It’s fintech week here in New York City, thanks to collaborations between Empire Startups and FinXTech, and we sat down with someone who has her finger on the pulse of the industry.
Amy Nauiokas is the cofounder and president of Anthemis Group, a digital financial-services investment and advisory firm. Since the company’s founding in 2010, it has invested in 42 firms, including the likes of Betterment, Trov, and Qover. It also hosts the annual Hacking Finance Retreat in the French Alps.
Nauiokas has a long résumé. Before founding Anthemis, she worked for the British-based bank Barclays, serving as the CEO of Barclays Stockbrokers. She got her start at the firm as the head of Barclays Capital’s e-commerce division.
Business Insider recently met up with Nauiokas at Anthemis’ Manhattan office to talk about what’s going on in fintech, the types of financial-technology companies she likes to invest in, and career advice.
This interview has been edited for clarity and length.
Frank Chaparro: What are some of the key things you are noticing in fintech?
Amy Nauiokas: There’s often a sense of urgency about everything we are doing as investors and as financial-services professionals. But the reality is that we are at the very beginning of a very long game. And so one has to always take a bit of stock to really try to figure out, “What’s our purpose here?,” “Where are the real long-term opportunities?,” and “How do we work our way to them?”
I do think we are seeing probably a more rational understanding of how these firms are priced and what we should be paying for certain deals. There’s a significant amount of deal flow, a lot more. Year on year, we are up considerable on the number of financial-services technology deals, but the money that is being deployed is growing at a slower pace. And I have a couple theories for why this is happening.
Generally speaking, we are at the tail end of a period of exuberance, during which big firms just sort of piled on a bunch of, let’s say, happy money. Firms were thinking, we have money, we have capital, we have to spend it.
Many of the larger financial institutions that bumped up early-stage investments in financial-technology companies in 2015 and 2016 have now realised that those are not the best investments for them, because it drove value up where value didn’t exist. And they have also realised they don’t have the skill sets and expertise to be early-stage investors. Writing those big checks makes sense, but not until later. So you’re seeing a lot of those large financial investors shifting from series A to playing that series B game.
Chaparro: And has that been helping your firm?
Nauiokas: It helps us out. But it also helps the market out.
Chaparro: What’s exciting you right now? What will shape or dominate the rest of the year?
Nauiokas: It isn’t super sexy, but we continue to be excited about a certain amount of consolidation in the industry. That’s something you’re going to see, for sure, in the second half of 2017.
We are also excited about companies that look and feel like non-fintech firms. We call them “adjacency companies.” When you get under the hood of these companies, however, you can appreciate that what they are doing is deeply financially market-structured.
So whether it’s a company that has built an infrastructure for the financing of the solar-energy space or a company that has to do with the conservation of water — but its actual result is that they make a massive dent in the insurance of your home or property — these types of companies have applications in finance. In other words, underpinning their technology is something that can be used by firms and consumers in financial services.
And this really is a great reminder that financial services as a category isn’t really something you can put a box around.
Chaparro: You have said you don’t like to use the word “fintech” when describing what your firm does and that you’re not a fan of the term. Why is that?
Nauiokas:We don’t think it describes who we are and what we do. We fell into it because we felt it was too difficult to convince people there’s some other way to talk about it that didn’t involve a mouthful. My partner Sean tried something along the lines of “the coming transformational age of digitization of financial market services.” That’s not fun, either, so we stuck with “fintech.”
Chaparro: What don’t you like about “fintech” specifically?
Nauiokas: It’s the suggestion that there is this new form of tech within the market. But what we are actually trying to do is digitally transform the entire market. And if we do our job properly, the concept of fintech won’t exist, because the whole sector will be digitised. It will all be fintech.
Chaparro: Recently, Andy Stewart, a managing partner at Motive Partners, said that valuations for fintechs are frothy. Do you agree? Are companies just slapping on buzzwords such as AI and machine intelligence to bump up their valuations to unjustifiable levels?
Nauiokas:Our view has always been to steer clear of fintech word bingo. Just because it has one of the cool words attached to it doesn’t mean that it is going to be the next billion-dollar opportunity.
This is probably the sector in which we see the most of that word bingo. And I think it’s because there are a lot of players.
And from our perspective, when we are looking to invest in a company, we look for a number of things. First and foremost, we look at the people. Second, we look at the market. Third, we look at the product.
In the early stage, you may not have the product right. And that is OK. We encourage that sort of working around the details and a little bit of failure.
Chaparro: What makes the people aspect so important? Why isn’t something like price more important?
Nauiokas:We can be aggressive at the right time with the right stakes when it comes to price. But I think for us, it starts and ends with people. And generally speaking, venture investors will say that. Right? That people are very important. It is all about the people. But at Anthemis, it is beyond “all about the people.” Because it’s almost exclusively about the people. We’ve been operating this way for a while.
Yes, a company needs a good market. That’s one way we can cut through the clutter very early on. By cutting firms with no market, we get rid of the fluff. Once we are in that scope, it is all about finding the entrepreneurs who we believe in.
Entrepreneurs who have the wherewithal, the enthusiasm, the passion, the expertise, and the network to take those early-stage ideas down the path of success. And it’s not always obvious, just because someone has years of experience, or fantastic people in their eco-system, or they have fantastic capital. It is the combination of all of those things, with the right attitude. And for us attitude is crucial.
