you can find episode 3 here
you can find episode 2 here
As we continue to put money to work in our latest fund at MiddleGame Ventures (“MGV”), we have completed a series of deep dive reviews of the FinTech startup landscape in B2B and B2B2C financial services to help structure how we prioritize our efforts across the broader fintech ecosystem. This blog, the fifth in a series, is focused on Environmental, Social, and Governance or “ESG”. The title of this blog, “Embedded ESG” is quite meaningful. After decades of public discussion and largely unsuccessful attempts in the investment community, ESG-associated issues have moved past the “analyze & argue” phase and is now entering the “implementation” phase. While admittedly broad, ESG for our purposes, in financial services and fintech, is a relatively new (and welcomed) entrant into the startup world. After six months of research, we believe there are exciting new opportunities in FinTech ESG.
My own journey (Michael) is relevant and emblematic of the segment’s evolution. At university, I participated in “divestment” protests which demanded that the Yale Endowment divest all investments that were somehow connected to South Africa and the Apartheid regime. This was my first glimpse into the power of shareholder activism and it served as a powerful lesson. Next, I wrote a graduate thesis on “Socially Responsible Investing” or “SRI”. SRI was the precursor to ESG but, as my paper would attest, did not have a solid set of data and relatively poor conclusions (ie correlation vs causation was difficult to prove). Unfortunately, that early data actually showed that SRI investing chronically underperformed the market. My next step at Wellington Management Company was to manage a “green fund”. Again, using poor sorting tools, I was only able to identify “not bad companies” for investment. It was a frustrating experience. Various entities have attempted to improve the tools and results over the years, with little real progress.
All of which brings us to the present. After our deep dive research, we can safely say that “this time is different”. The data, tools, systems, regulations, investor sentiment, and technologies have all combined to create ESG’s moment, its Phoenix if you will. Innovation in the sector is booming, and exciting. We believe that investors, regulators, and the general public will no longer tolerate ESG as a mere reporting element. ESG will now be required as an embedded element of operations, recruiting, results, and outcomes. In order to facilitate that massive change, new technologies will be required.
Our research included a wide scan across Europe for self-identifying ESG startups. We uncovered XXXXXXXX startups and just as importantly, 5 Key Trends in the “Embedded ESG” innovation community which we will discuss further below:
Five MGV Focus Trends in Embedded ESG
We have organized our research and investment efforts around five key trends that will influence a cross-section of functions within and beyond the financial services landscape:
These focus trends in Embedded ESG tie into MGV’s “3D Finance” meta thesis, which encompasses the transformation of financial services around a core of Digital, Distributed, and Data-Driven processes. Within the 3D Finance construct, we have further developed investment themes that focus our attention on the transformation that is just beginning to unfold across the financial services industry, many of which were highlighted on MGV’s introductory blog.
If you are a high-potential pioneering startup in the Embedded ESG ecosystem or if you are an incumbent seeking to identify opportunities within this ecosystem, please reach out to us. We are committed to supporting the transformation of financial services over the next decade and welcome any and all feedback and opportunities to engage constructively on a shared vision for the future of financial services.
In addition to the MGV team, underlying research credit goes to Antonin Gury-Coupier, Sarah Finnegan and Matt Lobel.
We have partnered with the Luxembourg House of Financial Technology to bring you a video series featuring one of our co-founding partner, Pascal Bouvier. The name of the video series is "Office Hours with Pascal Bouvier".
It goes without saying this video series will cover a wide range of fintech themes, thoughts and news, we find relevant for 2021.
You can find the first episode here.
We hope you will subscribe, watch and comment as we embark on this new fintech journey with you.
That’s how it goes… in Fintech 2021
Everybody knows that the pandemic was loaded and accelerated change in financial services. What everyone knew was going to happen, is happening a lot sooner...like right now. The entire industry has redoubled efforts towards digitization across the business stack moving beyond the point of sale to the critical middle office and back office infrastructure. Everyone knows that this will significantly accelerate the pace of secular innovation across financial services.
Everybody rolled with their fingers crossed, believing banks had won the wars and would rule over the fintech world, unperturbed and unchallenged by waves of innovation. The 2020 pandemic, as well as abnormal geopolitical events, smoothly hid that…
Everybody knows the bank wars are over. Banks have lost ground, most of them relative to their leading peers and also to new entrants, some in absolute terms, and they still do not know how or why. Open banking will lead to Open Finance and the embedding of all financial services in the digital world. APIs will irremediably break the data silos residing within every bank. Mature fintech companies and big tech firms are claiming payment rails, building new networks, winning over the SME ecosystem. To wit the strategic moves of Stripe, Amazon, Square. The crypto and blockchain world is birthing the protocol elements of the future of capital markets and asset management as well as cash management and very few banks are paranoid enough to genuinely participate, beyond maybe innovation theater. Be that as it may, the few banks that are successfully reinventing themselves (we see you Goldman Sachs) will be powerhouses for many years to come (with cash to burn they will build internally and acquire when it better suits their goals).
