{Music}
 - Welcome, everybody,
 to Stern's Third
  Annual FinTech Conference.
 We're so excited
 that you're all here.
 Thank you for coming.
  I think we've got
  an amazing day,
  and you're gonna
  have a lot of fun.
So I'm Kathleen DeRose.
I'm a professor here in
the Finance Department,
  and I'm one of
  the many champions
 of FinTech here at Stern,
 so I'm here to kick it off.
 We have a great day.
 So why do we have a
 picture of lava lamps?
 So they were a feature in
 college dorms at some point.
 This is the randomness wall,
 the interview wall at
 Cloudflare in San Francisco.
  And they literally train a
  video camera on this wall,
and use it, the movement
of those lava lamps
  as their randomness kernel
for the cryptographic protocols
for their internet business.
  That's pretty cool, right?
  Why am I showing you this?
 Well, randomness is
 this cool feature
 of both data
 science and FinTech.
  We have it in both finance
  and analytical systems.
  And that's what this
  whole conference is about,
 is about data
 disruption in FinTech,
 and how these two
 fields are converging.
 So we've moved well beyond the
 very beginnings of FinTech,
 and we're starting
 to see the emergence
 of real platforms in finance.
 And in fact, we may even be
 at a point where
 Venmo gets Venmo-ed.
  So FinTech started with a
  really simple idea, right?
 That you could rebuild any of
 our major financial systems
 with simple things
 like mobile networks,
 API plug-ins, and
 open source software.
  Today we moved well beyond
  that to things like this.
Where we can do analytics on
unstructured or unlabeled data.
Where we can un-bundle,
and like this company,
Stash-Invest, here in New York,
 offer investment services for
 an entry place of just $5.
 We're able to do collaborative
 and subjective tasks
 in an automated way.
  One of the companies here
  today, Dream Forward,
 automates 401(k)
 advice with a chatbot.
  This allows us to unearth
  hidden dimensions.
 I borrowed this
 picture from the head
 of data science
 from Ant Financial.
The point he was making was that
  you can unearth
  latent dimensions,
  like the fact that people
  who wear skinny jeans,
 sit on their iPhones
 and break them.
I ask you if that's monetizable?
 But when I told this
 story to the head
  of a major insurance
  company here in New York,
 he said, I'm running down the
 hall to tell my underwriters
 who insure iPhones,
 about this problem.
 (audience chuckles)
  We're also able now to
  better match, potentially,
financial products and services
with people who use them.
 I would be remiss if
 I was standing here
 and I didn't start to
 celebrate a little bit
 some of the FinTech programs
 we have here at Stern.
 We're really excited
 to be considered
  one of the leading
  FinTech programs
 offering full courses
 to undergrads, MBAs,
 and starting next
 year, online courses
and also executive MBA programs.
  And we're really pleased,
 and I would like to highlight
 or maybe brag a little
 bit about the fact
that one recent survey ranked us
 ahead of both Harvard
 and MIT in FinTech.
  Yay, that's cool.
We're also really excited to be
  thought leaders in
  FinTech research.
  So one of the cool
  things about today
  is that you'll get to hear
  some leading researchers,
  not only here at NYU, but
  from around the world,
 who are studying
 the latest problems
in data science and in FinTech,
and that's really exciting.
 It's really exciting
 because FinTech
 raises all these
 cool challenges like,
 how behavior will change and
 be reshaped by FinTech advice,
 or how businesses might
 transform because of FinTech.
Or lastly, policy
implications of FinTech,
 like maybe for the first
 time we actually get a chance
to reduce intermediation costs.
That's pretty exciting.
 The third area of
 emphasis for us here
 at Stern and FinTech is
 ecosystems events like this.
So we think this is a
really cool opportunity
 because it's one of the
 only conferences in New York
 that brings together
 people from academia
 and from the commercial world.
And that's a huge
opportunity for you guys
to enjoy yourselves and network.
 Most importantly though, and
 what we're most proud of,
 is that we're reaching so
 many students around the world
through these programs and
helping them shape their future
 and adapt to a world
 where technology
is really transforming
business and our lives.
 I wanna say a special
 thank-you to the Fubon Center,
 that's the host of this event.
 And the Fubon Center
 was formed this year
  thanks to a very generous
  donation from an alumni,
 and it's intended
 to sponsor research
at the intersection
of innovation,
technology, and society.
So thank you very much to them.
  I'd also like to give a
  shout out to our sponsors.
 We have five of them.
 Their names are on the board.
  We're very, very
  grateful for this.
 We are a nonprofit and
 this does enable us
to reach more people,
so thank you very much.
 I'd also like to
 thank the many people
 who made this
 conference possible.
 You know who you are.
 It takes a tremendous amount
 of work to do these things.
And you'll have a chance
to meet many of them
  running around, including
  our MBA FinTech Club
  and the assistant director
  of the Fubon Center.
 So thank you to them.
  A few notes on logistics.
 So we have a very full day.
 The morning, we have
 an amazing keynote,
 who I'll kick it off
 to in just a second,
 we have two academic panels,
  and we'll get to hear some
  of the latest research
in blockchain and other things.
 Then we have a very
 cool lunch event,
  where you'll get a chance
  to have table topics
and talk about various subjects.
 You can pick the one
 you're interested in,
 or you could just hang out and
 have a sandwich and network.
 The afternoon is
 also chock-a-block.
We've got demo sessions.
  We've got two more panels,
 and we have a closing keynote,
 and champagne
 reception at the end.
