25

Nov

2019

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I have certainly learned a thing or two in the past 6months about not only raising a venture fund but also closing a venture fund (ohh the legal, regulatory, banking and operational fun that was had by all).

In any case, we completed our first close and the MiddleGame Ventures fund is a reality.

You can find the official press release here.

My partners and I also wrote a short blurb about our first close, see immediately below:

We are very pleased to announce that we completed the first close of our new fund.  As every entrepreneur knows, fundraising has its own very special challenges, so this is an important milestone ahead of our final close later next year.  We are now officially “in business” and are looking forward to investing in post-seed, series A and series B startups in Europe and North America. In anticipation of our first close, we have already made three investments in early stage fintech startups via a short term warehouse facility.   

As part of our investment activity, Pascal Bouvier, one of our co-founders, will relocate to Luxembourg and oversee all MGV European activities, while co-founder Michael Meyer will remain in Washington DC and oversee MGV’s US activities. Our third co-founder, Patrick Pinschmidt, will focus primarily on Europe.

No matter where we are based, the three of us will be spending a lot of time on the road.  Over the coming months we look forward to meeting b2b and b2b2c early stage startups in Europe and North America that are reinventing digital assets, data management and core systems (amongst other things) across the key verticals in financial services.

Finally, a special thanks to all those who have helped us get to this point.  We are looking forward to the next phase of our journey with our excellent base of LPs, service providers, and ecosystem partners across our broader network.  We are very excited about the road ahead. It is an exciting and pivotal time to be a venture investor in the market looking to back the best teams with the best ideas. 

Now the fun begins and I am thrilled to start interacting with the entire European fintech ecosystem as I relocate from the US to Europe in the coming months.

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05

Apr

2019

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All of us at MiddleGame Ventures collaborated to write this piece: Michael Meyer, Patrick Pinschmidt & myself.

The Next Wave Of Fintech Will Be A Tsunami vs The First Fintech Wave

(Editorial Note:  This  is a high-level, big picture post that might not be suitable for hardened financial technology geeks.  Don’t worry, we’ll have more for you in subsequent posts. )

It used to be that financial services intermediaries were to a large extent immune to outside innovation.  While entire industries have been obliterated or reimaged over the last 30 years by waves of technological innovation (think retail, entertainment, or travel), financial services has remained relatively unscathed.  Yes, electronic exchanges have replaced physical trading pits, online brokers and ETFs have replaced stock brokers, and cards have largely replaced paper checks.  But even today, despite the hype around fintech, the core systems, operations, and players (outside of payments) remain fundamentally the same.  We do not believe this will be the case a decade from today. 

The financial services sector’s charmed existence in an analog world is not sustainable.  Technology is poised to overcome regulatory and capital constraints as a force for fundamental change.  The transition to front-to-back digitization will completely transform the sector — its primary actors, products, services, pricing, regulation — the very foundations of business models.  The breadth, depth, and intensity of the changes over the next decade will be drastically different from the past with profound implications for the future. What’s next will be big, really big. 

Digitization is at a tipping point where increased penetration will quicken the pace of adoption and enable waves of innovation at unprecedented scale and velocity, creating new businesses and a host of products and services around those businesses.  Much as liquidity begets more liquidity in formerly illiquid capital markets, digitization will beget more digitization by expanding access, lowering costs, and reducing friction.  Innovation will rewire the middle and back-offices, enabling technology and service breakthroughs within institutions and across platforms.  And, in turn, simplified workflows will open up competition from new entrants.  This will profoundly reshape how financial institutions interact with each other and their customers. 

Industries in transition are devastating to (most) incumbents but enriching to creative entrepreneurs.  Our new fund we aim to invest in the best early stage startups in Europe and North America that are rearchitecting financial services over the next decade and beyond.    

