October 24, 2017 | Webinar

The Golden Age of Fintech

Rohit Kulkarni 00:05

Okay. We are going to go ahead and get started. Happy Tuesday, and good morning everyone on the West Coast. And good afternoon for anyone who’s joining us from the East Coast. On behalf of everyone at SharesPost, I would like to welcome you to today’s webinar. I am Rohit Kulkarni, managing director of private research group at SharesPost. I oversee SharesPost’s website, data, and research group. Today I’m very excited to have with us Ron Suber. Ron is the president emeritus and an advisor to the Prosper Marketplace. I have known Ron for probably three, four, five years now. First time we started chatting was around when fintech 1.0 companies were public, and still are, Bankrate, Lending Tree. And I couldn’t think of anybody better to pick brains around the emerging trends in fintech. Earlier this year, after nearly five years with Prosper, Ron decided to step down as the president of the company to begin a self-described “rewirement”. So I’m really excited to pick his brains on a very relevant topic today. What is happening in fintech today? What are the investment opportunities, and what are the downside risks to monitor? Ron has graciously put together a presentation, which he will run through. Let me need if you need a hard copy.

Rohit 01:27

Before we jump into the main part of the webinar, for anyone who’s joining us for the first time, SharesPost is a “fintech” company, bringing together shareholders and individual and institutional investors to create liquidity within the private tech growth asset class. Here are a few companies that we have transacted in over the last five to six years. And I’m part of a group called SharesPost research, and these are a few reports that we have published. All of them are available for investors on the platform. We host a ton of webinars like the one that we’re doing right now. These are just a few that we have done over the last several months. Again, replays are available for everybody on SharesPost.com. We try to stay on top of blogs and market commentary. And we try to stay on top of what’s happening in the private tech growth asset class, be it for a company, IPOs, M&As, what have you.

Rohit 02:29

And again, a quick recap on what’s happening in fintech. The number of deals that venture capital investors are doing in fintech has been rising since the end of the Great Recession. And along with the number of deals, the funding is rising too. We are at record highs. Clearly, these two are I would call as lagging indicators. We do surveys of investors to gauge sentiments and what they feel strongly about and what they don’t. And over the last two surveys, as you can see at the top, fintech has been called out as one of the sectors that have greatest growth opportunity. And again, it’s not all up-and-up. We know that fintech IPOs haven’t performed very well. We know, for example, Lending Club. Bankrate and Lending Tree are debatable. M&A is sporadic, but it’s rising, and there is obviously a lot of competition. But I will stop right there, and I will switch over to the main emcee, Ron Suber, who’s sitting right next to me, and has graciously put together this presentation. Ron, it’s all yours. Thank you for joining us.

Ron Suber 03:44

Great to be here, and thank you for including me. I agree with you. We are at a four-quarter high in both financing activity and M&A activity in the global fintech arena. We have seen, for the week ending October 20th, $729 million of financing across 30 deals on the debt side, and 4.7 billion across 27 transactions on the M&A side. And I think that this is truly escalating here. We saw the pullback in 2016. Q1 was off to a slow start, but the amount of inquiry, and due diligence, and opportunity for both financing and M&A globally is really percolating. There isn’t a week that goes by that I don’t get a call from a venture capitalist, or an incumbent bank, or tech company looking for information on today’s topic, the golden age of fintech. In fact, I took a call very early this morning from a group looking to do something. I just got back from Dallas and Mexico City talking about the golden age of fintech. And I leave Thursday this week for Australia onto Singapore and then soon thereafter in Africa, to talk about the lessons from my travels. I’ve had this opportunity to meet with the leading consumer loan, invoice finance, payments, financial inclusion, business loans, student loans, points of sale, and much much more. I have a unique vantage point in that I’m invested in 20 fintech companies. I’m an advisor to 10 and on the board of two. And so I have an inside view of what’s happening around the world in this space. What an exciting time.