 So make sure to stick
 around for that.
 The all-important bathrooms
 are to the right on this floor
 and there's another
 one downstairs.
 And I hope you really,
 really enjoy the day.
 And most importantly,
 enjoy participating
 in meeting and greeting all
 the various people here.
 So have a great time.
And now, if Matt's here,
  I can turn it over to him
  for our keynote address.
 Is Matt here?
  So Matt Harris is
  one of the leading
 FinTech VCs here in the city.
  He's a managing director
  of Bain Capital Ventures.
  And he'll be our keynote
  speaker in just a moment.
 Oh, there--
 - I heard you call my name.
  We run a tight ship here.
  - Stage right.
 Yeah, exactly.
 Welcome very much.
 - Good to see you, thank you.
  - Thank you.
  - I'm so glad to be here.
 - You give amazing
 talks and you tell us
 all about what's
 going on in FinTech
 right now.
 - Wow, no pressure.
- So we're super
excited to have you here
 and there you go, thanks.
 - Thank you, I appreciate it.
I'm thrilled to be here.
  Thank you all for coming.
 Thanks for having me again.
 So for better or for worse,
 I did this last
 year, as mentioned,
and really went through
almost all my content.
So I've had to kinda
develop some new tricks,
which I'm gonna demo on you all,
  and we're gonna
  hope it works out.
 So I'm gonna go light on what
 I talked about last year,
  which is basically
  kind of history
 of venture capital in FinTech.
 We've got some of the slides,
and we'll touch on it for those
 who aren't familiar
 with that material,
but I wanna talk about
three things primarily.
So we'll take as a given
 that the venture capital
 world has discovered FinTech.
 So let's go a level
 deeper here today.
 On one, what are the
 frameworks we use
at Bain Capital
Ventures to think about
the different
sub-segments of FinTech?
 I'm just gonna
 choose two examples
 to give you a sense
 for how we think about
a couple facets of this
multifaceted segment.
  Two, what are the
  current trends right now?
  So that was stuff I didn't
  talk about last year
 'cause things have
 changed pretty quickly
and I'm gonna kinda whip through
a bunch of different trends
 for you to take away
 and then obviously,
  you'll have access
  to this material
 if anything prompts
 your interest further.
 And then finally,
 I have a few slides
and really some early
thinking on the future.
 And as you'll hear
 throughout the talk,
 I have some concerns about
 FinTech's continued growth,
  but yet I think I
  have a way forward
to where I can maintain
employment for a few more years
and continue to find
interesting things to invest in.
  So we'll talk about that.
So that's my agenda here today.
  I remember vividly
  from last year
 that I gave my talk and there
 were a few minutes remaining
and I opened it up for questions
and that's where things
got really interesting,
 so I'm not gonna make
 that same mistake.
  I'm gonna keep my
  remarks contained
a little bit more than last year
and leave us more time for Q&A.
 Class participation will be
 part of your final grade,
 so I do recommend that
 you start thinking
 of interesting questions now.
And away we go.
 So as mentioned, I'm
 gonna talk a tiny bit
 about Bain Capital Ventures
 and the industry overview,
 and then do this deep
 dive into sub-segments
 and talk a little
 bit about the future.
 Who are we?
 So Bain Capital's a
 big alternative asset
 management firm.
 Just hit $100 million
 here this year,
$100 billion, did I say million?
$100 million is more
like what I do at most,
 so we're that smallest
 part of Bain Capital.
  We run the ventures group.
We invest about $300
or $400 million a year,
 and we do half early-stage.
  You know, I've done two
  or three seed investments
 a year for the past six years.
  So we do a lot of
  seed investing.
 We do a lot of
 Series A investing.
Leading Series A's is
fully 40% of what we do
 and then another 50%
 is growth equity,
$25 to $100 million investments
 in companies that are scaling.
  But still from an
  AUM perspective,
 that puts us on the small end
 of things at Bain Capital.
 We've had a pretty good run.
 I have to say the
 whole venture industry
  has had a pretty good run,
 so we can't claim to
 be unique in this,
 but a bunch of IPOs
 here in the past year.
  DocuSign is a company
  that we're very proud of.
SendGrid, we just merged
with Twilio this week.
 A bunch of other scale
 companies over time.
And again, generally,
if we're doing it right,
 we're really getting
 into these companies
  at the Series A if we can.
 FinTech has been very active.
So we've invested about
$100 million a year
in financial technology
for the past five years.
 I started my career at
 Bain Capital in 1995,
 back when it was a relatively
 small private equity firm.
 I left and started
 my own firm in 2000,
a firm called Village Ventures,
 to do nothing but
 early-stage FinTech,
 which was really a
 mistake at the time.
 I mean, really FinTech
 was not a sector
 and despite my earnest wishes,
 it did not become a sector
  for seven or eight years.
 So I spent that time kinda
 wandering in the wilderness,
 trying to learn what I could
 about payments and lending
 and capital markets
 and insurance,
  but ended up being
  well positioned
 in '07, '08 when the
 industry started to pick up.
 And then I came
 back to Bain Capital
  when the industry started
  to kinda go bonkers
  and represent 10% of the
  venture capital industry,
 and I really wanted a bigger
 platform than Village.
 And so for the past
 five years now,
 six years now, I've been
 running the New York office
  for Bain Capital Ventures
and doing all these FinTech
investments, which you see here.
And you also see our framework.
