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.

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:

1. Data computation (e.g., managing & analyzing data) via compliant methods that secure and preserve data privacy;
2. Specialized vertical solutions (e.g., data privacy solutions applied to a trading venue or liquidity venue); and
3. Data sharing such as synthetic data applications

 
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:
 

• Existing Data
  • As the volume, variety and velocity of data sources grow exponentially, properly harnessing data remains a persistent challenge.  New tools and technologies will enable better data capture (both structured and unstructured), giving way to significant cost efficiencies and enriching the entire data value chain.  Capturing and harnessing existing multiplicities of data will prove a competitive advantage today but is slated to become tomorrow’s table stakes.  In an intelligent, autonomous world, data will replace code, and effectively harnessing that data will prove the ultimate differentiator.  To accomplish this, existing technologies (RPA/ML) will merge into frontier fields (DLT/quantum) to enable automated gateways into existing data siloes, unleashing a host of capabilities (think autonomous wealth management and embedded banking).

 

• Sequestered Data
  • As financial institutions incorporate data into their core strategies, liberating and accessing sequestered data (both internally and externally) will become a key differentiator.  Limited accessibility and interoperability across legacy systems prevents FinServ organizations from fully utilizing data.  As client demands for personalized services intersect with increased competition from digital upstarts, opening doors to sequestered data across ecosystems will prove paramount in order to meet customer demands through targeted innovation.  In the meantime, new data in-flows will give rise to a host of new products, business models, and structures governing organizational decision-making.  In their purest form, APIs will serve as digital highways for open data services in interconnected ecosystems, ensuring legacy businesses do not become obsolete

 

• New Data
  • What began as simple entry points into alternative data sets (social media data, mobile data) is evolving into a host of new gateways and data streams, with significant potential.  Advanced technologies will improve the diversity and quality of this new wave of data formats, which will have a direct, positive impact on decision making (and returns) for early adopters.  Powered by the accelerated adoption of devices (IOT sensors, wearables, intelligent cameras) and digital use cases (metaverses, crypto, voice-powered services), FIs have an ocean of data opportunities to explore.  These opportunities will require significant data preparation/cleansing technologies, which will in turn fuel a revolution in business analytics.  Good, relevant data will help organizations derive valuable insights to feed predictive AI/ML models driving decisions.  These efforts will be aided by innovative software solutions that will accelerate (and automate) data preparation.

 

• Decision Making
  • The value of data is often greater than the sum of its parts.  For financial institutions, the use of data enables better strategic insights, enhanced decision-making, and increased value for clients.  Advanced technologies, largely driven by innovations in AI (reinforcement learning, deep learning) are democratizing access to data and the resulting decisioning.  Instead of restricting capabilities to data analysts who can code, entire organizations will soon be able to harness the power of new data in their decision-making process.  Through advanced data assessment, the balance of machine vs. human in FinServ decision-making (lending decisions, insurance claims) will shift from 50/50 today to 80/20 in the medium-term (beginning with bypassing manual data entry, which costs $7B+ annually).  Artificial intelligence and related underlying technologies are reaching an inflection point across multiple FinServ use cases.  Deployed at scale, these technologies will ease data management, drive data-informed decision making, and enable scalable production in a variety of B2C and B2B applications. 

 

• Privacy
  • Data privacy is gaining urgency from all angles, including regulatory and consumer pressure.  Once considered a check-the-box protection, privacy protection is slated to become a core business differentiator.  Emerging privacy enhancing techniques (PETs) have the potential to fundamentally alter organizational dynamics around privacy by reducing or eliminating the risks of sharing and/or mishandling data and creating opportunities to realize new forms of value.  Future privacy systems will require end-to-end anonymization, synthetization, and permission management of data with zero risk of re-identifying customer information.  These structures will incorporate methods for synthesizing (or distributing) financial datasets that follow the same properties of the real data while respecting the need for privacy of the parties involved in financial interactions.  Fundamentally, an increasingly open financial system will require a paradigm shift around data privacy, enabled by frontier technologies (ZKP, MPC, synthetic data) to ensure end-users remain the ultimate proprietors (and beneficiaries) of their own data and the associated meta data. 

 

• Security
  • Financial systems are amongst the most targeted across the cyber universe, with cyber attacks posing a substantial risk to the stability of the overall financial sector.  New forms (and growing sophistication) of cyber threats will force ill-equipped organizations (from SMEs to large enterprises) to adopt new technologies and revamp security systems.  This begins with data security.  Data security (and the technologies ensuring it) will play a foundational role in the emerging data ecosystem.  As hyper-connectivity accelerates, so does the risk of fraud, hacking, and data compromise, and other cyber-vulnerabilities.  Frontier security technologies such as MPC (multi-party computation) will help organizations maintain an appropriate balance between security and customer convenience.  Though quantum computers do not have enough compute power to break encryption keys today, quantum-resistant cryptography technologies will determine the long-term trajectory of data security.

