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. ​

As we at MiddleGame Ventures (“MGV”) begin to put money to work in our latest fund, 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 first in a series, is focused on Open Banking (OB).
​
Opening Banking
Open Banking, seeded by forward thinking regulation in the UK and EU (PSD2) and accelerated by new technologies and customer preferences, is redefining the role of global banking services and opening up a host of new businesses along the way.  MGV has already invested in two companies that are championing trends in this space (Minna Technologies and Railsbank).  Our research has uncovered over 500 early stage startups attacking the opportunity across multiple vectors including middleware technology providers, platforms, and privacy tools.  In short, there is a lot of energy and opportunity in this space.
 
Over the past decade, the banking paradigm has radically changed with the rise of dozens of new channels and platforms that are disintermediating traditional providers of banking and payments services and broadening the scope of customer engagement (e.g., SMEs).  As these trends play out, we believe the payments and application layers in the OB ecosystem are best positioned to benefit, while incumbent banks will need to revaluate and reinvigorate their value proposition.  Whereas, other non-traditional financial verticals stand to benefit from the expansion of payments and finance rails. 
 
Customer expectations (transparency, tailor-made products, omni-channels), new entrants (big tech, fintechs, neobanks), new technologies (API integrations, cloud banking, DLT), and regulations (PSD2, GDPR) are the core enablers for OB and will drive the expansion of OB-like innovation beyond the banking and payments sectors.  As OB schemes proliferate, Open Finance and Embedded Finance will dominate the future of FinServ, leading to the emergence of a meta financial universe that blurs the financial and non-financial sectors (more to come on these themes later).
 
Six MGV Focus Trends in Open Banking
We have organized our research and investment efforts around six key trends, that implicate payments and banking, in addition to other financial services verticals:

1. Network Interoperability: The fundamental stitching (i.e., middleware and technology enabling platformification) of the new ecosystem will broaden the banking and payment rails to allow for the networking of accounts and functions for use by consumers, financial institutions, and third-party service providers.  This will unleash a wave of innovation between traditionally siloed incumbents (FIs, payment networks) and a host of fragmented economic actors (corporates, SMEs).
2. Customer Engagement: OB will expand the ability to leverage data and new platform connections to broaden product offerings to new customer segments.  For example, the white-labeling of AIS or PIS, cash management solutions, B2B payments, and tax assistance are examples of previously unattainable or uneconomical channels for integrated services to new or existing clients.  In particular, expanded SME services is an important new avenue.  Overall, increased interoperability will reduce friction and allow for the emergence of closed networks that foster better payments functionality, greater customer loyalty, and lower costs – enabling the proliferation of e-wallets and greater use of IoT devices, with attendant economic and data benefits.   
3. Identity, Privacy & Security: Privacy enhancing techniques (PET) and identity are key to reducing friction and enabling new linkages across OB marketplaces through added security for users – and are thus well positioned to become the central rails of the new OB ecosystem.  Without the ability to unify and aggregate customer information in a seamless manner, the benefits of platforms and account linkages will be more difficult to realize for a host of participant verticals across the ecosystem.  Examples of enabling technologies include differential privacy, federated analysis, homomorphic encryption, zero-knowledge proofs, and secure multi-party computation (MPC).
4. Crypto to Fiat: Two separate universes will collide and interact as the facilitation and integration of digital currencies will exponentially drive growth by enabling an interoperable world between traditional and digital currencies.  This will open up a host of new opportunities and asset classes that will expand the boundaries of OB, and open up new avenues for innovation in payments and banking (and beyond).  As digital asset adoption accelerates, open banking will pave the way for startups ushering in new, blockchain-secured systems and crypto-fiat rails.  
5. Open Banking to Open Finance: Beyond Open Banking, we predict the near-future emergence of the wider concept of “Open Finance”, expanding customer data shared within the fintech ecosystem to lending, investments, pensions, etc.  Historical barriers to entry in financial services (regulatory, customer data, core systems) are disappearing with the development of “as-a-service” platforms across an array of financial verticals.  DLT will help Open Finance expand globally via secure data storage and management solutions that will shift the burden from the institution for data privacy to the individual via self-sovereign identities (i.e., the ability to create and secure digital identity management that enables trust by empowering consumers).  We believe the self-custody a customer’s bank account represents a key enabling bridge to broader Open Finance use-cases. 
6. Metaverses & Embedded Finance: The redefinition of financial services outside the traditional FinServ vertical, reflecting the merging of FinServ, BigTech, FinTech and other non-financial services participants will redefine the legacy boundaries of financial services.  “Embedded Finance” is the integration of financial services tools and applications to non-native financial services businesses, enabling non-financial companies to enhance or even transform value propositions through embedded financial products and services (e.g., payments, lending, wealth, investments, insurance).  This, in turn, will enable the emergence of a meta financial universe (persistent, interoperable, dynamic and synchronous) that will seed the vertical integration of financial applications into non-financial ecosystems.  (Again, more to follow on this in a subsequent blog.)

 
3D Finance
These trends in Open Banking and beyond 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 3D Finance, 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 FinTech startup attacking core pieces of the Open Banking/Open Finance value chain or if you are an incumbent seeking to identify opportunities within these emerging ecosystems, 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, including: Capital Markets & Asset Management, FinData, ESG, and OmniFi (our term for the spectrum of blockchain and DLT based centralized to fully decentralized finance).
 
Acknowledgements
In addition to the MGV team, underlying research credit goes to Antonin Gury-Coupier, with support from Inder Takhar and Matt Lobel.

