Lisa
Welcome to the Atlanta Startup Podcast. I’m Lisa Calhoun, General Partner at Valor Ventures. I have a Valor team show for you today on FinTech frontiers. Really excited to welcome William Leonard, an investor at Valor, and Gary Peat, General Partner at Valor. Glad to have this conversation with y’all.
Gary Peat
Great to be here. Thanks for inviting me.
William Leonard
Likewise. Excited to be here, Lisa.
Lisa
We’re going to talk about all things FinTech and really, I just want to dive right in. FinTech has always been a big part of the Atlanta scene. I think people lose sight of how big it’s actually becoming even now, and you know, where’s the ceiling? What I wanted to ask you both as seasoned investors at different sides of the market, what is exciting about FinTech now?
Gary Peat
Take it first, William.
William Leonard
Yeah, I think I can certainly kick it off. I think when you look at FinTech in Atlanta, the legacy really speaks for itself, right? You have companies like Kabbage, Green Light, BitPay, and other companies that have really helped cement Atlanta’s legacy as one of the true FinTech centers, not only in the southeast but in the country as well. Now we’re starting to see a new era of companies emerging that are serving various branches of FinTech. Equally, there are a plethora of companies here in this space, whose bread and butter is payment processing and transaction processing. You immediately think of Cardlytics, Pfizer, Equifax, NCR, and others, you think about those companies here and it’s like, “No wonder they call Atlanta a transaction alley. I think of the entirety of payments processed annually in the United States, almost 70% of them run through the Georgia infrastructure here. I think that is such a unique space to be in right now. There’s plenty of opportunities there.
Lisa
Just to add to that, in my own career in tech over the last 20 years working out of Atlanta and having had the opportunity to work with so many great FinTech founders, what’s interesting is, Atlanta really has built a legacy of talent that I think is second to none. When you think of financial markets, there’s London but they have particular knowledge in monetary policy and arbitrage and that comes out of where they’re located. In Silicon Valley, they have a lot of FinTech skills, but a lot of times its also driven. My own experience leads me to think of Atlanta as the applied FinTech, the really corporate FinTech layer. Gary, what’s your experience and why FinTech? Why now?
Gary Peat
Well, FinTech for me started really early in my career when I was in Columbus, Ohio with investment in a company that was called CheckFree. CheckFree will illustrate the difficulty of technology transitions of the past. I’d like to talk about the one we’re in the middle of which is a supercycle of innovation in FinTech. Ironically, CheckFree grew to be a very successful ball provided by billion dollars by Fiveserv after I’ve moved here, and in the irony of all ironies, it powered at one time 40% of all bill payments on the internet behind your bank account, and therefore became the largest printer of checks in history, ironically, with the name CheckFree. But Mark Johnson, the co-founder, and Jim Douglas, the CFO, are both FinTech investors right here in Atlanta to this day. CheckFree is a critical part of an extraordinary company here. So, the FinTech supercycle of go moving finance and your bank account to the internet had a weird transition that was very difficult and ironically created the largest printer of checks in the world to emerge as the largest ACH transaction processor in the world to this day. Right now, we have the merging of traditional currency and payment rails with the blockchain and cryptocurrency and this is touching every corner of finance, concurrency, payments, money management custodianship, literally all aspects of Finance. It will be the 20-year overnight success story, like anything else. But that supercycle creates great uncertainty for the incumbents, great opportunity for FinTech investments, and there’ll be some global tens of billions of 100-billion market cap companies that come out of that process over the next 10 to 15 years.
Lisa
That’s quite a perspective and I didn’t know that stat on CheckFree. That is really something.
Gary Peat
Mark was really happy. I mentioned that.
Lisa
He moved to Atlanta. I thought they were always an Atlanta firm. I’d love to tie some of these macro trends like “finance to the internet”, as Gary identified to real living companies today. William, what’s one of your favorites when you think of a trendsetter or trend maker in Fintech today?
William Leonard
I immediately turn to the Valor portfolio and look at CapWay with what Sheena and her team are building there. You think about why CapWay was built, right? 63 million American adults, which is 22% of the population, are reportedly unbanked or underbanked according to Federal Reserve data. That lack of infrastructure for those families creates and contributes to the gap in generational wealth. CapWay is really creating higher access to more quality level of services like Robin Hood, and you think about products that they have more than just checking accounts and debit cards. CapWay has a financial education piece, which I really draw too, because that piece is really serving to create generational financial management knowledge that really many of the underbanked and unbanked individuals just haven’t had access to. I’m really excited about CapWay and in the value proposition that they’re giving their customers.
