320. Consumer Fintech, the Future of Banking, and Navigating Web 3.0 Regulation (Ryan Falvey)

Ryan Falvey on The Full Ratchet

Ryan Falvey of Financial Venture Studio joins Nick to discuss Consumer Fintech, the Future of Banking, and Navigating Web 3.0 Regulation. In this episode we cover:

  • The “Masters Degree for Fintech Startups”
  • National Banks Staying Power
  • DAO’s, Crypto, and Web 3 Regulations
  • Why Ryan’s Bearish on B2B2C Models

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Transcribed with AI:

Ryan Falvey joins us today from San Francisco. Ryan is co-founder and managing partner at Financial Venture Studio, an early stage FinTech investor. He has led investments in Dave.com, Roger AI, Flex and Point.app. Ryan, welcome to the show. 

Thanks for having me. 

Yeah, man, you know, walk us through your background and tell us about your path to venture.

I guess it’s kind of unconventional, I think it’s probably pretty common actually. I started my career working in emerging markets after graduate school and did a lot of work in financial inclusion and helping them develop mobile money and mobile banking platforms all over the world. And it was fun for a while, mostly when I didn’t have any children. Once that changed, it was no longer as much fun. And so I came and got a job with a bank here, helping them stand up a payments function and tried to process payments for companies like Uber and Stripe and Airbnb and was part of the team that was on board to coin base on the US banking system early on, and really saw a couple of things. One, that there was just tremendous amount of energy and innovation in this now FinTech to that the banks seem to be completely incapable of responding to that and serving it in any meaningful way. And three, that, you know what, when I was working in emerging markets, he always assumed that the US banking system was pretty good. And that that was not true, it was actually really bad. And so those three things really got me to start looking at other roles and was lucky to get looped into a project that was a partnership between a nonprofit, the Center for Financial Services, innovation, and JPMorgan Chase to support early stage innovations and consumer financial services and turn that into basically an investment fund, and started investing there and did that for a few years was was decent at it, and was able to then roll off into my own with my partner, Tyler and start this business in early 2018. And we’ve been investing off of our own funds, kind of since late 2019. And good. A lot of fun.

So you were at SVB. Right? Working on financial payments, infrastructure. 


I’m curious, did you come across this dialogue on Twitter between Ryan Breslow of bolt and yc stripe, and he was kind of excluded and blocked by them? Bolt, of course, is like a, you know, past checkout payment platform service. Did you come across this? And what were your thoughts?

I don’t know, Stripe’s, obviously, a powerful company. Most companies that are worth $100 billion are, so the fact that there’s powerful companies trying to box out competitors, I don’t think is particularly newsworthy. But you know, I do think there was probably more innovation happening then in payments. And it wasn’t I mean, Stripe was an obvious early leader, but an early leader in technology, and technology is a really small part of the market. And it was a very small part of, you know, the payments industry back in 2012, 2013, 2014, when they were kind of getting started. And so to kind of retrospectively look at that and say, Hey, like, you know, you knew this was a winner. And we in this these investors, Boxer went outside, I think, might describe a bit too much foresight and acumen to yc. And it’s a quiet, very smart investors, but less sure they’re that smart.

I mean, I figured YC’s got a lot of power at the early stages. But you know, once these companies become super large and stuff, I’m not. I’m not sure what their ability is to box out a range of different emerging tech companies.

Yeah. And like YC is powerful now, but I’m not sure they were super powered, what’s class is Stripe, it wasn’t like they were this was back in like, you know, 2011 or 2010, whatever Stripe came through it? I don’t know. 

I do have a vague recollection of YC this is probably back in 2013, 2014. One of my first deals, you know, we got in at a pretty healthy initial valuation cap. And I remember YC, sort of mandating that we adjust our terms in order for the company to be admitted to the cohort. I mean, that was long ago. So I’m comfortable talking about it now. But for many years, you know, that kind of burned a little bit because the company went on to be successful and the multiple was nice, but could have been nicer. You know, while we’re talking about YC. They recently changed the deal, right? tacking on an extra $375k. So the original YC deal holds $125k buys them 7% Post money equity, but now they tack on this additional $375k Give it to the entrepreneurs up front. But it’s invested on an uncapped note that then converts into, you know, the next qualifying financing. So first question for you, Ryan, do you think this is good or bad for founders?