 Payments is the bulk
 of what we've done.
Certainly, by dollar and
more or less by logo.
  And I'll talk a little bit
  about what we like there.
 It's also historically
 been the bulk
of what made up FinTech.
It certainly represented
the first activity
 that really picked up
 steam within FinTech,
 really the founding of Square
 is kinda what I point to as
 the birth of modern FinTech.
  And if you go back
  before Square,
you would ask yourself in 2000,
when I started looking at this,
 what are the set of
 financial services activities
  that take place outside
  of regulated institutions?
 The only real answer
 at scale was payments.
  In the '90s, the banks,
  for a variety of reasons,
 decided in most cases to
 more or less exit payments,
to stay in it sometimes
through joint ventures,
  with companies like First
  Data, but in many cases,
  to just spin out their
  payments units altogether.
 And so that, and one of the
 metrics you could think about
 in FinTech is what percent
 of economic activity across
 these four boxes is done
 by the regulated incumbent,
 and what percent is done by
  the technology
  enabled insurgent,
payments was the first to move.
 You know, was fully 25% by
 the time Square was founded,
  it was already 25% to 30%
  non-bank relative to bank.
 And the report just
 came out last week
 that it's over 50% non-bank
 relative to bank in payments.
 And so one of the
 existential questions
that I think a lot about
 is will that happen
 in other segments?
 Will broker-dealers
 retreat in investing
 and non-regulated incumbents
 take market share?
  Will non-bank lenders take
  that kind of market share
 in the credit space
 from banks, et cetera,
 and so on and so
 forth in insurance?
So I happen to generally believe
no is the answer to that,
but it obviously is very
nuanced by category.
 So very active in payments.
 Very interested in
 investing, defined broadly.
  So institutional and
  retail, asset management,
wealth management, marketplaces.
 We'll talk more about
 our frameworks there.
  Definitely missed lending
  relatively deliberately.
 I had been the first investor,
 went on to become
 chairman of a company
 called OnDeck Capital,
 here in New York.
 Small business lender,
 now a public company.
 And what we invested
 from Village
  at a two and half
  million dollar valuation,
 and it's worth
 $600 million today.
 And it was a great experience,
 therefore financially,
 but it round-tripped through
 about $2 billion in value,
 which makes it a lot less fun.
  If you sort of go straight
  line from 2 1/2 to 600,
 that's a good time.
 Round-tripping through
 two billion changes,
the dynamics of that experience,
  particularly as
  a public company.
And basically, it was an
incredibly hard education for me
  about how difficult it is
  to build a lending company
 as a non-bank without access
 to really inexpensive capital
 and a regulatory apparatus.
 So I sort of have been
 gun-shy about that,
 defy and even represent
 really technology companies
in and around lending,
but not lenders, per se.
And then insurance,
we've had some success.
 SquareTrade, it was a
 company that we sold
 to Allstate for $1.4
 billion in 2017.
 And we have three companies
 that we're still
 very excited about.
 And again, I'll talk
 a little bit more
 about emerging
 opportunities in insurance.
 So that's us.
 I promised some frameworks.
 I don't know if that
 was met with glee,
but I did promise them,
 so I'm gonna talk about 'em.
 So this is what we like to do.
 And we do it across all the
 segments that we invest in.
  We really try to boil
  down to first principles,
what's going on in an industry?
 And in fact, we have
 a distinct reluctance
to invest in horizontal
technology companies
because this is the way
we approach the world.
 We approach the
 world by saying like,
 what are the
 problems to be solved
 in an industry value chain?
 And a lot of entrepreneurs,
  and certainly a
  lot of other VCs,
  ask a different
  kind of question.
  They ask the kind
  of question like,
  what are the problems that
  a blockchain could solve?
Or what are the problems
that exist in the world
 that lend themselves
 to machine learning?
 And that is never a
 question we would ask.
 Despite the fact
 that a lot of people
 have had great success with
 certainly raising capital
 with ideas like that
 because people tend
 to get captivated by
 horizontal technology.
 We're captivated more
 by market dynamics
 and business problems.
 And so this is useful for us
 where we think about, okay,
 what's a very simple
 schematic, simplistic even,
of the investing world?
You've got real money investors,
people who actually have money,
 that's theirs that
 they want to invest,
 they have retail,
 from high net worth
 to millennials with $14.72,
but you've got a lot of
individuals with money
 and institutions with money.
They tend to work with advisors.
  We think of this generally
  as wealth management.
 Those advisors frequently buy
 products from asset managers.
 We think of that as
 asset management,
  as distinct from
  wealth management.
 In order to execute
 on that intention
 to get a financial exposure,
 you've generally got
 to work with a broker,
  and that broker,
  he or she actually
 acquires that exposure for you
on some kind of
marketplace, generally.
 Particularly, I would say now,
  where there's less
  broker to broker,
 what they call
 over-the-counter type trading
and more and more
things are being traded
 on venues and marketplaces.
  So that's sort of how we
  approach every investment
  in the investing
  box of what we do.
 And then we do surely think
 about enabling technology.
 I mentioned analytics
 as a pullout
within the broader
frame of infrastructure
and enabling technology
underneath investing.
 And so these are the
 logos of our companies
  kind of arrayed
  on that framework.
And I'll talk a little bit about
  some select examples where
  we've placed our bets.
But I will, I
emphasize the framework
because we find it
very useful internally.
 Obviously, our actual
 work is let's find
 great entrepreneurs
 and give them capital.
