Bitcoin. And I don't think it's a technology problem or an infrastructure problem, it's more of a problem when it comes to the attitudes of the population. And the second question on advice from a mentor. Yeah, I think this is something which I really liked. So I think he got it from a book. I should credit the book. I think it was Atomic Habits, maybe that book. Yeah. So you can tell me if this is the case. So he was telling me about this idea that if you begin to associate your work with your identity, it can really change the way you think about your day to day life because it's one. Let's say you don't think that way and prior to coming across this idea, you wake up every day you do your work, you think of as a 9 to 5 and then there's a clear segmentation between work and your personal life and it's almost like you turn, you take that work hat off after 5pm and suddenly you become a different person and you're entire entire way of thinking is different during the day than in the evening. Now if you then take this idea and apply it, if you're a VC or if you're a founder or if you're a fireman, anything, if you think about your day and your identity as your occupation, then it just changes the way you go about your day to day life because you don't wake up thinking when you're going for a run. Why am I still thinking about work? Why am I still thinking about deals? You don't really begin to associate that with like this silo in your life. It's a part of who you are. It's like being an athlete. If you're an athlete, you're not bothered, you're not getting pissed off. If on a holiday you go for a run, like it's because you enjoy it and more than that it's a part of your all year round preparation and it's not at all something that you find a hindrance. Ideally you're in a line of work that you actually feel that way. And if you're on holiday as a VC and you see a peloton bike and you're like, wow, this is a great product, maybe I should invest in this company. That's also not a bad thing. I mean that's the type of situation you want to be in. I give that example because Lee Fixel at Tiger Global, he's a wonderful investor and people should definitely check him out. He's recently raised his own fund and it's the, it's the biggest debut fund of all time. For, for, yeah, a debut fund manager. But he was at Tiger Global and he was on holiday and he saw Peloton, thought it was great, went to I think it's John Foley and pitched him on why he thought it was a great product. He's not a thought leader, he's not on Twitter or social media. So Leaf Excel is all about research and preparation and then he won that deal and it's been a great deal for Tiger Global and you know, it just shows you that I think if you begin to associate your work with your Identity. It can really change the way you think about your day to day life.
- [56:54]
A
Yeah, that's amazing advice and that's a really good book actually. So there's, there's tons of nuggets, I remember that chapter. But there's tons of nuggets in that book that are really helpful because I think, you know, a lot of things that I tell people is like the VC, it's not really a 9 to 5 job. Right. It's more of a lifestyle. You know, you're. I'm here with my family on Christmas break. But you know, I just love doing this stuff and I feel weird if I don't do it. So I think that's a good point. You know, just really associating, you know, your Persona, your DNA with your work. One more nugget I'll add and then I'll open it up is, you know, I think Jeff Bezos likes to use the term work life harmony versus work life balance because you can still check email on the weekend with your family because you just truly love what you do and you're, and you're really emotionally invested and it just becomes part of your DNA. It's a harmonious way of doing your work. And maybe there's an hour or two in the morning where you just don't do any work because you have some free time. But totally resonate with that. And I know we're a minute over so I'll take like maybe one or two questions and I know you gotta run, so I appreciate you sticking around. Do you have like a minute, Akash?
- [58:01]
B
Yeah, yeah, I'm good.
- [58:02]
A
Okay, cool. Anybody have any questions, feel free to shout them out.
- [58:06]
C
Hey Akash, good to see you again but really appreciate you talking about it. You know, I just want to ask a little bit about the open banking initiative because when I was working in fintech consumer market space, GS open banking markets, not only in the us Right. It operates in uk. So I was exposed to a lot of open banking like regulatory stuff at the sandbox that you mentioned. It's a very good initiative by the European regulatory Authority. So I just want to get your perspective. What will be the next step in terms of the open banking initiative? I heard that you mentioned about the API, how stripe is like partnering. Right. So Goldman recently explored the transaction banking which is essentially the treasury services that you were mentioning earlier. So I just want to get a feel of like what will open banking initiative future will be and how it will impact the ecosystem on a global level.
- [58:55]
B
Yeah, yeah. So I think globally I mean, definitely Europe and the US are leading on this front. I don't know yet if the rest of Asia is actually catching up, but they're definitely behind. So from a European centric lens, the use cases we've seen include income verification, identity verification, account verification, and there's different users of those different things. So identity verification could be be a lender that's using it. Account verification is a number of anyone who's doing KYC on you and would want to know if you are the owner of that bank account would benefit from using open banking. Open banking payments, which is what Vault is doing. I think you're seeing some trading and investment platforms like Trading212 and Revolut even and Nutmeg and others use open banking to make fund transfers directly from your bank account and make it easier. I mean, Coinbase, for example, for people who are doing investing in crypto, the process is much easier now because they can just take that money from your account very seamlessly as opposed to before when you had to sort of enter card details and make a card payment from your bank account to these investment platforms. So that's just, I think these are not like huge groundbreaking use cases. I think, I think some of the bigger use cases, which if you step back we could call open finance, are things like a consolidated pension dashboard. So I've moved around jobs twice now. I have pension pots with each of those employers and it's likely that in the coming years I'll probably move jobs a few times more and everyone will. I think it's more common now in our generation. We accumulate pension pots along the way. But it's too much of a hassle to call up our former employers and say I'd like to consolidate, I'd like a dashboard and so forth. So like that you could have an open finance type initiative where all your pension pots are consolidated, so that's pensions. And then you could have even investment accounts be consolidated. If you're investing, let's say you're lucky enough to be somewhat of a high net worth individual where you have investments in different asset classes across different platforms. You could have a day where all your investment accounts, separately managed accounts, which is of course more common in the US are all consolidated in one place. And in Europe we don't have separately managed accounts and so we don't even get as bespoke portfolios. But at least if you're investing in an ETF through here and you're doing an investment in an alternative asset like I don't know Paintings, which is. It's becoming more common that you can invest in collectibles like that. You can get a consolidated view. So if you imagine just open finance, where everything in your financial services life can speak to each other, that's like the future. And I believe that's here to come. It's just a matter of time.
- [61:55]
C
Thank you. And that's a very good point because I switched like four jobs already and I have like three different pension plans from like three different stuff. And it's just a pain in the butt for me to like call them, you know, like March. So that was a very good point. I also understand that like, especially when I was in Goldman Digital Finance, they were, their strategy is trying to get you as a customer since you were in college with Marcus and Secure Low. And then they have this ICO and all these financial investment advisory services. So as you a person, career, as a person ages, they want to retain and get that stickiness out of it. So they want to be more of an embedded finance. I read like banking 4.0 book too. So that's one of the key parts. So thank you, Akash.
- [62:38]
B
Sure, no worries.
- [62:39]
A
Hey Kosh. Sorry, we're running a few minutes over, but I apologize for that and thank you so much for your time. I know you're super busy and I know you're winding down, so it was really great to get an hour of your time and we learned a lot. So hope to connect and collaborate more and share deals in the future.
- [62:57]
B
Thanks, Joe. It's been a pleasure and nice to see everyone.