I actually think it’s an MFN. So it can be the best price that they raise after that next. No, so it’s actually a really good deal for YC. So, you know, this is YC has been pushing this MFN and not to get too in the weeds for a while, which it makes a lot of sense in that those early phases where you don’t, we just want to kind of be partners with the company, and you know, there’s going to be a valuation at a good price, but your company has often go into YC, and will raise money, you know, maybe from existing investors, or maybe from a couple people who hear about an app prices, you know, still in 6, 7, $8 million range, you know, all the time, and so that MFN is gonna buy them a decent amount ownership if they’re going into these companies still. And so, I think there are some pretty broad implications. One, I think it’s been much harder to do a traditional kind of ownership driven seed investing strategy in YC companies now. And you know, when they announced this, there were a number of other other seed investors who kind of were agitating against it, and you didn’t think it was gonna be great for the ecosystem. I’m not in that camp, you know, a little bit of background, our strategies are usually to go in with a relatively small check in other companies. And so we usually invest about a quarter million dollars, our first check, and then we work really closely with them for the first 6-12 months after we invest to really systematically network them to the broader financial services ecosystem. So, you know, we’ve been called, you know, kind of like a YC for FinTech or, you know, yc is, you know, college for startups where, you know, the master’s degree in FinTech.

Is this what you call yourself a studio?

Yeah, I mean, that was a little bit of our thinking, as wasn’t really, I think there’s a number of studios now that are very focused on co-creating companies. And our thinking was really more like a home for founders. And when we’ve kind of picked the name with kind of the alliteration we’re going for, it’s been a little bit of a misnomer. At some point, we’ll probably correct it. But yeah, that’s the idea is we want to be there kind of partnering on day one. And so you know, we’ve had just as many companies that we’ve invested in go into YC, as companies that we’ve invested in out of yc. And so we really do sit pretty contemporaneously with them. You know, going back to that strategy, we have a relatively small initial check. And then we look to build that position in the companies that have breakout success. And so, you know, the result is, you know, we might not get as much ownership on day one, maybe we may not even get as much ownership in a real breakout. But hopefully we’re deploying a large percentage of the fund into those breakout companies that have favorable valuations. And so frankly, the YC has probably benefited people with a strategy like mine that might disadvantage somebody that’s really trying to show up and buy 15% of the company on day one. But YC does a really good job. And they they’ve obviously, they’re kind of the marquee platform, it’s going to pre-seed and seed, but they don’t do all the companies and the vast majority of startups do not go through YC. And the majority of companies that go through YC don’t turn out to be particularly successful and often have trouble fundraising. So I’m not sure it’s going to be as binary as people think. But we’ll see how it holds those couple years. It certainly requires a lot of capital to deploy that strategy. That’s for sure. So it gives you a sense of YC scale.

Well, there’s no lack of access to capital for YC at this point. But you’re right, yeah, the MFN is interesting, right? Because of the startup, they couldn’t even just punt on the price round and raise a safe at a higher cap. Because the MFM would apply, right? As soon as they do the subsequent round YC would get the best terms that are out there. So it seems that if a founder gets into YC, and wants to admit some strategic partners at reasonable prices, they’d better get those things down before they sign the contract with YC.

I think there’s gonna be some very surprised founders in this next batch.

Yeah. So let’s get back to FVS. Tell us more about your thesis. And you mentioned that you guys kind of enter with a small check, and double down on those that you are selling that give us kind of broad strokes on the thesis at firm.

Yeah, so it’s very FinTech focused, and probably pretty heavy focused on the US. And so at its core, you know, the core kind of investment theory of the fund is that we think financial services is going through a once in a multi generational transformation. It’s transforming both from a physical thing where, you know, you’d go into a bank branch note, you know, deposit your cash and, you know, get a checkbook, to one it’s digital. That’s pretty obvious how that’s happening. But I think less obvious is what the ramifications are, is that means we’re also taking financial services in particular the United States from an inherently local endeavor. Nowhere you’re usually a pretty well connected business person and you can get a license to run an oligopoly over a financial service in the physical territory, which is what your banking licenses and insurance licenses have tended to be, to being able to be the non well connected person with maybe some design skills, who can come up with an entirely new approach to financial services and deploy it all over the entire country. And you know that that’s a pretty transformation. I mean, it wasn’t really until about 20 years ago, that we even had national, truly national banks. I mean, arguably, it was the post financial crisis, when you know, JP Morgan was able to acquire Washington Mutual and Wells Fargo and Wachovia merged, they actually had banks that had operations in all 50 states. Right now, we can be a startup with a couple $100,000 and have that same geographic footprint. And that is really a massive kind of sea change in the market structure of financial services. But you know, what hasn’t changed? Is it the startups that follow all the rules, and banking, in a relationship with regulators and with other partners, you know, is its own barrier to entry. And so we try to find these really high potential founders who have really innovative new approaches and ideas, and invest in them, and then systematically connect them to that broader financial services ecosystem. And we think of that ecosystem as having, you know, four constituent parts. So there’s regulators and policymakers, there’s partners that are touching money, you still need to work with a regulated entity, usually, investors, we think all these businesses are inherently going to be big ones, if they’re successful. And so we want to get our companies in the stream of capital, where That’s where they can raise a half a billion dollars over the next, you know, five to seven years. And then all the other ancillary parts of running a startup. So how do you connect with the media, you know, these companies tend to get a lot of attention. Our question around bolts right off the bat, I mean, you know, you have a payments company that’s getting national attention and has, you know, de minimis presence in the United States. And founders should be prepared for that. And so we try to bring all that to our founders in a coherent and structured way, by putting them into these cohorts of companies will will invest year round, whenever we find companies, we invest in them, then we’ll batubara investments, these cohorts, so the founders can get to know each other learn from one another, you’ll get some peer networking, most of the questions a founder has, you know, investor generally doesn’t have the answers to, but other founders often do. And so by kind of bringing him through this process together, we can open up a lot more doors, create a lot more opportunities for them to get to know the players in this industry, and hopefully save them a lot of time. And then to our investment strategy, start out relatively small, it’s usually about a quarter million dollar check. And then we’ll tax that position, you know, within a year. So if the companies are are breaking out. 