 But it turns out the
 hard part about that
 is actually winning the deal.
This is not necessarily
commonly the view
 of venture capital,
 but I would say
the critical success
factor of all the firms
that we hold in such high regard
  is that when they
  wanna do a deal,
they more or less get to do it.
 And in this environment, which
 is so fiercely competitive
  with so many firms
  at every stage,
that is really not true
for the average firm.
 So the question isn't
 really so much discernment.
 It isn't of all the
 companies I've met
which one is the winner?
  Very frequently, if you're
  sort of half on the ball,
 you're gonna get that
 part reasonably right.
 It's about can I
 get into that deal?
  And our way of
  getting into deals
  is by sitting down
  with entrepreneurs
with our frameworks and saying,
hey, where are we right?
 Where are we wrong?
 Here's how we think about you,
 and here's how we
 think therefore about
 your competitors,
 companies you should partner
 with, talent you should meet.
 And frequently we're wrong,
 but always, we set ourselves
 apart from our competition
by having a priori thought about
 where they fit
 into the landscape.
 So that's why we
 do stuff like this,
and also, we like it, it's fun.
 So I'll talk about a couple.
 So transactions take place
 in marketplaces and venues.
 And IEX is an example of that.
 IEX is a US equities exchange.
  They compete with New York
  Stock Exchange and NASDAQ.
 They are way behind
 those two big firms.
  They have about 2
  1/2% market share
  relative to those guys,
  who split up between them.
 Call it, almost all
 the rest is a third.
 Then you got BATS, which has,
depending on the day,
10% to 15% market share.
  So this is a real
  long-shot story
 when we did it as the first
 institutional investor,
but it's been a fun one.
 They have taken this thesis
  that high frequency
  trading is bad for markets
 and let's try to
 create a marketplace
 where high frequency traders
 have as much access
 as they want,
  but no access to
  unfair advantage.
And so they've gone from
zero to 250 basis points
in the four years
we've been an investor.
 They just launched
 their first listing,
 which is another thing that
 venues and marketplaces do,
 they transferred a
 $22 billion company
from NASDAQ over to
IEX as a listing venue.
 So we've been really
 excited about that.
  And it certainly goes
  into the audacity category
of what we do, which is to say,
 a massively high likelihood
 of failure at the very outset,
 which is another thing
 we've come to look for
 in our investments
 at the Series A stage
 is active embracing of risk.
  And entrepreneurs who
  have the kind of ambition
 that makes them
 sound silly almost.
I mean, if you, and I
did doing our diligence,
 we talked to 72
 market participants
 and we asked them, not
 as a core question,
 but as an ancillary question,
 what are the odds that
 you would give IEX
 of being able to enter
 the listings business?
  Which BATS, which has been
  around nearly 20 years,
  does not have a corporate
  listings business,
  they have a ETF
  listings business.
 And out of 72 people, zero of
 them gave them even 1% chance.
  And the guy did
  it two weeks ago.
So we like entrepreneurs
who have crazy ideas
  as long as they have,
  they have to back them up.
 And generally, we risk manage
 that approach
 through check size.
 We do crazy at the Series A.
We generally don't put
$75 million into crazy.
 And maybe we should.
 Maybe that's the way to
 really make outsized returns,
 but we are Bain
 Capital, after all.
 So I'll mention a few others.
And you know, we
believe strongly
 that asset management
 and wealth management
are changing and changing
quickly, but in different ways.
 You could argue
 that the revolution
 that is happening in wealth
 management, the advisory,
 has already happened
 in asset management,
  which is the
  manufacturing of products.
 If you look at
 iShares, BlackRock,
  and you look at Vanguard,
 they are massively low-cost
 beta-oriented institutions.
They basically say to investors,
We will get you
reliably and faithfully
 the returns, the exposures
 you want for incredibly cheap.
 And that has taken over the
 world of asset management.
The sort of alpha crowd
is really struggling.
 The active investment crowd
 is really struggling relative
  to the performance, net of
  fees, of the passive guys.
 That has not yet fully invaded
 the wealth management space.
 Wealth management average fees
 are still 100 basis points.
And the track record of
advisors adding alpha
 is just as poor, if not more,
 for giving their
 conflicts frequently
 as that of the wealth
 management industry,
 of the asset
 management industry.
  So it's same exact dynamic
 and the revolution
 has not yet happened.
 Robo-advising, digital wealth,
this sort of inexpensive
beta proposition
on the advisory segment
is in its infancy.
 It has about 50 basis
 points of the entire market
  of all the assets
  that are advised.
  50 basis points are
  advised under this method
  of objective,
  inexpensive beta-oriented
  digitally derived advice.
I don't know how quickly
that's gonna change,
but it is striking given
how fast we've moved
  on the manufacturing side.
So those are a few observations
against this framework.
 Again, I'm happy to
 chat with any one
 of these companies in the Q&A.
 Let's talk about insurance.
  Insurance is even
  more multifaceted.
 You have a value chain,
 similar to the one we showed
where you have the capital
comes, generally, historically,
from re-insurance
companies who just want
the risk, financially speaking,
 and partner with the carriers
 to share that risk with them.
  You have carriers who are
  regulated institutions,
 in the United States,
 state by state,
who have the reserves,
and actually in the eyes
  of the regulators
  and the customers,
are the ones owning the
risk of the outcome.
You have an increasingly
popular category
called an MGA,
Managing General Agent.
 Sort of hybrid of a
 carrier and a broker.