Lisa
You know, you’re pairing some really big trends there. Access, financial literacy, and really structural disintermediation make me think about the work Jeannie Tarkenton and her team at Funding U are doing. There’s also a Valor portfolio from but led by Deciens. When we invested, we invested alongside Deciens out of Silicon Valley. What’s so exciting about Funding U is they’re tackling the FICO score. You think about the FICO scores as this embedded arbitrator of your creditworthiness based on things that if you don’t come from a background where you’ve had the opportunity to amass a fair amount of security and stability, then you won’t score well. It’s a bit of a stability score. What Funding U HAS done in the $1 trillion student loan market is to pair people’s good behavior, like getting great grades and high attendance rates in their classes, with the ability to get a signature loan for essentially what amounts to about a year of public school tuition as alone. I think that’s a game-changer and into your points, William, it’s about helping with financial literacy. Making it easy to get the capital you need. You can apply as a student yourself based on your own behavior, which you know well, and it’s really exciting. I’m really, really glad to see strategies like that coming out of Atlanta. Gary, what comes to your mind when you think about FinTech trends and what’s really on the ground today?
Gary Peat
Well, we saw one example that I’ll remain nameless because it’s not in the portfolio because it ends up being a bit too much speculation on Bitcoin instead of a processor. But we saw people around the world and lesser developed countries substituting a local currency for a store of value in cryptocurrency only because,, of course, we know the vagaries of fiat currencies and government manipulation of them, especially in the lesser developed world. But even in the developed world on occasion, we screwed that up. But more importantly, they had to have an entire network of access back to that, like they were carrying cash. But they found themselves in a position to create a store of value out of a cryptocurrency in a traditional currency format for what is becoming an increasing percentage of a few countries in Africa right now. That is rather extraordinary. It’s unprecedented the idea of substituting a supranational currency for a local currency of a nation? That scares the bejeebers out of government control freaks and democratizes money.
Lisa
You know, there’s so much going on from Atlanta globally on democratizing access. That makes me think of our portfolio firm Vital4 and how Kristen Stafford and Amy Barbieri there are working in over 200 countries now, making information about who your customer is and how they transact safer and more secure for you to do business with. It’s kind of the pair of that stability but in a totally fresh way using AI. Both of these cases, the company you mentioned and also Vital4, these founders here operating in Atlanta, local talent, global impact. Is there anything else on FinTech trends especially coming out of Atlanta that you’re excited about? Before I move on in the conversation, I just don’t want to leave a trend that you wanted to touch on.
Gary Peat
I’m going to talk about it in the context of Vital4. It used to be that you check the person out, and you’ve hired them and you’re good to go. Or you check the person out and they could be in a certain kind of transaction in their financial which we really need is continuous monitoring. What Vital4 has done is moved that to an entirely new level. Through AI, you can get to automation, and speed in a way that you now have a longitudinal certainty of your trading partners and your employees, and the other parties in your supply chains. It’s rather extraordinary to be in so many countries as she is, it’s just a whole nother story for another time. It’s extraordinary how fast they’ve expanded. Some trends in Fintech? I think the money management business has really gotten much more of a barbell. Obviously, over the last 10 years, we would say you should put your money in an index fund, you would outperform the best performing hedge funds in the world for the last 10 years. But more importantly, you look at things like Robin Hood that took away this distinction of buying a certain number of objects, and just you make a decision on investing $50 or $100, the kinds of bite-size things that and when you look and you say, {Well, what happened to brokerage accounts? they go away from Goldman Sachs.” No, he expanded. Robin Hood expands the market to a group of people that simply were not in those markets, except maybe through a 401k if they were even educated enough to do that. We have millions of people that are benefiting from the stock market by investing small amounts of money through platforms like Robin Hood, but that isn’t a long-term trend.
Lisa
I couldn’t agree with you more. I think inclusion is the most exciting factor in disrupting finance. I mean, it’s playing out in so many ways. But that very factor, inclusion, bringing accessibility to markets who haven’t had it before, for one reason or another, is really changing the world from the individual pocketbook forward. I guess the question I wanted to ask is as investors and as VCs, how do we help our startups? I know we spend our days doing that. But just for our listeners at the Atlanta Startup Podcast, some of them haven’t had a chance to work with a VC yet. Some of them are probably doing a little research on Valor to see if they want to work with us. I’d love to share a bit more of behind the scenes and behind the curtains on how we, as VCs, get involved and help our companies.