Massive Market Opportunity

The global financial services industry accounts for anywhere between 11% and 19% of total GDP, which would put it well over $15 trillion in 2019 (see here).  Ponder that for a moment, the second largest economic sector in the world is just beginning its digital transformation.  The sector already invests huge amounts — some $500 billion annually (see here) — mostly on maintaining legacy tech stacks.  As the core technology backbone transitions, technology add-ons will become cheaper and easier, paving the way for accelerated innovation.  The current technological spending firehose will then turn to new digital, techfin (technology-first) platforms, or deeptech (pioneering or cutting-edge technology) solutions.  The result will seed significant winners across multiple verticals and financial adjacencies.  There will also be massive losers (80% of incumbents will be extinct in 12 years according to Gartner Group).  

Simply put, it’s a good time to be an entrepreneur (as well as a venture investor looking to back the best teams with the best ideas).

This is a fundamental change from the past (including the last several years). Financial services incumbents have been successful enough in steering their ships through technological change during our lifetime (e.g., personal computer, internet) without too much damage. This began to change with mobile/cloud computing, as innovation quickened and customer preferences accelerated the adoption of new technologies by new entrants.  But even today, these changes have not fundamentally altered the critical middle and back-office operations of incumbents.  APIs (open banking), AI/machine learning, advanced data analytics, IoT, and blockchain/distributed ledger are core enabling technologies that optimize the use of  data and will create unprecedented disruption and opportunity.

To this we should add the avalanche of data created by the information economy.  Gone are the days where simple data sets could be mastered relatively easily by financial intermediaries.  The increase in noise (quantity of data) requires tools (systems, processes) that can ingest data in real time and provide actionable signals with increased accuracy.  This too will have a profound impact on an industry which has made a living off of knowledge asymmetries and a tight control over data.

Product Innovation Has Largely Supported the Status Quo 

This promises a revolutionary shift in the financial services sector, a departure from incremental, evolutionary product development that has largely defined the sector up until now.  We teach a graduate school course on financial innovation, the history of which begins with a module on the creation of money and banking.  Despite endless innovations over centuries, the vast majority of financial innovation has been in products, not services or business models (although payments — with Square and PayPal as two prominent examples — is a notable exception).  Thus, innovation has largely been incremental, rather than transformational. Stocks, bonds, derivatives, commodities, mortgages, credit cards, debit cards, prepaid cards, securitizations, mutual funds, ETFs…we could list a page on product innovation.   

The result, in the analog financial services world, are businesses and processes that rely on people, paper, and place — infused with a heavy dose of capital and overseen by strict regulatory regimes.  Incumbents have become siloed fortresses that print profits within a walled garden of safety and regulation.  

Thus, there should be little mystery why financial services has not historically been an attractive neighborhood for venture capital.  The traditional industry is antithetical to the very idea of “fail fast” or “run fast and break shit”.  The capital intensity and maze of regulatory requirements, enough to crush the dreams of any sane VC (or LP), are not easily overcome with a Seed Extension or Series A funding round.  

New products via internal incumbent innovation, rather than new entrants, drove competition.

Service/Business Model Innovation Will Power a Revolution

This is about to change in a big way.  Service and business model innovation, enabled by full-stack digital tools, will far surpass product innovation over the next decade as the fundamental driver of change.  We have begun to see early, incremental signs of innovation on this front:

  • Lending (p2p, marketplaces, credit scoring, alternative lenders)
  • Capital Markets (electronic trading, automated trading, high frequency trading)
  • Payments (electronic payments, remittances) 
  • Asset Management (quant/data strategies, robo advice)
  • Insurance (p2p, shopping bots, recommendation engines)

These (and other) examples illustrate how technology helps reduce friction to deliver the twin (and reinforcing) benefits of broader access and lower costs (both capital and operating costs).  

However, despite these early successes, with notable VC-backed startups hitting escape velocity — Stripe, Robinhood, Coinbase, Revolut, TransferWise, Affirm, to identify but a few — the power and impact of the transition from analog to digital has not yet registered in a fundamental way.  People, paper, and places continue to dominate the business processes of incumbents.  Branches, face-to-face KYC, wet signatures, complex clearing/settlement processes, compliance workflows…the industry is still very much a creature of the analog world. 