 Certain amount of discretion
 over how much risk
 they're willing to
 take and able to take,
  and so therefore, they can
  innovate around product.
 Then you have brokers,
 who more or less
 take the products that
 are built by carriers
 and sometimes MGAs,
 and distribute them,
 historically, on store fronts,
and more and more
online and through apps.
  So that's the value chain,
  but within insurance we've
  got health insurance,
we've got the wealth categories,
annuities, life, et cetera,
  and we've got the property
  and casualty area,
 so the risk categories
 like auto and home.
Three very different businesses.
 Many companies do
 two of those three.
  Some do all three.
 Fewer and fewer and
 fewer even do two.
You're seeing more
specialization amongst carriers
 about what they
 think they're good at
 and where their
 brands can take them.
 And then finally, you've got
 the same kind of underpinnings
of infrastructure
needed by all segments.
And you're orienting
this entire value chain
 and these three very
 different businesses
  against different
  customer types.
The enterprise, large
businesses buy insurance
 very differently than
 the middle market,
and then, again,
very differently
than the small business market,
 and obviously, consumers
 both need different coverages
 and buy them very differently.
 So I think that
 generally speaking,
  if you ask people what is
  hot in FinTech right now,
  they will say InsureTech.
  InsureTech Connect, which
  is sort of the conference
in this space, was sold
out three weeks ago.
 It was 6,000 people in Vegas
 talking about insurance.
 And that's new in the world.
 I mean, that really,
 that's a new thing.
  Insurance was very
  slow to change.
 It has a regulatory chassis
 here in the United States,
  as mentioned, that is very
  difficult to move against,
 given its fragmented nature.
  Even compared to payments
  and lending and investing,
  it is really hard
  and it has much
 of the same balance
 sheet challenge
 that a lending company does,
depending on where you
are in this value chain.
  But there are so
  many opportunities
 against this matrix
 that entrepreneurs
 are really stimulated
 by the possibilities.
 And it's an industry
 where your sort
 of average NPS is quite low.
There are not customers
walking around delighted
by the service they're getting,
 generally from the incumbents.
 So those things, unhappy
 customers, big, big markets,
 incumbents that are
 loathe to change,
 has gotten the entrepreneurial
 zeal really revved up.
  They're seeing a lot here.
  What have we done?
 We have done a
 consumer-oriented MGA
in the property casualty space.
 So that's, again, I'm
 using the green here
 to kinda highlight the facets
 of this industry
 where we've played.
This is SquareTrade,
they basically observed
that the warranty space,
when you buy something
  relatively expensive, you
  get offered a warranty,
 that component of insurance
  had not innovated
  in a long time.
They built a modern warranty
player, focused on electronics.
  And again, Allstate found
  that valuable enough
  to buy it here last year.
  And why did they do that?
 'Cause $1.4 billion
 is a big number,
  even for a large company.
 I think they did it because
 they're really
 worried about auto.
  If you think about it, if
  you're in the boardroom
 of a carrier right now, like
 in Allstate or State Farm,
 or Farmers, or Chubb,
 AIG, et cetera,
 they're looking at
 auto with a great deal
 of confusion and
 trepidation right now.
 There's a few things happening
 that you can already see,
 which is that
 severity of accidents
  is climbing significantly
  due to texting.
  So you're seeing like cars
  go straight into trees
without skid marks, like
they're seeing accidents
 that would have
 been fender benders
 turning into
 multiple fatalities,
and that's accelerating,
 and there's not much
 they can do about it,
 and that is risk that
 they own completely,
and with no ability to
lay that off on anyone.
  So auto is getting worse.
  Severity is getting worse.
 And you also have
 this looming threat
of autonomous vehicles.
 And in the end state,
 and you can all have
 your own views about autonomy,
 but in the end state,
 auto insurance becomes
 a product liability,
not a driving question.
  And so there's literally
  no need for auto insurance
 at some point in the future
when you are not driving
the car that you're in.
 And so they have this
 incredible pickle
  of the business is
  getting worse now,
 and it's going
 away in the future.
 And they are thinking of ways
 to future-proof themselves,
 even if they're confident
 that that future is far away,
they have been
stimulated into activity
 primarily, I think,
 by the degradation
 and long-term fears in
 their auto insurance,
and SquareTrade was the
beneficiary of that.
 Justworks is a company
 here in New York,
  a company that I work on,
 and I just love working with.
 It was founded to
 help small businesses
 manage their benefits,
 so it's called a PEO.
  So they do worker comp, as
  well as health benefits,
 and they are a broker and MGA,
depending on what line of
insurance you're talking about.
They serve, on average,
eight to 10 employee businesses.
And it's one of those companies
I'd love to say this
about all my companies,
 I can say it without any
 hesitation about Justworks,
  it is the very best answer
  for a small company.
It combines payroll and benefits
 and compliance in a
 delightful package,
which is less expensive
than any competitor.
  They've grown from
  zero to 60-ish
 million dollars in
 revenue in 3 1/2 years
 and continue to just
 absolutely skyrocket.
  And at last count,
  they have over 1%
of all small businesses in their
  relevant SIC codes
  in New York City.
So if you're starting a
company, I recommend Justworks.
  And we're doing
  more in benefits.
  We have had a great
  experience with Justworks.
 We think there's more to do,
taking on competitors,
not just like they are,
  Trinet and ADP,
  but also companies
like WageWorks and HealthEquity.