In what is the the structure of this, this cohort, you know, what sort of programming or value added structure do you guys put around the various founders going through?

It lasts about seven months, and it has five formal meetings at it, there’s one just to connect the founders to each other. So they all know each other, they’re all doing what the relative strengths and weaknesses are, we’ll do one to connect them to potential partners. And so that’s banks, insurance companies, and at this point, larger FinTech companies, will have a meeting focused on regulators and policymakers so they can understand kind of how to build those relationships. What’s interesting is it really the only time to build a relationship with the regulator is at the seed stage. You know, once you get to be kind of a growth stage company, you go from being like a spunky entrepreneur representing American capitalism and innovation to you know, an unregulated rapacious capitalist, and that transformation happens pretty fast. And so we want to get them in and build those relationships, when it’s still possible. Investors spend a lot of time connecting them to larger investors. And, you know, our, again, our thesis is these businesses have to raise hundreds of millions of dollars to get to a big national scale. And so we need to get the ministry in those capitals if possible. And then we’ll do a meeting focused on media and user acquisition and how they can help them tell their stories. And then outside of those formal meetings, we’re, you know, meeting with the founders, at least every two weeks, usually, far more frequently than that, we want to be the most engaged, most helpful investor for our founders during that first, you know, six months of our engagement, and then hopefully, the end of that they’re onto kind of Series A, in some cases, Series B. And we can can take a little bit of step back. And so we don’t take typically take board seats, we just are very focused on getting kind of point A to point B, that early stage,

How many investments is the firm done per year?

We’ll do probably 15 this year.

15. How do you handle it when you can’t start every founder in the cohort at the same time, right, like you’re trying to run some programming?

You know, that’s actually one of the more challenging parts of it. We’re investing year round. And then we’ll also have an application process, which is pretty unique. We’ll do an application process, you know, on the eve of launching a formal cohort, and we’ll get a couple 100. You know, companies typically will apply directly through that process. But if we invest, you know, right after cowork starts, we’ll drop the company into an existing one. And if you know, it seems like they might have missed, you know, too much. We have a kind of a point during it where Make Last has to drop someone new, in which case, we’ll just have them start the next one. These are going concerns and you know, so you know where this is a situation where they need to move anywhere. I mean, certainly in a post COVID world, there’s very little physical interaction happening still. So we’ll just tend to wait. We also are often very early investors. And so, you know, sometimes there just isn’t a lot for us to do like if they’re still building, like, they should do that. And so that affects our thinking on like, what when we drop them into a cohort, but that is one one area we’re really conscious of. And we have to be really sensitive, especially after we start a new cohort throughout, they’re continuing to find new companies. Because when we look back at the last couple years, and some of the deals we missed were during that period where we’re onboarding a bunch of companies and you’re not really out looking for new startups and we really methodically avoid that situation.

Always a balance, rent that and fundraising as well. Right. Tell us about maybe some of the specific trends and categories that you guys are following most closely.

Yes, we’re big fans of consumer, FinTech, not every investor in certainly an investor in FinTech likes that category. I mean, we think we have almost a permanent opportunity. And so we’re very active there, we’re increasingly looking at small business, and kind of self service enterprise, because that tends to look a lot like consumer as well, and how you’re acquiring those customers and building a brand and, and, you know, the innovations on like the front end, the customer know, kind of customer side of things. We’re increasingly looking at web three, but very focused on where those connections to the traditional financial services system wireless, how do you make that easier to onboard people off ramp? People have money? The most recent deal is actually a web three payments company that has lot of people that you use to get money into crypto. And so we’re continuing to invest a lot of time and energy there. And you know, while we focus pretty explicitly on the US, we are seeing a lot more content, transnational types of products and companies coming about. And so I can see that increasingly being a growth area for us.