Moving Beyond The Front-End 

In an admittedly dumbed down example for illustrative purposes, consider the entertainment sector as a comparison.  Decades ago, movie theaters and Blockbuster Video dominated retail distribution. Redbox and Netflix entered the market with different tools (remote location access or online ordering for snail mail delivery).  Once customers saw the power of a digital front-end (ordering), the demand for fully digital entertainment became inevitable.  Netflix perfected the model for fully digital streaming with the emergence of key technologies (cloud computing, Ai/ML, high speed internet, smart phones, online payments).  The result: Blockbuster is bankrupt and movie theaters are verging on zombie land. 

This has critical relevance to financial services for three reasons:  

  1. What began as a simple, innocuous online catalog was really the first foray of digitization. 
  2. The front-end was attacked initially, before the middle and back-end. 
  3. A full stack digital and seamless service (including a new business model) obliterated the analog world.  

We have already seen meaningful front-end innovation in the financial world (e.g., adding the catalog to a webpage in the Netflix example).  The low hanging fruit was consumer facing, either through new business models (e.g., p2p lending) or a better customer interface for the mobile era (e.g., neo banks and now chatbots).  

The middle and back-end layers have only just begun to innovate.  For example, startups like Revolut, N26, and Monzo are innovating past the front-end (Monzo has actually written its own narrow core banking software).  These digital offerings are targeting digital natives and give us a glimpse into a fully digital future.  With big data analytics, ML, and various types of AI in their middle and back-end layers, these firms are pioneering a frictionless and joyous customer experience unburdened by legacy analog systems.  

Upheaval Brings Risk & Opportunity

In the next decade, all actors will have to harness financial technology, which is to say, they will have to develop, sell, or implement technology that has been customized for the industry, or in so doing develop new products, services, or business models that were up until now difficult or impossible.  

This is easier said than done, and the stakes could not be higher.  Massive companies will be created, while many current providers will be greatly diminished, or worse.  Nimble and forward thinking incumbents may make the transition to a fully-digital enterprise but they will need the tools to do so.  

Given this challenge, we continue to be surprised that the potential disruption to the financial incumbent establishment is generally not front-and-center in the boardroom and fundamental to strategic discussions. There is not the hair-on-fire urgency that we have seen (often too late) in other sectors.  There has not been a Ford Motor event, where a leading CEO is pushed out for not moving quickly enough to confront technological challenges (electric cars in the case of the 2017 ouster of Ford’s then-CEO).  It certainly isn’t because most incumbents have crafted the perfect strategy to navigate this technological upheaval.  In our countless dealings with incumbents, we have rarely found a firm fully dedicated to a complete digital transformation. It is not too late for some, but winter is coming.

Our Investment Compass

With this context as a backdrop, let us now put some definition around how we view the investment opportunity over the next decade.  We are in the twin business of helping founding teams realize their dreams and investing capital for our limited partners on an appropriate risk return basis.  

To be clear, the financial services opportunity is not monolithic.  We map financial services into its five core sectors: 

  • Payments
  • Lending
  • Capital Markets
  • Asset Management
  • Insurance

While there are certain commonalities across these sectors, the business and service opportunities are differentiated, and in some cases, overlapping.  From this perspective, we do not limit ourselves to fintech as a banking phenomenon, or to insurtech, regtech or defi (decentralized finance) as existing outside of fintech.  Fintech is the meta universe for many existing narratives and where many new ones will find a home.  There are even concepts and investment themes which, while not purely “financial services” centric are crucial to the industry and included in our remit. Proptech, or property/real estate technology is one example.  Digital identities also come to mind – whether for individuals or corporations.  The fundamental cost/time/risk challenges associated with client on-boarding, AML/KYC, fraud/compliance, and cybersecurity are inherently part of our remit within each of the five sectors.  Finally, how data is managed, edited, shared, analyzed, stored, and monetized — and above all complied with — although at first glance not a fintech theme per se, is an area of focus for us.