 And again, here's a
 methodology we use internally.
 Where is there a market cap
  in companies that
  no customer likes?
Screen the public
companies by market cap
  and ask yourself, do
  their customers like them?
  And where you find
  a concentration
 of unloved valuable companies,
 that's a great opportunity.
  Finally, Corvus,
  a seed-stage deal.
  A great entrepreneur,
  commercial insurance guy.
 We built an MGA in
 commercial insurance
 focused on sensors, basically.
 So everything has sensors now.
 You know, people talk about
 this as Internet of things,
 but as mentioned,
 I don't really like
 those horizontal buzzwords,
 so I'm gonna use sensors,
 but the fact is it's a thing.
Like every cargo
shipment now has sensors
 that tell you where it went,
 what the temperature
 and humidity was,
was the box opened, was
there exposure to light?
 Was there tampering?
 Those sensors are used for
 mainly regulatory purposes,
 like for food, for the FDA,
 for high value life sciences.
  No one's using
  'em for insurance,
 and so Phil built a new to
 the world marine cargo policy
that leveraged that sensor data
 and built an
 exclusive relationship
 with all the sensor companies
 and now he's out in
 market, as of June,
 after a million
 dollar seed from us,
 in market selling marine cargo
 insurance through brokers,
 and he's just launched
 a new cyber policy
that similarly leverages
sensors and data
in a way that represents
this hybrid of tech
 and the proper insurance that
 we're really excited about.
 So that gives you a
 sense for who we are,
  what we like, a little
  bit of a set of heuristics
  we use to do what we do in
  venturing growth equity.
And then finally, some
more detailed framework
is just pulling out two
different sub-segments
  and giving you a
  sense for how we,
 in the abstract, think about
 the industries we play on.
  Let's zoom up a little bit
 and talk again
 briefly about FinTech.
 You can see from this chart,
 things have gotten bigger.
  So this is where I
  started my career,
  what I call the doldrums,
 where my wife was embarrassed
  to admit what I
  did for a living.
 And then you can
 see things pick up.
  And in the far right bar,
 that's a partial year
 number, that 13-six,
 so this year will be
 the biggest year ever.
Even if you exclude
that checked component,
 which represents Ant
 Financial and Anbang,
and there is certainly,
they should be included.
 China in many senses
 is where FinTech
 is really happening
 at a fever pitch.
 But even if you exclude it,
 this will be
 another record year.
 And as a percent of
 the venture business,
way up in the high single
digits, conservatively measured,
  if you look at the exits,
  this is a brand new chart,
  a brand new looking chart
 from a year ago where
 the wave of IPOs
 has really started in FinTech.
Prior to last year's conference,
 we had a couple lending IPOs,
 and you had Square public,
 but we've had payments IPOs,
 additional lending IPOs
that have gotten better,
incrementally better,
  and a way healthier story.
Some SaaS companies,
like Avalara and Coupa,
 that are financial technology
 software companies for CFOs,
  a really robust category.
 So we're seeing a way
 better exit picture.
  Though, and again, this
  data is sort of granular,
 but the average
 valuations at exit,
 and the aggregate
 value of the exits,
 so far if it were to continue
 would not be enough to justify
 the money that's gone in.
 That's just a takeaway here.
 Is that if you look at
 the velocity of money
 going in to FinTech, the
 belief amongst me and my peers
 implicitly is that the future
 is better than the present,
that not withstanding how robust
 that IPO picture has looked
 and the 67 and a half
 billion dollars that
 has been generated,
 it needs to get even better.
 If you're putting $20 billion
 a year into a segment,
 that 20 has to turn into 60.
 So that 60 has to become
 an annual rate of liquidity
 up against those investments.
And by the way, we don't
buy whole companies.
That $20 billion a year
is going, on average,
  to maybe buy a quarter to
  a third of the company.
  So our quarter to a third,
  that we're paying
  $20 billion worth,
 has to turn into
 60, which means that
  you have to have a quarter
  trillion dollars a year
 of annual liquidity in FinTech
 for this whole thing to, in
 aggregate, have been worth it.
And I would be delighted
if that happened,
but as a betting
man, I would say
you wouldn't wanna just
sorta buy the index fund
  of that set of companies.
 The nuances here by industry,
I was forced to separate
digital currency
 as a category because
 it's gotten so big.
And so there's a lot of
interesting observations
 about these charts, most I
 think, what jumps out to me
is payments is
shrinking as a percent.
And we'll talk a little
more about this later.
This is dramatically
true at the early-stage.
 I would say the incidence of
 payment start-ups these days,
 you know, we have
 some data that I think
 is probably not comprehensive,
 but definitely
 directionally way off.
  And what we see is
  that the talent,
the entrepreneurs and engineers
 who would have been
 starting payments companies
  are now starting
  crypto companies.
 A and B, you actually
 have scale incumbents,
 like Stripe Square,
 Adyen, and PayPal,
 who are really good companies.
 Their NPS scores are
 not the NPS scores of,
 not gonna pick anyone by name,
  but the old-school
  payments companies
  who used to not delight
  their business customers.
 So payments may be kinda over.
 It certainly has plateaued
 and now is starting to shrink.
 And here we show this
 by B2C versus B2B.
  And again, as I promised,
 I'll go a little
 quickly through this.
  But as we get more
  into the details,
 you'll see that
 lending, shrinking.
 Payments, plateaued
 and shrinking.
  Investing, steady.
 Insurance climbing, for now.