Everybody knows the fight is always fixed and the good guys of crypto v.1 lost. As if there was any doubt that cryptocurrencies and crypto assets would not end up being co-opted by the fiat world, leading to an explosive adoption curve in the making (see new centralizing agents like Coinbase or Binance vs truly libertarian independent individual participants).
Everybody knows the fight is always fixed. See how Ant Financial’s IPO got pulled. See how Facebook’s Libra has been reduced to a poor man’s USD digital coupon. See how Wirecard exposed the entire payments industry.
The poor stay poor, the rich get rich. Even in the crypto world, in DeFi. Hodl and prosper it seems.
That’s how it goes.
As everyone knows, looking back is easy. As for what we should pay attention to in 2021...
Not everybody knows that capital markets and asset management are leaking. So much so that the next evolution of digital assets – endogenous to a protocol, or tokenized and issued on a protocol, lightly or heavily embedded with lines of code ruling various corporate actions – will upend every workflow and every process, leading to drastically new market structures. The new capital markets and asset management industries will not resemble yesterday’s fiat worlds. They will borrow heavily from Omnifi (our term for all things crypto and blockchain). Watch these eco-systems for unprecedented change, albeit with an important caveat: as everyone knows, this sector has been especially slow to innovate given the confluence of capital, regulation and entrenched incumbents – but the signals of actual and impending change will be loud and real in 2021.
Not everybody knows the captain lied. Thus, not everybody expects ESG to provide a sea change in how assets are rated, indexed, categorized, ranked and – perhaps most interestingly for the financial sector infrastructure of tomorrow – how broader assets (not just traditional ESG) are governed and invested. We shall see an explosion of activity in this space. Everybody is expecting performative ESG moves. Everybody is wrong. Business will not carry on as usual. This is a rare example where the hype understates the reality. This is fundamentally a nascent market with some early pioneers, but the lanes of opportunity are uncrowded, and the potential is immense.
Not everybody got this broken feeling that the delivery of banking services is ailing. Everybody will be surprised by big moves at the application layer of open banking, or banking as a service. This is just the opening entree as more services will be co-opted. Many mature fintech startups in this space will become M&A targets. Many more fintech startups in this space will reach escape velocity. Banks will wake up licking their wounds.
Not everybody is talking to SMEs. They should though, as SME banking will heat up as an early beneficiary of open banking and the application of targeted and complete solutions for previously smaller and bespoke (and thus uneconomical) consumers of financial services.
Not everybody wants a box of crypto. Yet, there still will be willingness to experiment with self custody of long and short stem crypto and digital assets. The new custody infrastructure is being built. Much activity will ensue. We see the early beginnings of entirely new market structures around digital assets from asset management, both passive and active, to treasury and yield management, to indexing, to retail savings solutions, to white label custody solutions for institutions, to liquidity management and market making services, to crypto centric data analytics and feeds, to the entire industry adopting compliance and regtech solutions. A few more people know about the accelerating adoption of crypto as an asset class, at least when it comes to bitcoin, and this will continue in 2021.
And everybody knows that you love my data.
Everybody knows that you really do.
Everybody knows all service providers and incumbents have been unfaithful.
Ah, give or take a night or two, and…
Not everybody knows that with antitrust and data privacy and anti big tech sentiments being reinvigorating, new privacy solutions around ethical and compliant data analytics will be in favor. A fascinating mix of asset (data) growth, demand for analytical tools by business, and concerns regarding privacy and security by consumer and government will provide increasing opportunities in this space.
Not everybody knows that European fintech, discreet up to now, will see renewed investments and interest from many vc funds. Mark our words, from defi to self custody, across the ESG spectrum, with open banking morphing into open finance, with the beginnings of capital markets harmonization from primary issuance of digital assets to secondary trading platforms, to data analytics and governance platforms tailored to the financial services industry. And if you still doubt us on this last point, do realize that the freshly minted Brexit deal does not includes services in general and financial services in particular. Not everybody knows there will be further divergence between UK and EU financial markets structures, leading to a rebalancing of fintech activity to the EU, all else being constant (innovation follows market power and transactional activity, and both will, at the margin, rebalance towards the EU).
And there are so many new startups we just have to meet
Without a priori.
And everybody knows.
With special thanks to Leonard Cohen (for those who don’t know).