As mentioned above, the first fintech wave was mostly centered around direct to consumer business models, which did not exactly live up to the early hype.  A better mouse trap does not necessarily overcome significant customer acquisition costs (particularly true in the financial services space).  Even as the playing field for new direct to consumer strategies may become more welcoming in the next decade, our predilection is to focus on b2b or b2b2c business models as we believe that “pick & shovel” strategies will have a marginally higher rate of success.  

For example, we are not interested in cryptocurrencies or spending a lot of time on the first wave of consumer uses in DLT (bitcoin, tokens, wallets, unregulated exchanges, etc.).  However, at the bottom of bear markets, when the hype bubble has burst, real innovation happens.  Right now, the infrastructure of a new financial architecture is being built through decentralized finance, where very large future companies are being built today, far from public view, or with the judicious addition of some blockchain technology to new ways of issuing of assets (the terms tokenized securities, security tokens or plain tokens do come to mind).  Additionally, it is clear to us that many of the issues relating to how data and identities are handled may well be solved, partially or wholly with a sprinkling of cryptography, a sliver of smart contracts, and a dosage of blockchain technology, when appropriate.  Indeed these technologies will help the industry with evolving new business models and offer dynamic approaches to governance.  These are core investments targets for MGV. Incidentally, we do expect many of the above trends to have an impact on the legal profession at large and will keep an eye on “legaltech” opportunities especially when financial services driven.

A Shared Financial Ecosystem for Coordination & Orchestration

Yesterday’s secret to success for a given corporation was to own an entire value chain AND excel at cooperation with other corporations that in turn owned their entire value chain.  Today’s digital economy is focused on building value chains that can be shared among a plurality of participants WHILE orchestrating and coordinating. Orchestration and coordination require drastically different skills than cooperation.  Data insights need to be more granular and exact to better facilitate analysis and value creation.  New actors must be less opaque and more translucid.  Technology tools need to allow for the transfer of value, and interoperability between different stacks.

With this in mind, we are most attracted to startups and teams that are working towards facilitating or unlocking coordination, be it via AI, advanced data analytics, cryptography/blockchain technology, APIs, or cloud computing.  We also believe financial services firms will need to master data and customer engagement better than big tech corporations have to date.  By “better” we mean with enough trust across corporates or between firms and consumers that minimum friction and costs are inserted in any given workflow.  Any startup that facilitates this is onto something special, hence multi-party computation will become a buzz word shortly.

Investment Themes

Taken together, this worldview naturally helps inform our core investment themes: 

  1. Starting Over:  As emphasized above, the transition from the analog financial services world requires digital tools.  There is a massive digital replacement cycle of core systems that is just beginning (be it in banking with core banking systems, or in payments with new rails, or insurance with policy management systems).  Crypto infrastructure is an example, taking advantage of a fully digital environment from birth.
  2. Embryonic Asset Classes:  New technology waves are unlocking new capabilities (data), and, in certain instances, new areas of exploration (cryptoland).  Any model that fosters higher degrees of trust — think identities, verification of data, sharing of data/analytical output — are essential for this new landscape.  Technology that re-architects value and exchange — think cryptocurrencies, decentralized exchanges (within reason), decentralized workflows and processes including new issuance mechanisms (within reason) — will participate in the future of the industry.
  3. Innovating Oversight:  Try as we might, we will never be able to get rid of oversight in financial services.  It is neither desirable nor prudent.  What is necessary is for this oversight to refine and upgrade itself for this new era. Digitizing regulatory oversight, whether in a heavy or light regulatory regime, will unfold at pace and create net positives for regulators and the regulated (and the innovators behind the new tools).  RegTech and Digital Identities reside here as core themes.
  4. Platforms (Instead of Silos):  As noted, many business models will avail themselves of the tools that will allow for orchestrating and coordinating value, both internally and externally.  Digitization will make this inherently more seamless, leading to more open, transparent, and interoperable ways to conduct financial services business, particularly as successful incumbents look to source and integrate a broad array of outside innovations.  Bank as a Service, Bank as a Platform, and API banking are current examples.
  5. Better is Best:  One of the perennial criticisms of the industry is its lack of customer centricity.  New data and technological tools to analyze that data will drive new customer models that can deliver financial services at much lower price points.  There are many positive outcomes to be derived from customer centricity (financial inclusion, financial wellness, literacy, optimization of risk management, etc.).  This category will expand greatly as the value proposition for given customer segments and the availability of choice help drive a more inclusive financial ecosystem.