Gary Peat
Well, I’m happy to jump in on two fronts. There are many, many things we could talk about there. But two fronts; one, I think, is very simple to understand and hard to do. That is often why we, the VC, have the luxurious position of insisting upon focus and insisting upon things that portfolio companies should not do. Because obviously, we’ve all come together in agreement invested in something they should do. It’s a very difficult thing when you’re wandering in a desert looking for that specific drink of water but there’s an oasis over here, I might want to wander to you, “Well, I guarantee you didn’t pack your pack for that, and you are going to die without focus.” Focus to me is a function of what you do. Those are your hardest decisions. Most VCs will be good about pushing to stop doing the wrong things or not start doing things that lose your focus. The other thing I would say is we have enough experience in building these companies through the roles that VC plays as an investor, maybe director as well, lead investor, and always director in some cases like Valor, but you can still do the same thing from other positions of experience that is, you don’t have to guess about the quality of talent walking in the door anymore. If you’re a first-time CEO, you’re more likely or first-time founding team, you’re less likely to know the process of identifying the skills a person actually has and the things they can do. That is something that we can really add a lot of value to. If you get hiring right, faster, it’s measurably better for your company’s morale and success.
Lisa
Ultimately, it’s certainly all about the team. Looking at networks, like yours, Gary, mine to some extent, William’s, our ability to add signal and create density and intensity around talent and hiring is really a big part of our platform. It’s something I’m very excited about. Just this year, for those of you who haven’t checked it out, we even launched a recruiting platform called jobs.valor.vc. If you go to that website right now, you’ll see over 50 jobs across our portfolio. Generally speaking, one of our team is helping that founder add quality talent to those opportunities. Over time, it’s hundreds of people hired better, hired faster. But where we really, really like to help is when you’re making those key executive leadership team hires too. Sometimes knowing a team that’s done it before being able to touch base with other FinTech founders that we may know, and get some real background on who’s been successful in that role before who actually had the role but wasn’t successful but you can’t tell because LinkedIn doesn’t tell it that way. That’s really valuable. William, what stands out to you about our VC platform are things that can help founders a lot?
William Leonard
When I was going through the hiring process here at Valor, and reading through the website, something that really stuck out to me was the Innovation Council. The fact that this is truly an in house resource for the founders in our portfolio, and we’ve got members in the Innovation Council from UPS, Boeing, NCR, Home Depot, and plenty others that you can see on the website that truly has direct access to the value portfolio and can share insights with a lot of the founders that we’ve invested in. I think that’s an amazing tool that not a lot of founders can have in other portfolios. Valor has those connections, those deep roots, not only with fortune 500 companies here in the southeast and tech startups and other investors as well. Then related to the council, we have two true innovation events that we do twice a year, right? We’ve got a healthcare event that’s coming up in the fall. Then we’ve got the FinTech event, which is literally I think, at the end of this month, on the 27th, I believe, at Atlanta Tech Park. These are truly unique outlets that serve our founders and give them unparalleled access to insights from people who have been in their shoes, or from potential downstream upstream customers. I think that’s a really unique tool that we can provide our founders and this month’s FinTech frontier summit is going to be an amazing platform for those FinTech founders in our portfolio to share how they’re spearheading innovation within the sector.
Lisa
You know, that’s a great point. Well, even it reminds me of the story about Picasso. When someone asked him, “How long did it take you to be able to draw so beautifully?” He said, “A lifetime.” That’s exactly what we have in the Innovation Council. Our General Partner, Robin Bienfait, whose former role as Chief Innovation Officer at Samsung, she has literally spent her lifetime curating innovation, corporate development, and technology leaders. Our portfolio gets the advantage of piggybacking on some of her deeper, insightful relationships on our Innovation Council. It is like having that kind of condensed lifetime innovation artist working with you on the right connections, I’m looking forward to it too. The other thing that really excites me is what I do every week, which is just really reaching out to our founders, generally via email on a weekly rhythm, and bringing opportunities to them. Sometimes those opportunities are even within the portfolio, but no founder will email me or call me with a need or something that’s going on. We have this weekly rhythm that I run to try to more deeply connect our founders to opportunities, and even help them connect to each other when they can be supportive. It brings me a lot of joy, that weekly contact, very lightweight, but you know, quick, high touch, and generally pretty fun. Bringing our founders together with over 17 companies in the portfolio now, that’s a pretty incredible network of its own. That brings me to how we find these incredible people? I mean, the Vital4s, the CapWays, the Funding Us, the LeaseQuerys, the SmartCommerces, I’m going to drag that straight at you, William, because you are doing an amazing job finding incredible founders across the region.