 
3D Finance
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.
 

​Conclusion
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).
 
Acknowledgements
In addition to the MGV team, underlying research credit goes to Clement Parramon and Inder Takhar, with support from Matt Lobel.

Seven MGV Focus Trends in Capital Markets & Asset Management 
We have organized our research and investment efforts around seven key trends that will transform a cross-section of functions within and beyond the financial services landscape: 

1. FinData & Alternative Data The accumulation of data and development of analytical tools – a financial data ecosystem that we have termed FinData – 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.  Separately, the proliferation of alternative data sets driven by advanced data mechanisms or new asset classes will see tremendous growth over the coming years as investors seek alpha and more robust analytical models.  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. 
2. Post-Trade Automation DLT and other technologies will transform the ancient and capital-intensive clearing, settlement, and custody infrastructure.  While past innovations in CM have been heavily focused on pre-trade and trading functions, post-trade services remain highly inefficient, opaque, and paper-based.  We believe that core infrastructure upgrades will improve market functioning and spawn a new ecosystem of innovations across the post-trade lifecycle, including clearing & settlement, as well as custody (particularly the self-custody of assets, which will have broader repercussions across multiple trends highlighted in this report).  In particular, post-trade automation is a clear use case for DLT, with prominent industry-wide projects underway globally across asset classes and transaction mediums (e.g., primary bond issuance, OTC derivatives).  This promises to be a force multiplier for current market functioning, while also providing the rails for a host of new innovations.  
3. OmniFi OmniFi, as outlined in a prior blog post, is our term for the financial services spectrum spanning the current centralizing characteristics from Centralized Finance (CeFi) to the emerging power of Decentralized Finance (DeFi) while encompassing a host of applications (tokenization, fractionalization) that are being built on top of blockchain systems.  Fractionalization and tokenization can straddle both the centralized and decentralized worlds within OmniFi.  Innovation is happening at both ends (DeFi and CeFi), and we expect convergence over the medium-term in these structures.  Unlocking value in this segment is premised on private/public key technology, which would allow for the complete revamping of the custody of assets, and thus pioneering an entirely new ecosystem by giving the asset holder ultimate control (in this case, custody) over one’s assets. 
4. Tokenization & Fractional Investing Technology will seed widespread tokenization / fractional investing across nearly all asset classes, including physical assets such as crude oil or real estate, financial assets such as stocks or other securities, and, of course, crypto assets – driving issuance, trading, and custody innovation.  New ways to issue digital assets across various mechanisms and underlying asset classes will create new marketplaces to trade and custody these products.  All tokenized assets are fractionalized, but it is important to note that not all fractionalized assets need be tokenized.  This is fundamentally a force multiplier as new asset classes and the repackaging of existing asset classes for the digital age -- coupled with increased interoperability and fungibility across assets (less friction buying and selling or swapping between assets, less friction fix wise, less friction custody wise) -- will empower investors to pursue novel investment strategies untethered to legacy infrastructure.  
5. RegTech & Compliance We believe that compelling supply and demand variables will slowly seed traction in the use of technology by financial institutions and regulators for compliance and risk monitoring.  Regulatory compliance represents a huge pain point with emerging technologies offering a better, faster and cheaper approach.  The next generation of RegTech give rise to new data sets, forensics/compliance across asset classes (both current and new), and novel ways of assessing/pricing/managing risk.  This trend will encompass what we call Compliance-as-a-Service, enabling incumbents and small firms alike to manage their regulatory burden.  We expect that global regulators will ultimately follow the example of the FCA in the UK and begin pushing for automated compliance controls (opportunity for regulatory system to get more insightful data earlier and at scale, to examine prudential and systemic risks), thus easing adoption and internal friction at many institutions.  Importantly, increased connectivity across institutions and platforms and regulators will drive an additional tailwind for cyber, privacy, and security efforts. 
6. Digital Client Lifecycle Consistent with a platform approach to the customer relationship, it will be necessary for incumbents to provide a seamless client experience from onboarding to client reporting to product offering.  We see a host of opportunities centered around improving the existing client experience through greater efficiencies or adding new functionality and products to deepen touchpoints with existing clients/customer segments that may have previously been more difficult to service in an economical fashion (e.g., SMEs, mass affluent private banking services).  We are focused on startups that either provide meaningful revenue enhancements to incumbents through new product functionality, client sourcing and data aggregation, or deliver significant cost-savings through streamlined back-office infrastructure.  Examples here include: 1) Digital core offerings; 2) open source infrastructure; 3) AI/NLP-based documentation technologies; 4) gamification; 5) integrated onboarding tools; and 6) client generation and associated client/data aggregation tools. 
7.  ESG & Governance While Environment and Social are vital to the equation, Governance is our key focus when it comes to ESG innovation across financial services.  The "G" in ESG will be driven by data in a distributed fashion, paving the way for potential structural changes in the issuer/buy-side relationship.  Shareholder and corporate governance will have much more teeth versus the largely pro forma proxy voting system if investors are able to vote or otherwise impact how an investment is managed.  This could fundamentally alter the role and influence of the investor class.  In a financial future with private/public keys, we can think about the merger of proof of stake and governance that are controlled by the asset holder and where activism and voting take on a completely different meaning, whether baked in the code of a particular asset or a posteriori.  So in other words, ESG is not only about “new asset classes” but potentially the much more powerful ability for the buy-side to have fully actualized ESG directives via transparent and direct governance. ​