But frankly, of those segments,
  it looks most like
  lending in terms
of its balance sheet and
regulatory complexity,
and so I have some concerns
about these core four segments.
 Then I'll come back at the end
to where I think I might be able
  to fish us out of the soup
 and find fun stuff to do
 for another couple decades.
So in interest of time,
  I'm actually not gonna go
  deep into these trends.
  You have those materials.
  I think they speak
  for themselves.
 My colleague, Ashley,
 who I think is here,
 did an incredible job working
 within these materials.
 So there's lots of sub-themes.
 There's lots of data.
This is the payments companies.
 And there's some good stuff
 going on in vertical payments.
  I encourage you to
  look through this
if you're curious about FinTech,
 but I wanna quickly
 get to how I think
 we can take this
 whole thing forward,
 and then I wanna open
 it up for questions.
 Lending, shrinking.
 Public stocks and
 lending, not great.
  I see an Affirm
  T-shirt up there.
  I commonly note Affirm
  as one of the exceptions.
 Point of sale ending, I think,
 is still very interesting
 business where that phenomena
of dissatisfied
customers and incumbents
 that are under siege.
 Technology being
 a differentiator
 really does matter.
 Investing using active
 management, shrink.
 Institutions bypassing
 asset managers.
 This is fascinating, I
 can't skip over this,
 so everybody I know
 in consumer FinTech
 right now is starting a bank.
  It's unbelievable
  how many companies
are launching a checking account
 in Q4 of this year
 or Q1 of next year.
By my count, nearly 50.
 Some large companies,
 like Square or SoFi,
LendingClub, et cetera,
 and then all of these
 young companies,
 like Acorns and
 Stash and Robinhood.
 And Venmo, obviously, sort of
 a hybrid of large and small,
 and on and on, Money
 Line, et cetera,
  the market will be flooded
 with fire your bank messages
 in the next six months
in a way it hasn't
been since 10 years ago
 when BankSimple got started
 with that same message.
  And BankSimple, I
  was on the board
 of that company and
 chairman as well,
  which we sold for
  a great return,
 but it is a cautionary tale
 in that we didn't actually
 get a lot of people
 to fire their bank.
 But these companies
 think they will,
 and the tech is so much
 better now that they might.
 And I think the
 critical distinction
 actually beyond the tech is
 that they have customers.
 Acorns, one of our companies,
  has four million customers
  who've registered
their payment cards with Acorns.
 Well, we know a lot
 of about these people,
 and we can say to them, hey,
 you've been charged
 $180 in overdraft
 so far this year
 by Bank of America.
 We can get you a
 card that admittedly
doesn't have branches,
which you never go into,
 but doesn't have overdraft,
and is delightfully integrative
with all the other tech
 our IRA, everything
 you do at Acorns.
 And so do they have a chance?
  I think they have
  a great chance.
But again, this would
be very new to the world
 if people start
 firing their banks.
 Bunch of stuff on insurance.
And here we go.
 So I have this ongoing tussle
  with my partners
  about real estate.
  'Cause in fact,
  if you think about
  where dollars have
  gone in FinTech,
where the rapid growth has
been, it's been in real estate.
  Only problem being that
  real estate isn't FinTech.
  So that's a little
  bit of a thing,
  but this came to
  a head first time
when I brought WeWork to
the investment committee
 for an investment four
 years ago and got shot down.
 And part of the
 argument was, I mean,
 there are many arguments
 about WeWork at that stage,
 why it wasn't obvious.
 But one of the arguments was,
  what do you know
  about real estate?
 You're a FinTech guy.
 You know, that's how
 our partnership works,
 and I like it, but it
 did make me resolve
 to think harder
 about that objection
  and why I sorta
  felt like I kinda
 knew what I was talking about,
  even though I have
  to acknowledge
that real estate is not FinTech.
 And it's because
 most of the problems
  in real estate are
  FinTech problems.
And this is an extremely
self-serving analysis,
and there are some
problems in real estate
 that are not FinTech problems,
  like the problem
  of how do you use
 advanced cameras to
 visualize an apartment
 and then do a listing
 that's more immersive,
  is not a FinTech problem,
but all of the payments problems
 that exist in real
 estate are important.
The lending problems are
on the mortgage process,
 and the home equity process,
  and the equity extraction
  process in real estate.
 Title insurance, home
 insurance, renter's insurance.
 These are FinTech problems
 that I understand really well.
 I've spent my career
 getting smart about,
 and applying them to a
 vertical does make some sense,
 not withstanding the fact
 that I have and had a bunch
 to learn about residential
 and commercial real estate.
 And then we look at
 crypto, where again,
 we've been active and we see
 FinTech problems everywhere.
 If we look at health
 care, and again,
 it's hard to find investing
 opportunities in health care,
 but we see FinTech
 problems everywhere.
 And so I think FinTech will
 be like, you know, in 1999,
  there was a lot of talk
  about internet companies.
  And now there's zero talk
  about internet companies.
 If you said to someone
 you were running
 an internet company or
 starting an internet company,
 it would just
 sound goofy because
 like show me a
 company that isn't.
And I don't suspect even
in my fondest dreams
 that that same status
 will apply to FinTech,
 where show me a
 company that isn't,
 but I do see everywhere I
 look FinTech-style problems.
And so I think we'll be
having this conference
 for a few decades yet.
Those are my materials.
 I would love to turn
 it open to questions.
 I think we have 10 minutes.