Chaparro: What else do you look for in company founders?
Nauiokas:We have a tendency to like cofounders. We’ve learned from experience that two heads are typically better than one. And that’s because the person who is good at presenting the big picture of the company, fundraising, and building a strategic future is not always the same person who is uber-focused on the details and the build of the company. So cofounders are actually quite nice because they complement each other.
We are lucky to have a wonderful team of experts who know how to look at the numbers and ask the right questions about them. But again, this type of work shouldn’t be purely statistics-driven.
There was a study, for instance, on how can you correlate success in startup founders in fintech. What do the most successful fintech founders look like is what they were essentially trying to figure out. And strangely they came out with a statistic that suggested it was a 38-year-old white male. There was a correlation between success in a fintech and having a 38-year-old white male as your founder. Well, what’s the data you put in to get that? You put in all the companies that exist. So if most of the companies that exist have 38-year-old white men as their founder, then of course they are also going to correlate as the ones that are the most successful. So stats can only go so far.
Chaparro: Let’s focus on that. Last fall you outlined the reason why the financial-services space could ‘become paralysed by inertia and face existential crisis’ if it continues to be run by white men in their 50s and 60s. Why is diversity important in the early stages of a financial-technology company?
People try to make a lot of excuses for a lack of diversity early on, but they’re all very lazy excuses.
Nauiokas:You must have diversity in the early stage. And people try to make a lot of excuses for a lack of diversity early on, but they’re all very lazy excuses. The reality is the only place a company’s culture is going to start and end is at the beginning of that company. And it always starts with the founders.
So if you can’t create an environment of founders and founding employees who are going to represent the company you want, then you are never going to get there. So you have to look at your own network and find what you are missing. So if you don’t have a female or someone who has an international perspective or a person with a bio degree, but those perspectives matter to the firm or product you want to create, then it’s never going to work out.
And the argument that it is difficult to find women is complete BS. Any bank will tell you that the No. 1 employee they lose the most money on is the mid-tier female they bring on when they are 22 who leaves in her mid to late 30s. These are women they spend a ton of money training, and a ton of money attracting and hiring. And then they lose them. And they lose them for many reasons. They’re going to other sectors, other industries. So for us in the financial-services world to say we can’t find women is ridiculous. They are out there.
We’ve done it here at Anthemis. Our staff is over 50% female. So we can say hand on heart that it is possible to build a diverse firm. We also have 13 different languages from, I think, 15 different countries, sitting all within our community here. But it wasn’t without effort. You have to look for that.
When we invest in companies we ask the founder what their plan is for diversity. I had an interesting conversation with a company a couple weeks ago. They were presenting a wonderful concept in the credit-card space targeted at millennials. And the whole pitch went through. And at the end I said, “This sounds fantastic, but I just have one question. Do you plan to market this card to women?” And they looked at me like I had five heads. They were like, “Yes, of course, yeah we plan to do that.” And I said, “Well, how to you plan to actually build a product and market that product, and distribute that product, to half of your audience with absolutely zero female perspective in your company?” They literally hadn’t thought about it. And none of this is with malice. It’s all about how we build a company for success.
Chaparro: What worries you as an investor?
Nauiokas:We are witnessing a massive shift. Never in our lifetime have we seen a move like this. This move into the digital age. And its effects are not being discussed in great detail. In the last few years we’ve talked a big game about the effects of digitization, but we haven’t gotten to the heart of how we will address the impacts of digitization and how it will affect society as a whole. And this is something that needs to become relevant in the near term.
Technology has created much bigger pots of opportunity. So there should be enough for everybody. But right now it’s being done among such a small percentage of the population that the rest of the world has yet to benefit. So we have the responsibility as digital leaders and digital stewards to figure out how we can move the world forward technologically without leaving behind so many people.
Chaparro: You mentioned earlier the increase of deal activity in Q1. Considering all this talk about political uncertainty, is this surprising do you? What is your explanation for this increase in activity with the uncertain backdrop?
Nauiokas:No, it’s not surprising at all. We are going to continue to see significant deal activity in tech and financial technology. Because we are in the midst of that shift from industrial to digital that I mentioned and technology isn’t going away. Opportunities to deploy tech services and products will only increase, because right now only a small percentage of people have access to the market. There is so much room to grow. Now does that mean I don’t think there will be hiccups in the economy in the future? No, of course I don’t think that. But we will see that deal flow in tech and fintech continue increase.
Chaparro: I was wondering if you could share some career advice for our readers.
Nauiokas:First and foremost, the power of the network is incredibly important. For women entrepreneurs and financial-services folks, in particular, there is now more of a desire to collaborate. If I’m honest, when I joined the Wall Street ranks, it was a very different time. There were very few female mentors, and female execs I could look to for leadership or counsel, and in a handful of those cases it was the exact opposite. They didn’t want you to get in their way. I am thrilled that I have witnessed such a transformation of that attitude in the last 25 years. Because now everywhere you turn there is a women who is willing to step back, step sideways, step in, and pull you along with them. And women need to take advantage of this new environment.