3D Finance 
These focus trends in Capital Markets & Asset Management 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.  

We are pleased to announce our newest investment in Keyrock, a liquidity management and market making service provider to the digital assets space. 

Here is a key quote from one of our Managing Partners, Pascal Bouvier, from the Keyrock press release: "One of our core themes at MGV is the rise of digital assets as the next evolutionary step for capital markets and asset management. For us, true rise of digital assets (crypto, endogenous to a protocol, tokenized representations of physical or financial assets) implies new market structures, new pre-issuance, issuance and post-issuance processes. That is why we firmly believe in Keyrock and are very excited to invest in them, as they are building the foundation for liquidity management and market making of these new assets going forward."

You can find the Keyrock press release here: 

We are pleased to announce our latest investment in Wayflyer as they scale their differentiated platform for ecommerce merchants. The company is at the forefront of innovative Open Banking technology solutions that bridge big data analytics with customized financial products to help clients grow faster and more economically. 

View the company's announcement for further details.
​

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.  This blog, the second in a series, is focused on OmniFi.  OmniFi is our term for the financial services spectrum spanning the current centralizing characteristics from Centralized Finance (CeFi) to the emerging power of Decentralized Finance (DeFi) while encompassing a host of applications (tokenization, fractionalization) that are being built on top of blockchain systems.  
 
 OmniFi 
This next decade of OmniFi, and therefore FinServ, will usher in fundamental shifts in market structure and data asymmetries through increased decentralization (more open source, more disintermediation, more distribution) driven by leaps in infrastructure-layer innovation.  However, we do not believe in extreme decentralization (where value may accrue incongruously) nor in status quo centralization (where value may accrue in a black box), but in a merging of the two into more efficient, more open financial systems – hence, our term OmniFi. 
​
To clarify, we do not believe that one system or governing structure (CeFi or DeFi) will “win” – hence, we are not “maximalists” or proponents of one system at the expense of the other.  Rather, we believe the main ecosystems that comprise OmniFi will converge over time into something better.  Further, we believe that many aspects of OmniFi will significantly impact Open Banking and similar movements in capital markets, asset management, and other verticals to create a true era of Open Finance.  Better said, OmniFi is the transitional competitive milieu over the next decade that will lay the groundwork for Open Finance. 
​
For example, new ways to issue assets (tokenization, digitization, blockchain/DLT) will lead to new asset classes, driving a drastically different value chain in capital markets and asset management, helping pave the way for new frameworks to drive financial innovation outside legacy systems and infrastructure. 

MGV has already invested in two companies that are championing trends in this space (Coinfirm, Nivaura, and Keyrock).  Our research has uncovered nearly 400 other early stage startups attacking the opportunity across multiple vectors employing a cross-section of technologies (DLT, Ai, RPA, Data Analytics).  Simply put, there is enormous talent and energy focused on innovating the core infrastructure of the financial system.  This is a natural evolution from the exponential rise of bitcoin and cryptocurrencies, to NFTs, to the ICO craze, to now:  a serious rebuild of infrastructure by fantastic teams attacking real opportunities. ​

Seven MGV Focus Trends in OmniFi
We have organized our research and investment efforts around seven key trends that will transform a cross-section of functions within and beyond the financial services landscape: 

