The Benzinga Fintech Summit is a gathering of the top leaders in payments, lending, capital markets, blockchain and cryptocurrencies in San Francisco Nov. 14. Ahead of the Summit, Benzinga is profiling the fintech thought leaders speaking at the event.
For this installment, Benzinga interviewed an intriguing fintech venture capitalist: Logan Allin, general partner at Fin Venture Capital and former head of venture at SoFi.
Allin's career has been largely spent "in and around" financial services, he said, including stints at SoFi, City National Bank and Invesco Ltd. IVZ. He launched Fin Venture Capital in April with a focus on the global fintech sector, greenfield areas and B2B and B2B2C players in particular.
BZ: What trend in fintech are you paying the most attention to right now?
In fintech, there are six subsectors we believe still have white space and room for growth and outperformance:
- Alternative finance and lending, particularly in middle market and commercial.
- Asset management.
- Real estate tech.
- Blockchain enterprise applications.
- Enabling tech such as AI, machine and deep learning, big data and analytics, cybersecurity, biometrics and other infrastructure.
Three key investment themes are fundamental to success in this space:
- Proprietary networks and access to geographic and company ecosystems, both direct and spin-outs, are fundamental to company quality and selection in fintech.
- We are experiencing a “re-coupling” in fintech, and true platform players — multiproduct and omnichannel — will continue to outperform and consolidate single vertical players.
- “Disruptors” and those disintermediating large incumbent tech or finserv companies will dominate “augmenters” without sufficient scale, TAM or unit economics.
BZ: Fintech funding rounds are getting larger, some consolidation is occurring and the space in general is maturing — is there still room for small startups to have a major impact? What verticals are ripe for disruption?
According to Pitchbook’s data, the U.S. funding environment is skewed increasingly to growth and late stage startups and is on pace to surpass $100 billion in deal value for the first time since the dot-com era.
Indeed, there was $57.5 billion of VC invested in U.S. companies through the first half of the year, and the second quarter of 2018 is higher than six of the past 10 full-year totals. Despite the volume, the deal count has remained stable due to later-stage entry points and larger round sizes, and as a result, deployment is at a slower pace than seen in 2013-2015.
You're seeing a move toward larger fund sizes with the same investment period as they’ve always had, five years, which leads to larger check requirements per deal and thus a move downstream to growth and late-stage rounds where the valuation math and round sizes align.
We are certainly observing a pick-up in M&A and consolidation, or “re-coupling” from the “de-coupling” that kicked off the fintech wave. Indeed, FT Partners noted 562 acquisitions in 2018 year-to-date, up 58 percent year-over-year from the same period in 2017.
Of course there’s still room for small start-ups, but our thesis is that they are better served scaling as B2B or B2B2C players vs. B2C, where we don’t see as much white space in the U.S.
We believe the sustainable winners will be early stage start-ups working in the six verticals we noted and looking to partner with either incumbent finserv and fintech players seeking to ehance their offerings or internal efficiencies or retailers and other corporate entities for distribution.
There is particularly room for growth in alternative finance in middle market and commercial, as well as blockchain enterprise applications that are solving for key use cases in financial services, as we are in early innings on both.
BZ: What makes it interesting to deploy capital in the stages you invest in?
I call early stage investing the “tip of the spear of innovation." We are seeing the most interesting and innovative ideas being tackled by incredible entrepreneurs who have a passion for the use cases they’re aiming to solve. Getting up every day and being energized to meet with CEOs and talk to LPs about what we’re doing does not feel like work for me.
We take on a bit more risk, but as specialists, we have some unfair advantages in our network and experience set and pattern recognition in selecting the right entrepreneurs to roll up our sleeves with.
In that regard, there is far more ability to move the needle for these companies around capital sourcing, talent acquisition, business development and product roadmap shaping.
BZ: Five years ago, what did you think would happen in fintech? What has ended up happening relative to your predictions?
I don’t want to say I called anything, but we had a thesis early on at SoFi that platform full stack and virtual financial services companies enabled by leading-edge tech would ultimately be superior to single vertical players who would have trouble scaling their unit economics.
Our “land and expand” strategy geared toward an emerging millennial demo proved prescient and scalable, and our ability to form a true community of customers who could grow with us makes the company enduring. In short, the initial “de-coupling” has definitely led to “re-coupling,” and that trend will continue.
I started buying bitcoin in 2011 at the recommendation of a few friends. Initially it was speculative fun, but it evolved quickly into understanding the underlying technology and the potential power of blockchain to transform significant aspects of financial services and other industries. As new protocols and chains emerged and we layered in smart contracts, tokenization, decentralized and geo- and currency-agnostic opportunities, it has become clear that "blockchain will eat everything,” particularly use cases with significant inefficiencies and rent takers.
BZ: What advice would you give to a fintech founder looking to solve a problem in financial services?
- You should have deep financial services or fintech experience. This industry is not one for newbies.
- You should be or have a technical co-founder.
- Get into dialogue with regulators early and often and make sure your counsel is steeped in this space.
- Partner with fintech specialist investors like Fin VC and the handful of others globally who can truly add operating value as you build and scale. Capital is important, as many of these businesses are capital intensive — but the hands-on support is critical.
To meet thought leaders and the hottest fintech startups in person, be sure to grab your tickets to the BZ Summit before they sell out.
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