Ron 05:28

I talk about innovation cycles. They’re each about 50 years in radio, in TV, in computers, mobile, and everything else. There is a beginning period of adoption, innovation, early adopters, hobbyists. And then we get into the middle 10 years which is known as the golden age, and we’re just entering the golden age right now. Fintech really started in 1998 with PayPal. PayPal changed the way we moved money. And then you saw Prosper and Lending Club in the 2008 era join the scene. And Prosper and Lending Club were the first leading super prime and prime consumer online lending platforms. And I think Prosper and Lending Club should be thought about like AOL and like eBay. AOL and eBay gave people a reason to go to the Internet, a reason to log into the World Wide Web. And that’s really what Prosper and Lending Club did. And now we’re in a very different period, the golden age. What makes this the golden age? Well, you see that Square, and PayPal, and Stripe, this generation one, is very involved in our space, in payments, in lending, in moving money in very different ways. Gen two was clearly the Lending Club, Prosper [inaudible]. And now you see this golden age of companies coming out of nowhere with billion-dollar valuations like Acorns and Robinhood, and everything that’s happening around the world in cryptocurrency, not just Bitcoin and Blockchain, but Ethereum and Abra, and what’s happening with Coinbase, which we’ll talk about in a minute.

Ron 07:08

And this is all happening because there’s pressure. And there’s pressure from the incumbents, the incumbent telecom companies, the incumbent banks, the incumbent financial companies, and from the new group, the Fangs, right, the global Facebook, Amazon, Google, the big internet companies, Alibaba, and others, pressure from both sides, the left, the incumbents, and the right, the new big tech, that’s capturing the hearts, and minds, and wallets of people around the world. And you see early moves from big Internet in acquiring technology companies, and relevancy, and eyeballs, and wallet. This next generation, the Gen X, Gen Y, and what I’ll call the iGeneration who had an iPhone and the Internet from the beginning, now use Venmo and Zoom to pay each other, and YouTube in ways we didn’t understand when PayPal and Google bought them years ago. And people looked at Facebook buying Instagram, Oculus, thinking they had paid too much. And now we all see why. And this is really just the beginning as big Internet isn’t just acquiring relevancy. It’s acquiring fintech.

Ron 08:21

And so the pressure is on. Look at the traditional finance fintech bets just across Citi, and Goldman Sachs, J.P. Morgan, Morgan Stanley, Wells, and others. It’s escalating from here. And look at the different places where they’re putting their bets: in payments, in lending, in much more. We’ve seen some very recent activity, which I’ll cite as an example of the escalation of this era. Look what’s happening with Goldman Sachs starting Marcus, thinking they could do it with $100 million and 100 people in a year. But it turns out, it was twice that amount of people, twice that amount of money, and more than twice the amount of time. But they’re crushing it. They’ve exceeded expectations, the low cost-of-capital establishing a brand, and trust, and transparency, and consumer. And then last month, they thought about being in the real estate space. And what do they do? Instead of starting it again, they bought Genesis for a lot of money. You see J.P. Morgan just recently re-upping its relationship with OnDeck, investing in Bill.com, and buying WePay. You see Visa getting closer to OnDeck to accelerate payments. And other big institutional banks are about to make their move. We’ve seen payments, the emergence of Stripe and AvidXchange, Mastercard investing in them, and First Data recently buying BluePay for a lot of money. You saw Alipay and Marqeta team up to bring the Chinese payment stateside to us, to North America. If you listen carefully, you can hear the footsteps, the shots across the bow, and every board is asking their company, whether you’re a telecom, a bank, big Internet, tech, “What are you doing to make this happen?”

Ron 10:09

I’m heading back to Australia and Asia because it’s happening there too. This is my second trip back to Australia this year and third to Asia. Look at the Chinese insurance company that just went public in the US, Zhong An, Z-H-O-N-G-A-N. And Qudian, Q-U-D-I-A-N, also went public. The second Chinese online lender raised $900 million last month. The money is following the fintech movement. And we see some incumbents looking to get more scale also. You saw Navient buy Earnest and Nelnet buy Great Lakes. There’s so much more to follow. What a fascinating time.