  - [Kathleen] So just the
  proceeding for questions,
 if you could stand
 up and go to the mic,
 that's the setup
 for questions, okay?
 - That would be ideal.
 We've got mics on both stairs.
 If you're stuck in the
 middle there, ma'am,
  and you wanna just bellow,
  I'm good with that.
I can hear you.
Go ahead, I give you permission.
  - [Audience Member] So
  you didn't talk much about
the crypto asset states
(speaking faintly).
  - I will.
 So crypto, I had the
 great, good fortune
 to be very good friends with
 Barry Silbert five years ago.
 Barry Silbert had a company
 called SecondMarket,
 but on the side he was doing
 all these crypto deals,
even back then, really Bitcoin,
 'cause that's all
 there was back then,
  but he invested in
  Coinbase and Xapo
 and all these great companies,
 and he owned almost
 1% of all Bitcoin.
 And I convinced him to
 move that into an LLC,
and we put in a million
dollars and we turned it
into something called
Digital Currency Group.
It wasn't really
much of a group.
  It was just Barry
  and me doing like
  seed-stage crypto
  investing five years ago.
But that's become a
really big business now.
 So that entity has
 $600 or $700 million
 worth of value in it and then
 has three big wholly-owned
businesses, Genesis, Grayscale,
  and a big event
  called Consensus,
  and a media company called
  CoinDesk, all in DCG,
 where I work in the investment
 committee and on the board.
  And so through that, we've
  gotten massive exposure
  to 120 different companies
  in every corner of crypto.
 And that's been a
 good seed to be in.
 And we then directly invested
 in a few other companies.
 Basis, which is a stable coin.
 Compound, which is lending
 markets in the token space.
And Seed CX, which is
a derivatives platform.
 So basically, we think of
 it in three different ways.
There's the, is crypto
gonna be an asset class?
 There's the will blockchain,
 enterprise blockchain
 become a new
important database type
in corporate America?
And then there's will
consumers and businesses
move to distribute applications
 governed by protocols,
 powered by tokens,
instead of buying
software from companies?
 Three big questions.
 We have reasonable conviction
 about the first one.
 So we have made market
 structure investments
 that are predicated
 on the belief
  that crypto will
  be an asset class.
 We have made no investments
 in enterprise blockchain.
 And we are looking at
 a ton of investments
in the protocol space,
but have been cautious.
 We do have somebody
 at a microphone.
  Sorry, I have to,
  somebody obeyed the rules,
 I have to--
- Right.
 So I work at Deutsche Bank,
  and so that's probably the
  context for this question,
  but where do you see are
  the biggest opportunities
  for disruption in
  capital markets?
 So that's, you know,
 the post-trade space,
 the trade financing,
  like the institutional
  corporate side of things.
- I don't see a lot of
investment opportunities
 for guys like me
 in capital markets,
  not withstanding the
  fact that I made a bunch.
 I find it really hard.
  It has been like
  a 10-year drought
 in terms of like real
 equity value creation
in capital markets tech
because what you've seen
 is a shrinking number
 of participants
with shrinking budgets.
 12 years ago, if you
 had something to sell
 to Deutsche Bank, they would
 buy it, happily buy it.
 It had a chance of adding
 alpha or delighting customers.
 And like $250,000 for Deutsche
 Bank, great, let's do this.
 Now, forget about it.
 And I get it.
 If I was a shareholder
 at Deutsche Bank,
this is a better stance
than the former stance,
  but it's tricky if
  you're a vendor.
 So fixed income is
 sort of the, you know,
fixed income is the asset class
 that has both scale
 and really bad habits
 that are durable and ongoing.
  And so there's definitely
  companies like Trumid
 are finally starting to bring
 over-the-counter trading
 and fixed income into
 the marketplaces,
and they've got a long way to go
 and a lot of value to create.
 But it's not a
 major focus of ours.
  Institutional capital
  markets is a tough place.
 Ma'am?
 - From the regulatory
 point of view,
 are you seeing many
 of the FinTechs
trying to apply for
the non-backed charter,
  or avoiding it altogether?
 - Yeah, I think
 there are some large,
 larger FinTechs that
 are interested in
these novel lightweight
charters, for sure.
 The problem is there's nothing
 really to apply for yet.
  And there's like a
  federalist battle going on
 between the states and
 the federal government
 about whether the federal
 government can even do this.
  The states assert
  their prerogatives
in financial services regulation
in a way that I find ridiculous.
 If there's any state
 regulators, I mean,
  it's ridiculous that the
  state should have a voice
 in what is clearly
 a national business,
 but yet they do and they
 all really enjoy that power,
 and they're fighting
 incredibly hard to keep it.
 So I don't anticipate
 that there's gonna be
a lightweight charter
that is actually useful
  for a long time, if ever,
 but I would say the
 interest is very high.
 I think people aren't daunted,
 these young companies
 are not daunted
 by the idea of
 regulatory oversight
and they feel like they
can accommodate that,
and they want the access
to low-cost funding.
 And so I think there's
 a real bid for it,
  but I think the companies
  that are gonna cross first
 are going for
 traditional charters,
 like Varo on the West Coast.
  They're just gonna
  become a bank,
 but they're gonna be a very
 different kind of bank.
 But I think the new charters
 are a long time coming.
 - [Audience Member] Thank
 you, so much, I appreciate it.
  - Sorry, we've got to go.
Thank you for having me.
 - Thank you so much,
 thank you so much.
 Yeah, thanks.