Yeah, you plan to invest in emerging markets as well. I think today, most of it’s been in the US, is that fair?

Oh, yeah, the vast majority of us in the US, we would always want to see some sort of Nexus, I think our advantage is in helping founders kind of navigate this market. And I think you’ll give me a background in emerging markets. And there’s a lot, there’s a lot of risks in these markets that like, just existential risk all the time that is very hard to underwrite. I don’t think a lot of people who haven’t spent time really realize how much of that can exist in some of these places. And so I think if we were to push harder into emerging markets, we would want people there. And that’s a ways away still interesting.

Talk to us about consumer FinTech opportunities. And are you seeing founders utilize any interesting customer acquisition channel, you know, partnership strategies in order to kind of get that initial sort of wave of customers and get the product market

fit? Yeah, we do. I will say that we know, when we look at consumers, what we’re looking for is a use case, and I think is a really important kind of distinction. And what I mean by that is, for example, debit cards, there’s a lot of like neobank, debit card products out there. We’ve invested in a lot of them, I think we have like six of these in the portfolio. Each of them is a use case, it’s it’s somewhat novel, and it’s very focused on the specific target demographic that they’re going after. And that’s really what we’re looking for. And I think going into that broader analogy that you have this Yun digitalization and Nationalization of banking, what that does is allow you to create a product that would have been economically non viable than the old market that we had. So we have a company called daylight, which is, you know, banking experience focuses focus on the queer community, that would have been really hard to build a traditional bank doing that pre, you know, 10 years ago, because the old you’d only have a couple of communities in the country, which had a high enough concentration of LGBTQ people to to justify, you know, going out and trying to acquire these individuals on you know, with billboards and radio ads and things like that. But at a national scale, there’s obviously millions of people who identify in that category. And so it’s, you can create a really authentic brand. There’s all sorts of interesting things, which has been one of the big advantages of the team that runs that company. They’re amazing on brand and media and getting the word out what they’re doing. But I think the really durable competitive advantage they have is that to serve that market efficiently, they have to create a very personalized baking experience. So one of their first use cases is you can change your name to a name you prefer, versus maybe the name you were born with, which obviously would matter a lot to somebody who might be transgendered. And that though there are big ramifications to that, because that means that your entire product is going to have to be able to allow someone to change key elements of that They’re identified your KYC and AML properly, how you onboard and understand who your customers are, it’s going to have to be really robust. And it’s going to have to be able to be very flexible, you might have a product where somebody is very comfortable being part of this community. And you know, doesn’t mind getting the mailer and a rainbow colored envelope or a bright yellow envelope, you might have somebody that doesn’t want to, doesn’t have that degree of comfort, and might live in part of the country where they might face a lot more discrimination somebody else. And so they need their card to come to them in a plain white envelope. So the entire experience from that company’s inception is going to have to be credibly personalized. And so when we’re thinking about investing in companies, I guess, sure, there’s 30 million LGBTQ plus people in the country. But to be successful, this company, this company was gonna have to create the most personalized banking experience in the country. In doing so there’s going to be a lot of use cases, there’s gonna be a lot of people that want to really personalize banking experience, go way beyond the people who who might identify as queer. And so that’s what we’re looking at when we’re going to these businesses is a use case, that’s, you know, that doesn’t exist currently, and is aligned with the demographic group that, you know, could scale and support business that size?

In this specific example, does the range of use cases and applications and, you know, form factors and access and all the challenges they’re in? Does that get you more excited? Or does that give you more pause when you’re trying to underwrite the investment? And it’s got some added complexity to it?

It’s a good question. I think we mitigate that mostly by the focus of the team, you know, you can cast it about any business, right? You know, like, Who would have thought Facebook would be whatever, headless? BMF it is now. But, you know, early on, they were like, we’re just going to connect, you know, college students to this platform. And I think that’s really, that’s really more of a management call, like, how focused are this team on just kind of doing the thing they’re going to do, rather than all the problems? Because if you definitely get away, I mean, there’s examples where they’re like, they’re doing way too much stuff. You know, it’s like you got to stop, just pick one.

Right? Guilty as charged, right. Back to Twitter, many we’re tracking the Constitution DAO, for it’s aimed at sort of tokenizing ownership of an asset. Likewise, there’s been some DAO’s to purchase NBA teams, fast food franchises, and a variety of other things. What are your thoughts on the future of DAO’s? And do you expect regulatory scrutiny here as well?

Great question. I don’t know if I would expect regulatory scrutiny, because I think some of these are criminal enterprises, and are like skimming, or just kind of take money from people. I think it penalizes us.