MiddleGame’s Role

In summary, we believe that financial services is at the beginning of a massive disruptive cycle that will create incredible investment opportunities across multiple vectors (sub-sectors and technologies).  At MGV, we are excited to be one of the few VCs focused solely on this sector.  Given the many financial and technological cross-currents and significant regulatory constraints, we think specialization is paramount as is experience working with entrepreneurs, incumbent financial institutions, and regulators.  We think we have the platform, and are excited to put this to work on behalf of the next wave of innovators and our investors.  

We will be back frequently on this page and others (e.g., Pascal’s finicultureblog) with updates and deeper think pieces on many of the themes addressed in this initial blog.  Stay tuned.  Something big is happening, something really big.

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08

Jan

2019

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I hope everyone had a festive and relaxing holiday break.  Happy New Year!

In my previous post I announced the end of my collaboration with Santander InnoVentures and hinted at a new project that has been in the works for a while. I would like to tell you more about it as we near launch.

I am very excited to announce that I have been working on creating a new fintech investment firm, MiddleGame Ventures (MGV).  I am a chess aficionado and the “middle game” occurs after the opening gambit and before the end game, usually when things start to complexify, an apt metaphor for the intricacies of investing in startups and helping them grow successfully.

I am delighted to have co-founded MGV with Michael Meyer (twitter & linkedin). Michael and I founded one of early fintech funds while at Route 66 Ventures and built that team while investing in 20 fintech startups. We also co-founded the RegTech Lab which focuses on regtech innovation across the globe and recently completed a sandbox research project on behalf of the Bill and Melinda Gates Foundation. I have known Michael for over 25 years and consider him one of my closest friends. Michael is a seasoned investor, having managed equity funds with Wellington Management and a variety of funds – from PE to hedge to credit – with various financial institutions. Michael is also a seasoned entrepreneur and we have done hand-to-hand combat operating a variety of businesses together.

I am further delighted to have Patrick Pinschmidt as a partner with MGV. Patrick was Deputy Assistant Secretary at the US Treasury Department in the last administration where he served as the first Executive Director of the Financial Stability Oversight Council (FSOC). Prior to that, Patrick was a well-recognized equities research analyst focused on FIG with Morgan Stanley and Merrill Lynch. Patrick brings deep insights in capital markets and other key sectors of the financial ecosystem as well as financial regulation, expertise which nicely complements Michael’s and my background.

The first fund will invest in fintech startups in both North America and Europe with an exclusive focus on post seed and series A/B rounds (as the initial investment). We intend to lead or co-lead most of our investments and to take a seat on the board where possible.  Our overarching goal is to help every portfolio company that will have chosen us as one of their investors to reach its highest potential. MGV will favor b2b and b2b2c models and will not shy away from complex solutions for complex workflows, including such areas as: core systems, payment infrastructure, asset issuance or financing, digital identities (within financial services for either retail individuals or corporations), multi-party computation in financial services, new business models driven by open banking/insurance, and cloud and edge computing.

We intend to build a fund that will do more than identify, invest, and serve on the board of promising startups. We will be deeply embedded in the fintech ecosystems in which we invest. To that effect, we are also working on select initiatives with local partners in the US and Europe that will strengthen collaboration between startups and incumbents. More on that later as these projects mature.