We are pleased to announce our latest investment in Coinfirm. Coinfirm is a blockchain data analytics and compliance startup led by a very strong team of professionals and experts in the fields of data science and financial services compliance. 
​
www.coinfirm.com/blog/coinfirm-funding-middlegame-ventures/

MiddleGame Ventures is pleased to announce its latest investment in Next Gate Tech (NGT), a Luxembourg based fintech startup. NGT is specialized in smart automation of middle and back office processes in the fund administration and asset management industries.

​nextgatetech.com/content/#!/blog/1594192616_next_gate_tech_raises_an_additional_round

News Release
MiddleGame Ventures Announces €150m FinTech-Focused Fund
~ fund achieves first close and targets early stage financial services technology pioneers ~
 
Luxembourg, Nov 25 – MiddleGame Ventures (MGV), a fintech-focused investment firm, announced today that it had raised a new fund targeting post-seed, series A and series B lead investments in Europe and North America.
 
MGV’s Venture Fund I has achieved its first close, with a final close target size of €150MM. It will invest in and partner with B2B and B2B2C startups driving the transformation of financial services from analog to digital and from centralized to decentralized, with an emphasis on middleware and back office solutions. Its remit extends to enabling technologies such as RegTech, Digital Identities, “FinData” and crypto-enabled infrastructure across banking, asset management, insurance, payments, and capital markets. 
 
The Luxembourg Future Fund (LFF) and the European Investment Fund (EIF) are anchor investors in the new MGV fund, whilst S&P Global is included among other institutional, strategic and family office investors. The fund remains open to additional institutional and private investors ahead of a final close later in 2020.
 
FinTech investment veteran Pascal Bouvier is co-founder of MGV along with Michael Meyer and Patrick Pinschmidt. Pascal said: “We are pleased to have new capital from substantial investors to support great, transformational businesses across Europe and the US with our highly focused fund. Our investors agree that specialist funds with experience working with entrepreneurs, incumbent financial institutions and regulators are best placed to thrive in an environment characterised by financial and technological cross-currents and significant regulatory constraints. We are excited to put our platform to work on behalf of investors and the next wave of innovators solving hard problems and re-architecting the industry.”
 
Patrick Nickels, chairperson of the Luxembourg Future Fund Board of Directors, added: “We are pleased to be an investor of MiddleGame Ventures fund aiming to support early stage FinTech companies. The Luxembourg Future Fund believes this commitment will help to strengthen the FinTech industry in Europe and generate positive spillovers in Luxembourg. This is a strategic sector for Luxembourg for economic diversification and we are delighted to contribute to its continuing development.”
 
“We are delighted to be supporting MiddleGame Ventures as an anchor investor in its new fund," said the EIF’s chief executive Pier Luigi Gilibert. “The EIF has a strong commitment to innovation in Europe, and we hope that this fund, with its focus on FinTech entrepreneurs, will assist us in that goal.”
 
MGV partners have invested over USD $300 million in early stage financial services firms over the past decade including Ripple, Tandem Bank, SimpleSurance, Coverhound and CompareAsia. MGV’s new fund has already made three representative investments in a capital markets digital platform and banking as a service and big data analytics startups in the UK (Nivaura, Railsbank and Gardenia Technologies). 
 
ENDS
 
About MiddleGame Ventures
MiddleGame Ventures (MGV) is a leading financial services technology venture capital firm. Its focus is on supporting innovation in the financial sector as organisations reinvent themselves to compete and service clients in the digital age. 
 
Central to MGV’s thesis is that disruption in banking, payments, capital markets, asset management and insurance business models by new intermediaries will drive a fundamental re-architecting of incumbents and create entirely new value chains.
 
MGV is well-positioned to help this financial services renaissance based on the founding team’s extensive investment, operational and regulatory experience.
 
MGV was established in 2018 by Pascal Bouvier, Michael Meyer and Patrick Pinschmidt.  Bouvier and Meyer have substantial FinTech investment experience having co-founded Route 66 Ventures and consulted with Santander InnoVentures. Pinschmidt was a senior official at the US Treasury Department following a decade as a sell-side research analyst covering financial services for Morgan Stanley and Merrill Lynch.  
 
MGV is headquartered in Luxembourg with offices in Dublin and Washington DC. 
 
MGV also owns and operates NadiFin, a growth stage accelerator for European startups (www.nadifin.com) based out of Luxembourg.
 
For more information on the MGV team, strategy and portfolio, please visit www.middlegamevc.com.
 
About the European Investment Fund
The European Investment Fund (EIF) is part of the European Investment Bank group. EIF’s central mission is to support Europe’s micro, small and medium-sized businesses (SMEs) by helping them to access finance. EIF designs and develops venture and growth capital, guarantees and microfinance instruments which specifically target this market segment. In this role, EIF fosters EU objectives in support of innovation, research and development, entrepreneurship, growth, and employment. 
 
About the Luxembourg Future Fund
The Luxembourg Future Fund (LFF) is a EUR 150 million equity fund set up in 2015 by the Société Nationale de Crédit et d’Investissement (SNCI) and the European Investment Fund (EIF) and combines a EUR 120 million commitment from SNCI with EUR 30 million from the EIF. In addition to its role as investor, EIF acts as the adviser of LFF, performing investment advisory, operational, reporting and execution tasks. The LFF invests in Venture Capital funds and co-invests in early and growth stage innovative technology SMEs. Its objective is to provide its investors with a risk commensurate return on investments while at the same time fostering the sustainable development and diversification of the Luxembourgish economy.
 
Contact
Patrick Pinschmidt
Telephone: (1) 202-750-4622 
patrick@middlegamevc.com