That’s like, maybe yeah, I mean, some of the some of the, you know, some of the protections here, you know, there’s like, 12 signers and stuff as well, maybe, I mean, what if he’s all 12 is called a conspiracy, right. So I think that like, I think there’s probably going to be some of that that’s happening there. I’m not sure that the organizational structure of the DAO is particularly innovative. And I mean, that in a good way, in the sense that this is an association and you know, in Wyoming, they have a legal framework for recognizing DAO’s, allowing them to organize and even have a chancery court for resolving disputes among them. And, you know, I think, I think it was Wyoming that did this LLC back in the late 1970s. And I think that the idea that a group of people are going to choose to associate share some, some amount of risk and liability, not not all of it, you know, I think that that form factor of an organization’s been around for a long time, you know, the technology and just allowing anybody in the world to join it, I think, is kind of the new one. So I think we’ll see more there, I’m not super confident, they’re going to be like, that interesting of enterprises for venture, in the sense that, like, in my experience, at least, having more bosses is usually not great for performance, like it tends to slow things down. And if I was a member of a DAO, I think I’d want the Dow to kind of function like, you know, the US Congress and gonna go slow and methodical and get input and make decisions that are going to stand the test of time. And I’m not sure as an investor, that that’s exciting for me.

It’s a hot topic, and I think there’s a lot of people out there that are excited, but I don’t know, as I look back at history, I don’t think there’s a lot of successful instantiations of sort of mob based decision making, even if they have the best intentions, you know, electing a leader or appointing somebody to kind of help rationalize, you know, the group’s opinions seems to work much better. 

Yeah. Interesting. You know, while we’re speaking about regulatory, are you guys actively monitoring regulatory issues, you know, in and around finance, and, you know, gauging their impact on the industry? I mean, I know the IRS just announced that they’re gonna monitor business transactions on Venmo of over $600 per year, right? There’s people that, you know, trade crypto and are using that to tax loss harvest pretty aggressively. Right. But that loophole, probably close and, you know, just kind of curious how you guys think about regulatory and in, you know, major issues coming up, and how that kind of informs the way you invest?

I would say it’s one of our key differentiators and advantages. As an investor, we look very closely at what’s happening in the regulatory landscape and try to be very forward thinking and, and maintain, you know, I’d say exceptionally close relationships with regulatory leaders in both parties in this country. And we would not invest in something that we saw on its face and is likely to continue to be illegal. You know, the statute of limitations for federal crimes is often pretty long in your taxes. It’s forever. And so, you know, it is because you’re getting away with so it’s like that big day, you know, not to timestamp this podcast too much. But there’s this couple that just got arrested, you know, for being behind this Bitcoin hack in 2016. And like, yeah, maybe the federal government didn’t know what’s going on with the coin in 2016. They know now, all the time and money to figure out so I wouldn’t be. I would be very careful. You know, we tend to be very careful and things like we didn’t touch on the ICO stuff, because we knew that that was a snapper not going to work. I think a lot of what’s happening in web three now is not like that, though. Honestly, I think that there’s, I think that, you know, the NF T’s might be the easiest and most compliant use case in, in FinTech, I can think of, you’re just you’re buying a digital artwork for someone makes there’s nothing there. Do you need me regulation for that, like, there’s nothing stopping you from charging for this podcast. And this podcast is a digital file that you created. And that there’s just like not, there’s nothing, there’s hardly anything, you’d be worried about other things, you know, like peer to peer payments. Those are really complicated businesses, and require a lot of regulatory work. And that’s one of the things we try to bring our founders is to give them that exposure and make the introduction to them, you’ll get them strong legal counsel that can do the early work necessary. And one of the reasons we’re investing often is to give them the financial resources to do that work, because it becomes a barrier to entry for competitors if you do a good job with it. 

Mm hmm. Ryan, with recent public market corrections and sort of slowing pace and some valuation correction and at the growth stages, you know, with the Tigers and soft banks and the ko twos, have you seen a corresponding shift at the early stages and at the seed round? But yeah.