We are putting the finishing touches on our fundraising. As every entrepreneur knows, fundraising takes time and patience. Be that as it may, as we finalize our first close – a well known milestone in the vc fund industry – we stand ready to make a handful of small, select investments through a warehouse facility that we created last year.

I will update you on our fund as we approach our first close, as well as on the other initiatives we are working on when the time is right. In the meantime, I will be back to you shortly with some thoughts on why I am so excited to be an investor in this space.

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04

Nov

2018

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“cruisin’ on the interstate, just follow while i innovate

too many try and imitate, medallion like a dinner plate

front and get your dinner ate, chinchilla for the winter, wait

i’m tryin’ to bring the ‘sexy back’ with Timbaland and Timberlake”

Campfire – Wu-Tang Clan

Following up on my previous post announcing a new fintech venture capital chapter and thanking the excellent Santander InnoVentures team and Santander Group individuals I worked with, I wanted to share some of my key learnings around innovation – the past two years working with the Santander’s venture team and various parts of the banking group have been enriching, and then some.  I worked with InnoVentures under three different group innovation heads and therefore witnessed three different approaches to innovation. I was able to peak in and collaborate on many innovation projects at the group level and country level, some incremental, some moonshots, some purely technology driven, some business model driven. I was able to interact with individuals on the retail side of the bank, the corporate side, at group level, with the UK bank, the US bank, the Nordics operation, the Spanish bank, with technology & operations, with teams focused on lending, asset management, savings, blockchain or AI projects, bank as a service or platform and digital identities initiatives.   To boot, I worked on some of the venture team’s prospective investments as well as overall portfolio management.  Inadvertently, following my time as an investor at an independent VC, I got an education on cutting edge innovation from a leading incumbent’s perspective, and most importantly, what works and does not work.

I also encountered the severe regulatory limitations banks/incumbents operate under, be it from local regulators, legislators or global risk and compliance frameworks which cannot be violated one iota. Obviously, these limitations are one of the explanations why banks find it so difficult to innovate and re-think their businesses in a swift and nimble way. Some banks find these limitations more difficult to overcome than others, other venture down the road of direct investments, innovation partnerships or venture capital partnerships. Santander, with its various in-country innovation efforts and its venture arm, with an excellent portfolio of venture investments built in the past three years and the major innovation wins across various countries, is attempting to stay at the forefront of innovation in a rapidly changing landscape.  Its efforts are indeed laudable.

I took some time over the past week to reflect on my experiences in fintech beginning back in 2009 with Route 66 Ventures through my time with Santander InnoVentures, including my various interactions with consulting firms, accelerators, startups, academics, and other incumbents.  Through the sum of these experiences I have pieced together a set of theories on best practices in financial services innovation at the incumbent level, heavily centered around venture investing and venture building (e.g., internal innovation around new businesses).

Here, humbly submitted, is my attempt at a best practices framework:

  • Innovation is a partnership game. If you (as an incumbent) think you can innovate on your own without the outside world’s help, you are on the wrong track. Innovate with others, don’t innovate solely for and with yourself. It is always better to augment one’s internal efforts with partnerships bringing external expertise. For venture investing it means investing in an accelerator, or even an independent fund.  For venture building it means partnering with a consultancy firm specialized in innovation in financial services.
  • Absolute control is an impediment. Given that partnering is so important to achieve positive innovation results, it is crucial to realize that some level of control will be relinquished.  This is probably one of the most difficult learning points a bank has to digest and put in practice.
  • Innovation requires a portfolio management approach. There is no unique silver bullet. The trick is to build a multi-varied approach that best fits the organization and includes internal venture building, fintech accelerator initiatives, venture investing, iterative and small projects, a few moonshots, as many innovation centers across the organization as possible, and a central innovation nervous system to coordinate all activities. Centralized innovation often fails. So does uncoordinated decentralized innovation.
  • Innovation cannot be abstracted.  Innovation cannot be a completely separate function; it must balance an incumbent’s tactical and strategic goals. Overweighting either side of the spectrum leads to excessive behaviors that will not lead to optimal outputs.
  • Silo-ed thinking is the enemy of innovation. From the same token, the innovation team needs to be cognizant of banking, inside and out, while incorporating outside thinking. Again, the extremes are dangerous:  not being well versed in what it means to be a banker or not being able to bring new outside non-banking thinking are deathly risks and very difficult to overcome.
  • Modest early wins will enable bolder visions. Early successes will enablereasonable risk-taking over time.  Alternatively, an early loss can be very difficult to mitigate.
  • Culture is a crucial component of innovation success.Thus, education and evangelizing are necessary and required.  At the same time, education and evangelizing without substance lead to innovation theater and empty showmanship.  This is unfortunately all too common amongst incumbents today.
  • Best to abstract more than less for either venture building or venture investing initiatives. If given a choice, err on the side of more  Investing on balance sheet is a very difficult balancing act to pull off that is tied closely to bureaucratic decisioning and approvals, while creating a new venture team in a separate legal entity is an easier proposition.  The same applies to venture building. Abstracting means creating new and/or separate legal or operational entities.
  • Find the right mix between strategic and financial returns. Investing purely for strategic returns is extremely vulnerable to negative outcomes.  Investing entirely for financial returns will not address immediate corporate needs.  It is crucial that the venture investment function be built with the right mix in mind, and with a healthy portion of capital dedicated to purely financial returns untethered from the constraints of what the bank needs or wants, while at the same time dedicating capital to startups that overwhelmingly fit a strategic goal.  Strategic investments will be made in some Horizon 2 and many Horizon 3 startups that by definition may be less mature.  Financial investments will be made in some Horizon 2 and many Horizon 1 startups that by definition need to be more mature.
  • Substance over form for startup engagement. Interacting with startups or third parties for a specific project is of paramount importance. However, paper milestones  (such as a proof of concept) should not give false comfort that a prospective investment satisfies a strategic and/or financial hurdle. A PoC may be necessary but it is not a sufficient condition for investment.
  • An incumbent needs to bring something special to the table when interacting with a startup.Simply digesting the startup’s value proposition leads directly to a vendor/client relationship that should be avoided at all costs.  Vendors are fine but they are not strategic.  Too many incumbents chase vendor solutions instead of strategic engagements.  In other words, very few incumbents are investing in Horizon 3 startups.  Many are easily seduced into Horizon 1 startup investments that could just as easily be vendor relationships.  As such, careful examination of what the startup needs and how the startup’s platform or technology can be enhanced (e.g., with data or subject matter expertise) to produce something different or superior is the key to delivering real and sustainable returns.  Hence, my comments above on the meaninglessness of proof of concepts as a strategic relationship.  Strategic investments do not require a PoC, particularly Horizon 2 or 3.
  • Strategic and financial returns require a practical risk-taking ethos.In general, bank employees are in the business of managing risk while innovation is all about taking risks. These approaches are at odds with one another.  A healthy risk appetite in the context of a balanced organizational structure is of great importance.
  • Innovation inputs require a holistic approach and innovation outputs should be treated holistically. By that I mean that innovation is not only about adopting new technologies, or designing a new work-flow. It is about integrating customer needs and business models and employees in a systemic manner (see Horizon 3 ideas).  Further, much like with Amazon where innovation for the core business leads to new businesses that were not initially foreseen, applying new technologies to existing banking business groups or processes may lead to broader use cases – for example, a new risk management framework powered by AI for internal uses may be also useful for the bank’s corporate customers.

These are but a few thoughts and lessons I gathered along the way and built in a non-exhaustive way — my own roadmap of innovation and venture investing ideas so to speak.  These thoughts are clearly not exhaustive, and will clearly evolve and expand as my venture journey continues.  As referenced in my prior post, I will be back to you with some detailed news on my next project in the next several weeks.Facebooktwittergoogle_plusredditpinterestlinkedinmail