William Leonard
Yeah, how do we find these founders? There’s no one direct answer to that. Each week I’m constantly searching for startups, reaching out to them, cold calling them, and equally, I’m connecting with managing directors at accelerators and incubators. Like, for example, last week, I was in Birmingham at the Innovation Depot there where I was able to meet face to face with a few founders who are building great businesses. It’s really a healthy mix of getting out in the community, presenting yourself as a resource to founders, sharing your insights, giving perspectives, doing pitch events, and being a value add even if you’re not going to invest in the startup, making strategic introductions and things like that. It’s a process that takes true refinement. I found success looking on LinkedIn. Crunchbase is a great tool. Also, social channels; Slack, Twitter, even Instagram sometimes. Equally, there are a plethora of accelerators and incubators out there; Plug and Play is a great one, Entrepreneurs Roundtable Accelerator, even here in Atlanta, you’ve got the ATDC that consistently pumps out promising cohorts of not only FinTech startups but also just general software startups, consumer startups. It’s really about getting involved in the ecosystems that you want to invest in.
Gary Peat
I have to jump in on one thing. I can’t say enough about the largest pitch event for underrepresented founders in America started by my amazing partner, Lisa. That is a pre-seed intentionally a pre-seed process. But that is a significant part of even our current portfolio investments. The opportunity, though, for the first introduction, presents us with some of the most amazing meetings we have with founders of hundreds of companies walking in our door. I think that seed-stage that has the right characteristics to truly scale in 5-10 years, it’s not everyone that comes through the Startup Runway. Naturally, we won’t invest in every one of them. But we give them an audience that is well more than just ourselves. I consider that to be a critical part of our sourcing because it’s not just the deals that walk in your door, it’s the ones that you’ve gone out and provided a way for them to get to you. Which as a VC we’re notoriously hard to get to, we just try to be very different than that.
Lisa
That’s a great point about the referral network. We have 92 Startup Runway finalists, selected from a couple of thousand companies we’ve reviewed over the years. I do love helping giveaway those grant checks provided by our partners, Cox Enterprises, American Family Institute, Slalom Consulting out of Seattle. It’s really a great joy, to kind of underpin the most grassroots level of a startup, it’s the pure signal, it’s all founders, and they’re building their dreams. We get to see dozens of them every year through that program. If we didn’t have a pre-seed program, we’d missed that opportunity. Because Valor invests in typically post-revenue, post customer software firms. That’s a great point, Gary, and it’s a great joy for our entire team. Another thing, listening to how VCs source deals, I want to point out that our own founders referring companies are very significant for us. There are some of our founders, you know who you are, you’re very active angel investors yourselves. But when you look at our portfolio, and you know, 17 startups today, if every one of them fell in love with a couple of founders a month, that’s 30-40 founders every month. We do get a lot of curated signals from successful founders who are doing it and giving back and mentoring others. Anything else on sourcing that either of you wanted to bring into?
Gary Peat
One last thing that’s a little bit of an unfair advantage that I personally have. I’m proud to bring to Valor that I probably have 5000 people that work for software companies in the Atlanta area that I’ve invested in when they were seed and early stage. You get this benefit that you get to see the talent grow up, you get to see them go off and do their next thing. If you’ve done your job, right, and many times I’m lucky I have, I’ve got this tremendous network of people to populate your company with or you have the privilege of scaling fast and the great people, we know how to do that.
Lisa
Or you’re like a one-man, mid-market FinTech investment machine. That’s right. How do you guys see the projected outlook for FinTech right now? I know I’ve got a perspective, we’ve been talking it over and I’d love to share with the listeners some of the insights we’ve put together about the future of FinTech right here from Atlanta.
William Leonard
I can jump in here. I think last quarter, it was my first few months at Valor. I really was getting into the rhythm of sourcing. I was really looking at over 100 FinTech startups throughout that period and was really encouraged by what I saw, right? There’s no shortage of incredible founders building in this space. Like Gary mentioned, Startup Runway has seen a healthy batch of FinTech startups come from across the country, but also within the SouthEast US region, that have shown viable business models, amazing ideas, and in large markets. I think that is a promising trend that I hope continues. We’re going to do our part to ensure that it continues to really emerge and blossom into a trend that is self-sustaining. I’m excited about the underrepresented founders who are building these companies from experiences, like Sheena, that are really building just great businesses, and bringing along with them other talents to this region as well, which I think is going to be truly important for this decade and other decades to come.