No, I’ve served people saying they are slowing down. But you know, we slowed down after COVID happened. And we did this whole analysis of our portfolio and looked at how much cash they had, like it was beautiful, some beautiful slides for LPs and got likes great, like everyone loved it, I mean, did such a great job. And looking back on it, we should have just kept on investing, we should have not even bothered to stop, because there were some deals we looked at in March of 20. And April of 2020 may have to meet literally into like August before things really kind of came back where they were great investments. Some of them are multi unicorns multiple times over already now. And I think we were kind of clamped up on risk too much. And so I think the valuation piece is a factor when you’re doing seed investing, and like the high 10s of millions, like it’s in FinTech, at least, you’ve got to have some sort of public exit comps. And I think that that’s where you have some questions. It’s like, you know, really, we’re going to invest this company at a $100 million dollar valuation like, and we’re going to get 100x here, because that’s what you should be doing as a seed investor, you should have some sort of logic where you can have on your x there. I mean, there, that’s just hard to imagine, like there’s only like, four or five public companies worth that much. And like one or two in FinTech. So, I think that that’s where we were, we’re probably more concerned, but you know, those investments have always been kind of losers, honestly. I mean, sometimes you find a really great one. It’s super hot and you can find somebody with Jameson money and alongside like a big top tier fund, and it works out. Okay. But it’s, you know, it’s pretty uncommon. I mean, the the picking skills at this stage are pretty evenly distributed. And so I definitely we definitely try to find companies that are on the earlier side might not yet be discovered might not have enough proof points and traction, might be in categories that are out of favor at the moment, work with them and you know, then try to introduce them to those bigger investors or make that category more in favor.

I shudder to see the portfolio construction of the folks that are leaning into a $100 million seed round. You better have some great slams. Now that said, Andreessen did some pretty risky things, probably five to seven years ago that look to be working out, okay with Coinbase, and others, but you really have to be right pretty often to do that.

Yeah, even that, though, I mean, if you’re Coinbase, like Gary Tan was able to build a decent little position in that company at a very favorable price. And he was one of the few people around the table early on, and then didn’t mean, I think that’s a great example, that a lot of work, which he’s talked about extensively on the internet, but you can look up in here, to the good credit, right, got a good job of taking credit for his work there, which is fair. But, you know, he did a lot of work to get the word out of that and kind of tell a story. And he, you know, he’ll admit that his original thesis on why it would work was wrong, he thought that everyone would start buying Bitcoin to hold it as investment. And that’s not what happened, or that it would start, you know, being used for commerce, and that that didn’t happen. But his investment, I think, is a better model than, you know, even Andreessen Horowitz, which I think that series A they did with US v. So it’s not exactly like, these guys were up and comers. I mean, this is like top tier investment funds from the opposite side of the country that are very well known. And so I think that that’s actually kind of Gary Tan’s Initialize is probably a better example of kind of where you want to be. And ideally, you know, you’re only like three or four months ahead of the curve. And so it doesn’t take you long to get credit for it. 

I wonder if, just looking at emerging categories, if we went back and looked at the deal memos that were written at the seed round by a lot of these investors, how often the vision is disconnected from, you know, the eventual reality is like, you have to be right and wrong at the same time. You know, maybe your ultimate goal with the company doesn’t pan out, but it’s still enormously successful. Yeah,

That’s definitely true.

All right, so I’m going to hit you with some rapid fire questions here with regards to crypto payments of the future rails for financial innovation or neither. Neither banking will the top three US banks, JP Morgan, BofA, Wells be larger or smaller or out of business in 10 years, larger consumer FinTech, broader democratization, or regulatory headwinds in the next two to four years.

Like can you say both? Both answers? 

Sure, why not?

B2B2C FinTech business models, a winning business model or a fool’s errand?

I don’t want to call me a fool but they’re not business models.

Interesting, we’ll double click on that later. And finally…

Not a business!
Lots of overlap here. These aren’t mutually exclusive, but web three’s biggest winner in five years, NFT’s, cryptocurrencies, the metaverse, or DAO’s? 


Awesome. Tell me about B2B2C. Why is that not a business model?

You’re doing two things at once. It kind of goes your question around like focus, you’ve got to go sell businesses, and then the businesses are supposed to turn around and sell something for you like it’s just it’s really, really difficult. Also no examples of any businesses at any scale. I can tell you public companies that do this like not not, I can’t think of any, I’d love to be corrected. 

Or put this way because there are one or two glaring examples, Visa and MasterCard, which were created by banks who used an exemption from the monopoly that they were obviously setting up. They actually got an exemption from this is a way to do this. So they created monopolies. And then they let them then invest billions of dollars in helping them build the brand for those monopolies. And then they spun them off as multibillion dollar public companies. But like, unless you already have the bs there, and you’re just getting the C’s then it’s just too much to do. Just pick one just go direct to consumer, there’s no there’s no point to stopping in the business intermediate step. Interesting.

All right, Ryan, this question is called three data points. I’ll give you a hypothetical situation with a startup where you can ask three questions for three specific data points in order to make your decision. Let’s say you’re approached to invest in a precede stage consumer lending startup company based in New York they have 2000 D A use they’re grown 6% week over week. Again, the catch is you can ask me three questions for three specific data points.

Are they actually a lender? Like are they licensed lender?

Okay? I’ll say yes.

I’m not interested. 