A short summary
We recently doubled down on an earlier investment in Minna Technologies and participated in their series b. As a result, one of our partners, Pascal Bouvier, joined their board. We are proud to back the Minna team whom we originally met over two years ago. This shows that building long term business relationships pays in the end. We rate the Minna team highly. In a short period of time they have been able to achieve product/market fit sell and close large banks - never an easy proposition - and have demonstrated the power of bringing intelligence and connectivity to a retail checking account. Theirs is a sizable market to attack and we are excited to help the entire Minna team along their journey.
Pascal Bouvier, Managing Partner, MiddleGame Ventures said: “We are delighted to partner and invest in Minna Technologies. We strongly believe in a vision where banks develop their checking account offerings into “connected and intelligent” platforms and where retail clients are able to interact in many more ways than in the recent past. Minna delivers this future and allows banks to offer a rich subscription management offering for our digital lives.”
You can find the press release here.
FinData: A Central Ingredient in the New Ecosystem
This blog, the fourth in a series, is focused on Financial Data, or what we call FinData. As we begin to put money to work in our latest fund at MiddleGame Ventures (“MGV”), we have completed a series of deep dive reviews of the FinTech startup landscape in B2B and B2B2C financial services to help structure how we prioritize our efforts across the broader fintech ecosystem. FinData is a core investment theme for MGV, encompassing both the collection and digitization of new data sources as well as the mechanisms and protocols to share and analyze data within and outside organizations.
The accumulation of data and development of analytical tools is central to the new landscape. Accordingly, the availability of vast amounts of new data (whether from unstructured data, new asset classes, or current data spun out from a business) will drive increased functionality around data analysis, collaboration, and decisioning, including through the use of new technologies such as AI or quantum computing.
Furthermore, the opening up of FinServ, is giving way to new entrants with fully digital architectures (think digital core systems, spatial biometric authentication) to provide an array of novel services on top of alternative data sources (IoT, satellites). Incumbents across financial services will thus no longer have the luxury of handling data solely within their four walls. Therefore, it will be essential to securely harness and share new data, which will inevitably create new opportunities (and new risks). We believe that all things data will quickly move to the top of strategic priorities and create an entirely new value chain.
FinServ is quickly shifting from paper, people, and processes to digital, distributed, and data-driven (reflected in our term “3D Finance” explained further below). As significant (but largely inefficient) consumers of data, legacy players will have to upgrade their “spaghetti code” tech stacks to have a hope of remaining competitive in the new environment.
We see a lot of activity and interest across three core areas:
Our work indicates that an army of nimble upstarts are enabling this data transformation. From frontier data ingestion (new pipelines, MLOps) to advanced data privacy/security technologies (ZKP, homomorphic encryption), new data capabilities are becoming increasingly available as computing costs decline and computing power increases.
MGV has already invested in four companies that are championing trends across various subsectors in this space (Coinfirm, Minna Technologies, Wayflyer, and Next Gate Technologies). Our research has uncovered over 500 other early stage startups attacking the opportunity across the multiple vectors outlined below. Unsurprisingly, given the core building block nature of financial data to the ecosystem, there is a diverse and growing entrepreneurial energy being brought to the fore.
Six MGV Focus Trends in FinData
We have organized our research and investment efforts around six key trends that will transform a cross-section of functions within and beyond the FinData landscape:
These focus trends in FinData tie into MGV’s “3D Finance” meta thesis, which encompasses the transformation of financial services around a core of Digital, Distributed, and Data-Driven processes. Within the 3D Finance construct, we have further developed investment themes that focus our attention on the transformation that is just beginning to unfold across the financial services industry, many of which were highlighted on MGV’s introductory blog.
If you are a high-potential pioneering startup in the FinData ecosystem or if you are an incumbent seeking to identify opportunities within this ecosystem, please reach out to us. We are committed to supporting the transformation of financial services over the next decade and welcome any and all feedback and opportunities to engage constructively on a shared vision for the future of financial services.
Stay tuned for follow up posts on additional verticals of interest to the investment team (also see our first three posts in this series on Open Banking, OmniFi, and Capital Markets & Asset Management).
In addition to the MGV team, underlying research credit goes to Clement Parramon and Inder Takhar, with support from Matt Lobel.
The NadiFin FinTech Accelerator Program, powered by MiddleGame Ventures in partnership with Brown Brothers Harriman and Standard Chartered, announces that this year's cohort of 10 early stage companies has peer-selected Keyrock as the 2020 winner.
A special thanks to our sponsors and all participating companies for an engaging and energizing two-week program!
Please reach out if interested in getting involved in next year's accelerator.
Press release below:
After 120+ applications from around the globe, the NadiFin FinTech Accelerator Program powered by MiddleGame Ventures in partnership with Brown Brothers Harriman (BBH) and Standard Chartered, announces its latest cohort of 10 early stage fintech companies (press release below).
From time to time,