Gary Peat
My last comment on that would be that we watched, as you heard me say just a minute ago about what the money management industry experienced in the 10 year period, we’re an index fund at 15 basis points in management fee, outperformed most hedge funds. I believe you’re about to see the same thing happen to ETFs, where Robo advisors, money managed by bots, much the same way staffs of people at hedge funds write software. Now, the assets under management are somewhat trivial. But if you trackback 10 years to the index fund, and especially the ETF index fund, that you found that some 30% of assets under management to reverse that change, I believe you’ll see a similar percentage of assets under management because the lower dollar value account can get the higher quality management skill, because we’re really beginning to bring real machine learning and real AI to bear. I would not want to be a high fee money manager today.
Lisa
Well for me, I look at it as the future is clearly FinTech and for that matter, inclusive FinTech because that’s the demographic destiny of the United States. What’s exciting for me about the southeast is seeing all the renewed levels of corporate engagement that we’re getting, I mean, Microsoft planning on building a multi-billion dollar center here, Airbnb bringing their tech team here, Google investing in thousands of new employees here. Plus, we already have just a who’s who of corporate leaders, 30% of the Fortune 500 are already headquartered here. The manifest destiny for any successful corporation is to become a FinTech company, they eventually become a financial platform. To feel their own futures, the opportunity to invest in earlier technologies to acquire technologies, the spin-offs of talent from those companies, it’s just an incredible virtuous loop. It reminds me of the story of Lease Query, which is told better than I tell it by the founder, George Azih. But a piece of his bio is he was running a portion of the CPA practice, within graphic packaging, a publicly-traded company. He learned something about least compliance accounting that could be a standalone tool of its own. He left to build that. So some of the largest companies in the world headquartered here in the southeast, are constantly spinning out really strong FinTech because it’s part of their business. so when I see that continue to grow, and some of these new tech companies are even coming and knocking at our door, I just look for that to increase in the next few years. It’s exciting to be an investor in that stream. So, people who are listening to us, most of them are like, ‘FinTech? Next episode.” I get it, but for those of you that are also excited about FinTech and early-stage investing, what are some of the ways that people can get engaged with Valor in the next few months? some of your favorite ways because we do have a lot of options.
William Leonard
Yeah, I’ll start here. I would love to hear Gary’s input but we have the FinTech Frontier Summit coming up later this month, April 27. We’ve also got an event called Build Your Startup Board. That’s going to be occurring on June 9 I believe. That’s an opportunity for founders to truly workshop with seasoned board professionals, to think about building their startup, or they’ll get templates on board reporting membership tips on recruiting. I think that’s an amazing resource right there for founders who are early stage, seed stage thinking about raising more capital. Because board construction is so important, it is really imperative to the growth of the company. Then we have the Healthcare Innovation Panel, which will be coming up later this summer in August. That’s more so the healthcare version of the FinTech Frontier Summit, and then our bread and butter, Startup Runway, that’ll be coming up in the fall in November. If you’re interested in applying there, https://startuprunway.org/ is how you can do that. Plenty of opportunities to really engage with the value team, and just gather some of the insights that we share.
Lisa
We’re so lucky to have our headquarters at Robin’s building, which is Atlanta Tech Park, 45,000 square feet of pure innovation, a lot of it very globally, very corporate-focused for founders, and so 100 founders make their home there now. Valor runs a lot of events. as we’re coming out of the pandemic, we’re looking forward to bringing some of those events back in a nonvirtual manner. If you’re interested in what we’re up to always check out our events page, which is valor.vc/events. It’s really not hard. I’m going to ask my partner, Gary, to bring us home. What have we missed on FinTech that listeners should know about?
Gary Peat
If you take the FinTech event on the 27th when we have people like Chief Technology Officers, places like Fiserv, and similarly situated people throughout large company FinTech, to me, the best opportunities that often we can learn of are the things that they have seen that are innovative, that they might get to do those large companies don’t get to do a whole lot of innovative things. Every year, they depend upon FinTech startups. Don’t confuse the ambitions that Valor has for you FinTech entrepreneur, we want you to be the next JP Morgan, we want you to be the next whatever you want to fill in the blank with. But the reality is, your success may also be wildly ridiculously beyond your dreams, but you may or more likely will end up as a part of these large FinTech companies. If you don’t know and don’t have access to these people, I don’t think you have an owner’s manual for how to build your company.
Lisa
Thanks, Gary. Appreciate that point. Looking forward to continuing the conversation on future episodes of the Atlanta Startup Podcast. Thank you both for joining me for this conversation around FinTech and the exciting future ahead.
Gary Peat
Cool. Great job, William. Very exciting. Thank you.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