Just one question it requires? Thanks, man. Good luck, man. I’m in for 250…

No, I’m a no pass no. 

You’re a no? You don’t have to ask the other questions now? 

I’m all of a sudden now gonna be second in line to make money in this business beyond the lender and lenders unlike equity investors, like debt providers, they actually know how to do math. I don’t do that. I just like to bet on you and your team and by division and all that other stuff. Somebody else is already gonna sit here and do an Excel spreadsheet to figure out exactly how much money they’re gonna make off this business. And that’s the person who’s giving you the lending capital. If you want me to give you the lending capital, that means you’re probably not a very good lender. And also, you can’t build a scale on Monday, because you’re just selling money. So I wouldn’t, I wouldn’t be interested. And actually, their numbers aren’t very good either, 6% week over week for businesses selling free money on your net.

So let’s so let’s say they’re not the lender.

I’d want to know how the revenue model looks like, like how they make money, like transactional versus subscription or something else.

And is it defensible, how it’s defensible. What’s the distribution model? How do you get in there? How do you keep anyone else from coming into that channel? 

Very good. Love it.

Ryan, if we can feature anyone on the show? Who should we interview? And what topic would you like to hear them speak about?

I thought about this two things I was very self serving pick, as he should have newest partner, Cameron pecan, who used to be the CEO and founder of as low which was a really significant business banking platform that was backed by BBVA, and then got kind of unceremoniously shut down when BBVA left the United States as a great case in point for the inability of the incumbents to respond to FinTech innovations, even when they have it, they tend to not be able to do anything with it. So I think she’s really interesting. She’s got a great background in b2b and enterprise and is just super engaged and helpful to the founders and so we’re really excited to have her so that would be my number one pick. Unless self serving would be TX from Vika, we just gotta look at that. You’re covering the man. He’s great. He’s great. He’s like one of the kinds of investors out there. He’s always incredibly helpful.

I’m convinced TX has 48 hours in the day. I don’t know how he fits it in.

Some of these guys are just like, I just don’t know. It’s like, yeah, Charles, from Precursor on?  

Yeah, it’s been probably four or five years. But yeah, he’s another one. 

Yeah. I don’t even I don’t understand how he’s got such a massive portfolio. Everyone’s like, yeah, he’s been super involved. No one’s ever been like, you haven’t heard from Charles for six months. Like, he’s, he’s on it. He’s on and I just don’t know how he does it. 

But yeah, great guys. You know, quick shout out Parker Barrile. He suggested you for the show. So thank you, Parker. Thank you, Parker. 

But you know, to your point on your new partner’s business it was Cameron, is that right? Yeah. You said earlier that you think the big banks are going to get larger in the next 10 years? Why is that?

because the best way to make money if you have money is just to give it to people who already have money. And so what these banks business models, basically to do is to suck up deposits from businesses and lesser extent, people, cuz they already have the maximum amount of people deposit they can get, and then they lend it back to the federal government and the federal government gives them more money, they just kind of do that cycle. And then they do things like underwrite, you know, IPOs, and, you know, Flinter dams and things like that, like the fintechs not, we got a long ways you’ve already started entering in disrupting, you know, the project finance market, or, you know, the clearing capital market transactions in the financing derivatives and things like that. And so, I think that those core, those big banks that have the balance sheets are going to continue to grow. It’s one of the reasons why I don’t like lending businesses just because, you know, it’s very, very difficult to compete with the incumbents in lending, because like you, all you really care about is the lowest price of your loan. So if it’s a mortgage, if it’s a credit card, whatever it is, you want to get the lowest possible price. And so when you show up in your new, you’re tending to lend to lower quality, quality credits, and underpricing risk, and that’s not something that the big banks are bad at. And so you know, we really tend to look for places where they’re expanding the aperture. Now, what the big banks are less interested in doing is serving the average American. There’s a 10% statutory cap rule here in the US, so no bank can have more than about 10% of the US depository base. After the financial crisis, there were four banks together that had 42% of the US depository base: 


AIG, America, Wells Fargo, JP Morgan, and Citibank. And if you’re at that level, the business model is really simple. You just swap out lower income people for higher income people, because I would rather have, you know, one Bill Gates than how many millions of people accounts and go to a service all over the country come into the branches, asking questions and call up phone, this is a bunch of pain, I don’t need all that. You’re gonna have some rich people, but more money, less work. And so I don’t. I’m not going to bet against that dynamic continuing.

What’s your take on small banks, community banks, credit unions, the future for those players?