Ron 10:49

The pressure is coming because the consumer, the customer is evolving. They want it faster, quicker, in a different way, with a different experience, and less paper. That’s why insurance and the mortgage industry are coming next for big fintech, and tech, and the incumbents to change because the consumers want those things, insurance and mortgage, in a different way. Capital markets is changing. We’re in this access economy where we don’t just share things. We have access to capital markets with online lending. Government participation is at an all-time high. We meet with the FDIC, OCC, CFPB, the regional treasury groups, and the Fed Treasury, and around the world. Our infrastructure is so much better. There’s no green screens, very little tech deficit here at Fintech. We’re able to do partnerships and access data, both traditional and non-traditional data, in a different way, and to use it to make the experience better, payments better, and lending better. As I said, global fintech financing volume by quarter, you see the pullback. You’ll see the escalation here as the final third-quarter numbers come out and you see the great fintech volume by quarter in Q4. And you could see from the slide it’s not just North America. It’s throughout Europe, Asia, and the Middle East. We’re seeing tremendous interest from the Middle East. And in the Mexico City trip last month, we saw lots of money coming from South America, Latin America to fintech as well. I look forward to further discussing this topic and talking about what makes it unique and the experience of entrepreneurs.

Rohit 12:28

Just a quick question, Ron. Any idea about the why behind the pullback and the pull forward, as in any hypothesis around the-- is there cyclicality? Is there any other regulatory catalyst that people are seeing or anything else?

Ron 12:48

I think there were lots of kids in the room and kids in the industry who were growing companies that had no chance to ever generate cash or have true earnings and EBITDA after all expenses. And I think now we have more adults in the room, more people from the banking industry, people from capital markets who are taking these fintech companies and really making them 100-year cash-flow-positive companies that are worthy of the big players working together. I think we’ve seen a big shift. We also, as an industry, lost some of the trust and transparency that we have earned and built by some mistakes that people in the industry and companies in the industry have made. And I think we’ve realized that we can’t shoot ourselves in the feet anymore. We’ve got to really run these businesses so they scale, so they make money, and so they’re of interest to global companies and the banking industry around the world.

Rohit 13:47

Okay. Great. Yes. Please continue.

Ron 13:49

So I see so many companies, probably 25 companies a month looking to raise money or start. People have an idea or a deck. And I ask them these questions. What it is that really, really, makes you unique, or is this just a me too? What’s your concept? How was it ever going to generate cash or be profitable truly? How can you keep it, test it, and keep it fresh so it doesn’t get stale and not used? What is it and what is it not? How do you truly scale this? What itch is it scratching? And back to the differentiation. And I try to ask these entrepreneurs to explain what is your uniqueness without saying any of these five words: um, I mean, yeah, you know, and like. Those are the killer words when you’re describing your company and what makes it unique. I think being the CEO or on the leadership team of one of these fintech companies is difficult. I asked these entrepreneurs, where’s the fire? Where’s the smoke? Tell me the truth. It’s lonely being a CEO. You can only talk about so much to your board, and to your CFO, and to your team. I asked them where is the pain? And I asked them how are they sleeping. Because as Mr [Horwood’s?] taught us being an entrepreneur is like sleeping like a baby. You get up every two hours and you cry. What I know for sure, in all my travels, in investing, in experiences, is that the consumer pressure is on and is accelerating. We must continue to innovate. What we did last year isn’t going to work two years from now. Think about Uber and Airbnb and the experience that they’ve captured. Think about how we stream music and movies. It’s not the old way at all. And there is no single solution. Fin, or tech, or silver bullet doesn’t really exist. There’s lots of solutions that combine fintech and other solutions. And this battle for market relevancy and retention has really begun. Big everything. The banks, the tech, telecom, they want a piece of this, and that’s what excites me about being in fintech in the golden era today.

Rohit 16:07

So I guess on that note about big everything wanting a piece of all this, so have you seen through your conversations with larger incumbents, has there been thinking about what fintech can mean as being cannibalizing to their own core business or being extending their value proposition, or just discarding that this is not going to change how we do business because we’ve been doing this for a hundred years? Have you seen their internal conversations at the board level evolve or where are they right now?

