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.
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:
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.
If you are a high-potential pioneering startup in the OmniFi ecosystem 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, and ESG (also see our initial post in this series on Open Banking).
In addition to the MGV team, underlying research credit goes to Inder Takhar, with support from Matt Lobel.
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