1. Enterprise Blockchain: Manual, paper-intensive workflows for internal and cross-organizational reconciliation will become digitized, creating significant efficiencies and cost savings for incumbents across horizontal processes (e.g., post-trade issuance/settlement, regulatory reporting).  These changes will create new market efficiencies (lower friction, regulatory risk) for both the buy side and sell side while providing the rails for a wide array of innovations (e.g., multi-party data sharing, fully-digital shares upon origination).  Early leaders have emerged here including Axoni, Ripple, Symbiont and Clearmatics.  New entrants are attacking attractive use cases across all verticals, from capital markets to insurance. 
2. CeFi (Centralized Finance): Driven by growing awareness, retail crypto adoption is being catalyzed by emerging crypto startups (Coinbase), retail trading startups (Robinhood), regulated exchanges (Gemini, ErisX), and payments firms (Square, PayPal).  However, to enable widespread retail and institutional adoption (e.g. banks, asset managers, family offices), the sector needs to make a giant leap forward from Crypto v1.0 today.  Processing time (10 min/transaction for Bitcoin), scalability (unsustainable energy consumption), and privacy/security concerns (seven exchange hacks in 2019 alone) remain stubborn impediments to widespread institutional adoption.  However, change is afoot.  In tandem with increased regulatory acceptance, multiple Central Bank Digital Currencies (CBDCs) and an abundance of tokens/ cryptocurrencies will continue to spur private sector innovation (e.g., new transaction mediums) and reduce dependence on centralized payments systems (e.g., SWIFT, CHIPS). 
3. Tokenization: Technology will seed widespread tokenization across nearly all asset classes, including physical assets such as crude oil or real estate, financial assets such as stocks or other securities, and, of course, crypto assets.  This will drive issuance and trading innovation and will also enable new downstream services in administration, servicing, and custody.  As tokenized infrastructure becomes increasingly robust, future token projects will ultimately leverage both decentralized systems (which emphasize trust) and centralized systems (which emphasize efficiency and compliance) to create unique incentive structures catalyzing a new wave of financial services innovation.  With increased interoperability and fungibility across assets, investors will be empowered to pursue novel investment strategies untethered to legacy infrastructure.  A further enabler will be fractionalization, which is certainly not the same as tokenization although many seem to merge the two concepts (all tokenized assets are fractionalized, but it is important to note that not all fractionalized assets need be tokenized). 
4. DeFi (Decentralized Finance): DeFi is premised on the full decentralization of FinServ by reinventing how assets are issued, traded, and held (contra to the constructs of incumbent banking and all centralizing agents).  However, this will not happen overnight.  While we believe DeFi will follow Amara’s law (overestimated in near-term, while underestimated longer-term), decentralized infrastructure today is already being built for lending, borrowing, trading, and derivatives – in the process enabling +20x cost savings versus fully centralized systems for a niche set of users.  Though unlikely to exist in its purest and extreme incarnation, lessons from DeFi will converge with centralized infrastructure to give way to cheaper, faster, and more transparent FinServ.   
5. Self-Custody: An important innovation that will revolutionize asset management, self-custody technologies is a key enabler for new forms of FinServ that will unlock the entire custody chain by giving institutions and individuals enhanced control over the ownership and trading of both new and existing assets.  Aside from regulatory uncertainty, insufficient custodial solutions and asset security remain the biggest roadblocks to institutional adoption of the crypto asset class.  Unlocking value in this segment is premised on private/public key technology, which would allow for the complete revamping of the custody of assets, thus pioneering an entirely new ecosystem by giving the asset holder ultimate control (in this case, custody) over one’s assets. 
6. Reinventing Governance: New voting structures enabled by blockchain – including on-chain digital voting and proof of stake models – will reimagine, reshape, and ultimately reinvent corporate governance structures in the information age.  Blockchain systems have unique properties (peer-to-peer digital voting, censorship-resistance) that can mitigate human error/self-interest in governance (i.e., the principal-agent problem) by augmenting or replacing agents with smart contracts, smart property, and code.  In a financial future with private/public keys, one can contemplate the merger of proof of stake and governance that are controlled by the asset holder and where activism and voting take on a completely different meaning, whether baked in the code of a particular asset or a posteriori.  Put differently, one can imagine a straight line path to fully actualized ESG directives via transparent and direct governance. 
7. Risk & Data Management: Institutional adoption of digital assets and OmniFi is contingent on appropriate risk and data management.  Thus, the growth of OmniFi will require a whole new class of providers (oracle as a service, data analytics, KYC/ AML, cybersecurity, insurance) to leverage new data sets and data flows and ensure on-chain and off-chain data connectivity, including institutional standards of security, compliance and legal safeguards.  The advent of zero-knowledge proofs, multi-party computation, and homomorphic encryption are technological breakthroughs that will drive institutional crypto adoption.  These technologies not only ensure privacy and security in financial transactions, but also offer a more efficient, lower cost way to exchange information.  

3D Finance 
These focus trends in OmniFi 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. ​