Ron 16:43

So that’s a fascinating question. Literally last month, the CEO of one of the top three US-based banks that’s very global summoned me to meet with him for 80 minutes with his leadership team. And he asked me to explain why he needed to change. His team has given him [inaudible] ideas, the investment bankers and venture capitalists, his innovation team. But he really wanted to know where are we right now, and what should his bank do with online lending, with payments, with what’s happening in fintech. He knows it has to change. And I tried to explain that at many of the incumbents, including his bank, there was this enormous tech deficit. And there were really four banks within one, each with different data, different technology, different leadership, and not always in alignment with the whole bank’s strategy. And I explained how I thought that this bank had this unique opportunity given its global footprint, its desire to do something different, to tie it all together and capture the hearts and minds of this next generation around the world. But it had to do it differently. It had to bring in fintech from the outside. It’s not that we have more engineers. It’s not that we have more data. It’s that we’re more agile and we’re moving faster. They have innovation there. They just need us to bring some of the agility, and risk taking, and opportunity to the banks. And I’ll be going back to see that bank later in the fourth quarter or early first quarter to follow-up on that conversation, to help them make some of those moves to really get into fintech in a big way. But they’re going to have to break some of the old ways, and he knows that. He’s just got to make that decision.

Rohit 18:29

Okay. So do you see-- as in when we look at tech companies, be it the large tech, the Ciscos of the world or even-- I would put Google and Microsoft, they have these massive VC arms. They have corporate venture capital, and there’s a culture of what I would call as outsourced innovation. Do you see large incumbents, particularly the banks, follow that route? Are they going to develop? I know Citibank has their own venture capital arm, but I’m not sure how active they have been. So over the next three to five years, do you see a new player or big massive players in the fintech investment side of things?

Ron 19:07

I do. There is a top 10 US bank. Everybody knows who they’re. They have a VC arm. They just led a round in an innovative fintech company. They got two board seats. The company retained two board seats. And I’ve been asked by the bank and the company to sit on the board as the independent to help nurture the CEO and integrate the product not only at this bank, but at others. And so I do believe, and I know firsthand, but not ready to disclose it that the big banks and their VC arms are going to be making some big moves. And not just following on deals and investing 20 or 50 million, but really leading deals and throwing out some of the tech they have to bring in solutions, and then spread them around to the other part of the banking ecosystem.

Rohit 19:55

Interesting. Interesting. You can continue.

Ron 19:59

So I just think what’s fascinating around the world, what’s happening in crowdfunding, debt crowdfunding, equity crowdfunding, how we bank, clearly the cryptocurrencies, the retirement savings, blockchain and accounting, it’s all up for grabs, and it’s all really, really changing. It’s here to stay. And if you look at this last slide, there isn’t a name on this page that won’t be amongst the winners. And what it’s doing, given the experience, and the capital, and the people, and the leadership, what a nice time to be doing this, again, not just here in the US, but around the globe.

Rohit 20:37

Okay. So on the flip side of incumbents and not on the financial services side, but large tech, how do you view the chances of a Google or a Facebook or an Amazon disrupting any specific fintech vertical? As in we have had attempts at disrupting payments, disrupting point of sale by these companies, which I wouldn’t call them as home-run success. There have been attempts, and there have been opportunities for these companies to learn about consumers, but I think I would just pause there and see what you think about that [inaudible].

Ron 21:14

Absolutely. I think Amazon is the one to talk about this morning. They are totally disrupting SME business lending. They have all the data. They’re running the websites, and the warehousing, and the distribution. They know who’s doing well and who’s not. They’ve already lent multiple billions of dollars. They are not a bank. Why won’t they have their own cryptocurrency? Why won’t they have their own payment system? We know they now have transportation systems, access to groceries, a second location in the US. Absolutely watch for Amazon to enter, in my opinion, more of financial services. They want to go where the people are, and the people are where the money is. They’re saving it. They’re investing it. They’re lending it, and they’re moving it. I think that’s where we see Amazon move first. The others, no doubt about it. I mentioned the Alibaba hookup with payments coming to the US. Watch Ant Financial, A-N-T Financial. Truly amazing what they’ve done in financial services in Asia. And they are going around the world, which is one of the reasons why I’m going to Tanzania, and Nigeria, and to other parts of Africa, Cape Town and others, to talk about what’s happening in fintech, and how it can help the people in Africa. I think what’s happening is we’re also seeing one billion people on the planet of the seven billion who, for the very first time, have a smartphone, have access to the web, but they have no identity and no financial identity. And there’s companies helping these people, partnering with the telecoms to become part of the fintech world and the borrowing-lending world, borrowing text and data minutes web time and money. And you see companies like one of my portfolio companies, Juvo, J-U-V-O, really doing a great job of bringing people online into the finance world with an identity and a financial identity for the first time. That’s a big interest for me as well.