I think that I think that there’s they’re at a really interesting inflection point and you have some of those banks that are moving hard into FinTech and have built really valuable franchises recently, their size and the others We have a couple of investors who are banks in this category, coastal Bank, which isn’t one of our investors. But as you know, this publicly traded bank, comparing their stock to other stocks of banks of comparable size, it’s done really well, because they’ve generated a lot of fee income by serving FinTech companies and helping them grow and scale. And so, you know, these banks are more nimble. And some of them have really built some pretty valuable franchises in what is still a very emerging area. And so for those banks that are embracing technology, I think it’s an incredible time for them, because they can really grow up. Think about banks as just kind of counterintuitive, but they’re not really designed to grow fast. Our laws in this country are designed to keep them from growing fast, because we want them to be stable so that the money is there, if they fail. And so you know, what FinTech has done is allowed some of these banks that have been around for, you know, hundreds of years, in some cases, just grow exceptionally quickly, because they’ve got the leadership that’s really bought into technology. And I think that’s a huge opportunity, I don’t think I think it’s probably a small minority of these institutions. And so for the most part, we’ll continue to see consolidation, because going to the dynamics of banking, those big banks have a significant advantage in capital raising in their sophistication and efficiency of their operations. And it makes it very difficult for smaller banks to compete.

Do you think consumers will shift away from geocentric community organizations and banks and more to the interest groups like your LGBTQ plus financial solution for consumers over time?

Yes, I do. I just don’t think you know, Maslow’s hierarchy of needs, know, banking, it’s not very far up there. And once you solve the problem, you’re kind of good. And if someone shows up and solves a problem in a better way than exists already, you’re probably gonna be good for a while. And I think a lot of the offerings out there that most consumers have are pretty stale. You know, the checking account was designed for a world where one person’s maybe the head of household for a family getting paid predictably, every two weeks, they’re keeping a surplus of money in it. They’re spending kind of what they need in a community. It was not designed for somebody that’s barely making ends meet with multiple sources of income, and paying for all sorts of different bills and is kind of really on the edge. And I think that that’s why a company like Chime has been so successful. Dave, in our own portfolio, Dave is very focused on helping you avoid overdraft fees and saying, you know, their message, overdraft fees suck because they do. Because if you’re paying 35 bucks, once or twice a month, to your bank, because of something that’s completely predictable. You ran out of money the day before you got paid, you’re angry, and you want to change. And if you know, Dave, or a chime or aspiration shows up and solves that problem, I don’t think they’re looking for another solution for a while.

Couldn’t agree more. Final quick questions here. Ryan, do you have any tools or hacks that are a secret weapon?

I think one of the pieces of advice I got really early on was to suspend disbelief. I was at SPB actually, I heard a pitch from somebody that’s ridiculous. What the hell are they talking about? Like they can’t do that. You just kind of just suspend disbelief. Just assume it’ll work. And I’ve taken it to heart and I know many founders, I try to just listen to what they’re saying. And then it listens to the logic of why they think it’ll work. And try to tie that together. I think if you try to bring your own view of things, it’s you know, most things aren’t going to work and end up tenants like jaded and not being particularly helpful. And I think that that’s probably been, you know, what’s allowed me to be, I think, a decent investor so far. And that helps you. I’m obviously kind of opinionated. And so maybe because I am so opinionated. I try to proactively reduce it early on and re-engage with people.

P2P payments, Ryan, I’m telling you. 

I believe you’re right. 

Ryan, what do you know, you need to get better at? 

Fundraising. I mean, this is the you know, that’s the the hardest part about running one of these businesses is you know, building those relationships and telling a story and kind of having, I think I can be a little transactional, but she knows harder to do in the relationship business, it’s easier when you’re the one giving the money to do that. And so that’s an area I can be very impatient with people and others. And that’s always, you know, has good things. You try to move a lot faster. But at the same time, like tends to be more dismissive of things of the less willing to kind of chill out and let things unfold.

There’s nothing like a great family office that just pulls a disappearing act for two months and then and then reappears and is very excited and then disappears and appears again. Oh, it takes some patience. And then finally, here, Ryan, what’s the best way for listeners to connect with you and follow along with financial venture Studio?

You can email me at Ryan at fin venture studio.com I already get so much spam. It will affect the spam but, we definitely try to have an open door here. And so we definitely respond to cold emails. I’m on Twitter. I think it’s Ryan underscore Falvey and then you know, our website FinVentureStudio.com, easy to link to, to reach out to us. And so, I mean, if you’re starting a business and no matter how early even before you fully identified it, you know, we’re happy to chat and we’ve invested in businesses, you know, pre incorporation, or committed to invest in pre incorporation many times, and so always looking to talk to founders and that family office. 

That’s that intro, you might hear from them in three months. Ryan, thanks for the time today man, this is great. Appreciate the perspective on FinTech and finance and best of luck to the firm and your newest partner Cameron.

Thanks a lot. I really appreciate it.

Transcribed by https://otter.ai