Rohit 23:17

Okay. Great. I guess for all the listeners online, this was kind of the end of the prepared remarks that Ron had. So in case you have any questions, please feel free to type them in into the top-right corner of your webinar window. I have a few questions, but we’ll keep an eye out for any of the listeners’ questions. One of them as in-- just to put you in a corner, Ron, as I’m sure you are used to. If you had to forced-rank, there are a lot of subsectors in fintech. I’ll name a few, be it payments, be it lending, insurance, securities, wealth management. So there are maybe four, or five, or six subsectors in fintech. People tend to clump fintech as a bigger sector, but there are a lot of things that are happening within each sector. So which ones would you think are, I would call them as under-appreciated right now by research and the community? And which ones do you think are already being over-monetized?

Ron 24:24

So I think the one thing that people aren’t talking about enough and maybe aren’t focusing on enough is the wallet. Everyone’s talking about the currency, the Bitcoin, the Blockchain, the Ethereum. But if you are a student of history, you’ll go back and see who made all the money, the real money, the big money in the Gold Rush era. It was the people who sold the picks, and the shovel, and the jeans. It wasn’t the gold miners themselves or the manufacturers of gold, but the infrastructure. And that’s why I think you saw Coinbase raise money at $2 billion recently because they are the wallet. They care that everybody plays, and invests, and wins. But they win each win each time something’s bought, or sold, or held. I think that part of the infrastructure play has been underappreciated. I also think we haven’t really seen the insurer tech phenomenon happen yet. We’ve seen a few arrows or shots across the bow with Ladders and others. But I think the big move in insurance tech is there. It’s one of the most hated industries. It’s one of the most profitable, inefficient, old-school industries. And once you see fintech get a hold of insurance and do to insurance what it’s done to payments, and lending, and investing, it’ll be big. But it really hasn’t started yet. It’s literally top of the first inning for insurance to be disrupted. I would also argue that getting a mortgage is probably one of the most painful, time-consuming, paper-intensive processes people talk about. And that too has to change. And I think you’re seeing companies like DocuSign and other mortgage companies change the way mortgages are done. Speed, and quality, and experience, and less paper-- that too has to change.

Rohit 26:18

Okay. I would say one of times we’ve ended up closing on a house was only because there was DocuSign and the real estate pressuring us on, “Hey, there’s a iPad. Why don’t you sign it right now?” So anyway. Jokes apart, I guess one more thing that always comes to mind is on the regulatory requirement, as in we have seen public fintech 1.0 companies have a pretty strong, negative catalyst because of some regulatory uncertainty or something coming out of [inaudible]. Is there anything in particular as you forward 12 to 24 months? Any specific catalyst or any specific thing that you are monitoring closely?

Ron 26:59

I am. I am spending a lot of time with academics and regulatory people around the world in Europe, in the Middle East, and again, in Asia. I met with the PBOC and other regulators four years ago, and three years ago and the regulatory groups in Europe. And of course, here in the US, you see companies like Prosper who are SEC-registered and file every day as if they were public. They also register with each state. And every time a bank buys loans, the banks’ regulators, OCC, FDIC, come in and want to understand what’s happening at Prosper. And I think the more that we as the fintech pioneers can proactively communicate to the regulators around the world what we’re doing, and what we’re not doing, and the benefits to people whether they’re borrowers, or savers, or investors, or moving money, how we can help their constituents and do it in a way that they won’t have a problem, I think the better off we are. So I think really proactive communication and then articulating what we do and what we don’t do and the benefits is key.

Rohit 28:10

Okay. So also I guess, just following up on the regulatory side, one question that we have-- are there any lessons that you can share from how Prosper navigated the regulatory ups and downs if you will?

Ron 28:27

I think that Prosper was very focused. It made sure it understood what the concerns of the regulators were. Prosper isn’t payday. Prosper isn’t doing things in states around the law that shouldn’t be doing, where some other fintech groups were perhaps not as focused, maybe stretching the envelope a bit. And so I think that communication, that relationship, working with the tax and audit firms to get your SOC 1 that really explains what’s happening, and having a very open prospectus-like communication about what’s really happening, I think those are really the traits, and making sure that you’re consistent, and really not cutting any corners along the way as you try to grow.

Rohit 29:10

And just one final question we see on the screen on regulatory side, do you think or have a feeling that given the current presidency in US, and the uncertainty around what regulatory environment we will have over the next couple of years, is that affecting in any way the CEOs of fintech companies or investors in fintech?

Ron 29:31

So I don’t ever comment on politics or what’s happening in Washington, DC, but I think people are watching it very carefully. And the truth is nobody really knows. Nobody really knows what is opinion, what is fact, what is truth. And so I think we have to watch out for fake news. And we have to really make sure that we’re communicating in a way, understanding this new administration and what’s coming next because we’re not building 1-year companies or 10-year companies. We’re building 100-year companies that will be here after this administration leaves the office.

Rohit 30:06

Okay. [Perfectly?] said. I guess any fintech conversation cannot be complete unless we talk about crypto, and blockchain, and a lot of things happening there. We can kind of peel the onion one by one if we actually want to, but what is your broader opinion on this trend about applications of crypto? And then maybe then I’ll have a follow-up on ICOs in specific.

Ron 30:32

So like every new innovation, whether it’s TV, or cars, or Internet service providers, and browsers, there are many, many in the beginning, and then the winners emerge. We haven’t quite yet seen the winners emerge yet. Who are the top three that are going to make it? It’s becoming a little more clear, but what’s clear to me is that Ethereum is one of the winners. This need for digital contracts that includes payments is definitely to me part of not just fintech, but part of the way we’re going to see the global financial system go to digital contracts. I think that is pretty clear to me something that’s going to be around forever.

Rohit 31:15

Interesting. And any thoughts or any reaction to the trend that we’re seeing in ICOs, as in there are, I guess, the most recent letter or thing that we also saw from Dow about whether they are being securities or perhaps just software tokens, that seems to have paused the activity a little bit. But now we are seeing more legitimate conversations about people who are more thoughtful and actually looking to build for the longer term.

Ron 31:48

Absolutely. And again, that’s part of the innovation cycle for crypto, right? They’re going to have more adults in the room, more standardization, more globalization. There is a place for this. I don’t think it’s a fraud. I don’t think it’s fake. I have not invested personally. I know people who have who’ve made a lot of money and who believe we’re really just in the early innings and the beginning of that as well. It’ll be fascinating to see. What we know for sure is there won’t be a hundred of them. Just like AT&T and Verizon are the two big ones, and then T Mobile, Sprint, and then a couple small ones, you’ll see the same thing in the currencies, and the ICOs, a couple big winners, a couple in the middle, and a long tail of smaller players.

Rohit 32:34

Okay. I guess one follow-up question to one of the things that you talked about was insurance tech. Any specific companies that you could cite, or any specific trends within insurance be it-- again, there are many forms of insurance, and there are public companies that were lead gen providers for broader kind of health insurance, or car insurance, or home insurance, what have you, but that lead gen as a kind of a value proposition was hard to kind of pinpoint in terms of what’s the actual ROI. So then we have had some iterations of insurance as a lead gen, but what do you mean by insurance tech?

Ron 33:16

So when I think about my own insurance policy on my home, and my cars, and our possessions, our life, I don’t actually know what I have. I don’t know if I’m insured for guns, or exactly how much jewellery, or for the pipe that goes out to the street. And what I see innovative companies like Hippo, H-I-P-P-O, doing is creating a 200-point questionnaire where I can say, “I don’t want insurance for guns. I don’t have any. I don’t want insurance on my fence. I don’t want this, but I do want that.” And so their ability to break down and decompartmentalize this vague, opaque, grey insurance world, and then go out and have people bid on the insurance that I really only want-- if I drive my car 5,000 miles a year versus 50,000, shouldn’t I really have different insurance? So you’re starting to see Metromile and other insurance providers charge insurance on auto based on what I’m driving. Why should I pay the same as you if I drive 5,000 miles and you drive 50? It just doesn’t make sense. My daughter’s out of the country for a month. The insurance company won’t let me turn off her insurance for a month. They don’t want to do it. That has to change. And so I see you’re going to see-- I think you’re going to see more transparency, more flexibility, more customization, and a better experience in insurance where you know what you want, you know what you have, you pay for it, and it’s flexible. That is not the case today. The call I hate to make is to the insurance company to make a claim or to talk about what’s next. It’s got to change, and I think it will.

Rohit 34:55

So aren’t these wrappers on top of insurance companies or are these fundamentally new offerings of insurance?

Ron 35:04

So some are just wrappers, and some are just lead gen, but I think what you’re going to see is exchanges happen. So you’ve seen Credit Karma and LendingTree create exchanges between banks and credit cards, and borrowers and lenders. I think you’ll see exchanges of data in the insurance industry really setting the true clearing price. We’re a ways away, but I think companies like Hippo, like Lemonade, like Ladders, are on the way and leaders in disrupting with fintech the insurance industry. But again, it’s very, very early.

Rohit 35:39

Okay. Another question or a bucket of questions we have is around small business, fintech for small business, as in-- [inaudible] starts Square I believe was probably kind of-- at one point the hope and the vision was to be the kind of operating systems for small business and all things fintech have the same amount of tech and financial services that a large enterprise can command. As in it’s still there. Work in progress, I would say. Other companies are trying to do similar things. Paytm in India is trying to do something along similar lines. So what are you viewing as kind of small business enterprise fintech kind of potential and interesting things happening there?

Ron 36:30

So when I think about small business lending, SME finance, I think about it in four different ways. The first one is invoice finance or receivables. I think about the franchises that are businesses. They have multiple locations and brands. I think about the loan to the entrepreneur, the small business operator, and of course the merchant cash and capital or the MCA space. And it’s different. Some are loans. Some are lines of credit. Some are financing forward receivables and invoices. So they’re really different. I think what’s happening with some companies like BlueVine, and Behalf, and others are really changing the way small business is funded. I think there’s so much opportunity, I think you’ve seen many of the old lenders fail-- some of the online lenders fail because of pricing, credit risk, and underwriting, or balance sheet issues. But I’m optimistic about some of the things I’m seeing, especially in invoice finance, and franchise finance, and some of the newer continuing to improve business lenders.

Rohit 37:39

Okay. Okay. We have a few other questions, but a particular kind of bucket was around wealth management, be it robo-advisors, be it as in some different flavor of investment advisory firms. There are quite a few down here in the Valley and Peninsula. They have had initial success around automated investing with [assets pricing?], but there’s obvious a business model risk at the end given that you’re going to think about scale versus monetization. So what are your thoughts around the risk and opportunities in the wealth management space? Maybe break it down by just auto-advising and others.

Ron 38:23

It’s so interesting. I’ve been following this space now for five years and really gotten to know the Betterment, the Wealthfront, the SigFig, and other players, FutureAdvisor selling to BlackRock, and seeing Schwab, and Fidelity, and Vanguard put together a front end on their old wrap systems to become robo-advisers essentially overnight. And what concerns me is not whether it’s a good idea or not. I think it’s a great idea. It’s giving people control and transparency, liquidity, lower costs, and the combination of online only, or some ability to talk to somebody. So we call that O to O to O, offline, online, offline again. What concerns me is the business model. If a robo brings in $10 billion, which is a lot, and charges 25 basis points, that’s $25 million of gross annual revenue. So you really need to have other revenue sources, whether it’s in trading, or clearing, or other packaged products, or fee-based products. Just building a business on lots of assets at 25 basis points isn’t going to work unless it gets into the hundreds of billions and really scales with automation, AI, machine learning, and less people.

Rohit 39:46

Okay. I guess we do have a couple of other questions and I guess one more around blockchains. I guess any specific companies within the crypto blockchain? You talked about Coinbase which is a wallet. Any other applications you think are becoming interesting?

Ron 40:07

I think we saw a big investment in Abra earlier this week. I think the company to watch might be Ripple. Chris Larsen who started E-Loan, and Prosper, and Ripple really is one of the godfathers of fintech, and he’s someone to watch. I think that the team they have at Ripple and the strategy will help them differentiate, scale, and get some more adoption with some of the incumbents looking at this space.

Rohit 40:33

Okay. Okay. I guess we do have a few other questions, but again I want to be careful of Ron’s time as well as everybody else’s time here who have logged in. And so we will probably wrap it up right here. Ron, thank you for your time today, and thank you for everyone joining in. As you will see on the screen, my contact information is here. And I guess many of you have requested the webinar presentation. We will be sending a follow-up email with a link to the presentation within a few days. Replay would be available online. And Ron, above all, thanks a lot for joining us today. And any last words?

Ron 41:17

Thank you for including me. The best is yet to come.

Rohit 41:21

Thank you so much. On to the golden age of fintech. Thank you everyone.

CONFLICTS:

This report is being published by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management, LLC., an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc. SP Investments Management, LLC is the investment manager of the SharesPost 100 Fund, a Registered Investment Company, and other funds. These entities and funds (hereafter “SharesPost”) does, seeks to do business with, owns and/or seeks to own positions in the companies covered in this research report. Consequently, investors should be aware that SharesPost has a conflict of interest that could affect the objectivity of this report. This report was originally prepared and distributed to institutional and certain private clients of SharesPost Financial Corporation. Recipients who are not market professional or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell or a solicitation of an offer to buy or sell any security and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation, do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax or transactional advisory services. Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports or otherwise participates with SharesPost. Company “thesis” are the opinions of SharesPost and are not recommendations to buy, sell or hold any security of such company. Investors should be aware that the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest any of the issuers that are discussed in the report at any given point in time. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, Investors are cautioned to consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

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The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers and that no part of such analyst(s) compensation was, is, or will be, directly or indirectly, related to the specific views contained in this report. Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the grown and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER:

This report does not contain a complete analysis of every material fact regarding any issuer, industry or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable, however, we cannot guarantee the accuracy of all such information. Any securities offered are offered by SharesPost Financial Corporation. SharesPost Financial Corporation and SP Investments Management, LLC are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions. Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk and should only be considered a long-term investment.

You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. SharesPost, the SharesPost logo, My SharesPost, SharesPost Index, SharesPost Investment Management, SharesPost 100 Fund, and SharesPost 100 List are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Contact

For information on research and analysis

Rohit Kulkarni
Managing Director
Private Investment Research Group
(650) 300-5128
Email
CONFLICTS:

This report is being published by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management, LLC., an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc. SP Investments Management, LLC is the investment manager of the SharesPost 100 Fund, a Registered Investment Company, and other funds. These entities and funds (hereafter “SharesPost”) does, seeks to do business with, owns and/or seeks to own positions in the companies covered in this research report. Consequently, investors should be aware that SharesPost has a conflict of interest that could affect the objectivity of this report. This report was originally prepared and distributed to institutional and certain private clients of SharesPost Financial Corporation. Recipients who are not market professional or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell or a solicitation of an offer to buy or sell any security and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation, do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax or transactional advisory services. Information regarding companies in the SharesPost 100 List available on the website has been collected from or generated from publicly available sources. The availability of company information does not indicate that such company has endorsed, supports or otherwise participates with SharesPost. Company “thesis” are the opinions of SharesPost and are not recommendations to buy, sell or hold any security of such company. Investors should be aware that the SharesPost 100 Fund (the “Fund”) may or may not have an ownership interest any of the issuers that are discussed in the report at any given point in time. Accordingly, investors should not rely on the content of this report when deciding whether to buy, hold, or sell interests in the Fund. Instead, investors are encouraged to do their own independent research. Before investing in the Fund, Investors are cautioned to consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit www.sharespost100fund.com. Read the prospectus carefully before investing.

ANALYST CERTIFICATION:

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers and that no part of such analyst(s) compensation was, is, or will be, directly or indirectly, related to the specific views contained in this report. Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the grown and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER:

This report does not contain a complete analysis of every material fact regarding any issuer, industry or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable, however, we cannot guarantee the accuracy of all such information. Any securities offered are offered by SharesPost Financial Corporation. SharesPost Financial Corporation and SP Investments Management, LLC are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions. Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk and should only be considered a long-term investment.

You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. SharesPost, the SharesPost logo, My SharesPost, SharesPost Index, SharesPost Investment Management, SharesPost 100 Fund, and SharesPost 100 List are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.