Draper Esprit
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Extra Crunch roundup: Square buys Afterpay, paid search basics, career advice for devs
Square paid around a quarter of its present-day value for Afterpay, Alex Wilhelm notes in The Exchange. That seems like a lot. But was it too much?
“Afterpay brings global revenues, global users and a more diverse merchant network to Square,” Alex notes. “It would have had to spend to derive those assets over time. Square is willing to pay up to snag them now.”
Dana Stalder, a partner at Matrix Partners and Afterpay’s only institutional investor, describes the deal as part of a recurring “critical innovation cycle” in fintech that “determines the winners and losers” for decades to come.
“I’ve never seen a combination that has such potential to deliver extraordinary value to consumers and merchants,” says Stalder. “Even more so than eBay + PayPal.”
Thanks very much for reading Extra Crunch this week!
Walter Thompson
Senior Editor, TechCrunch
@yourprotagonist
The best way to grow your career? Treat it like an app
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Developers may delight in solving complex technical problems, but the problem of a career path is one many don’t think much about, Juniper Networks CTO Raj Yavatkar writes in a guest column.
He offers a solution that should appeal to developers and engineers: “Treat career advancement as you would a software project.”
Design expert Scott Tong outlines 4 concepts founders should consider when designing products
Image Credits: Scott Tong
At Early Stage 2021, design expert Scott Tong shared some ways founders should think about design and branding.
If you can link your brand with your company’s reputation, I think it’s a really great place to start when you’re having conversations about brands. What is the first impression? What are the consistent behaviors that your brand hopes to repeat over and over? What are the memorable moments that stand out and make your brand, your reputation memorable?
You can’t afford to make poor decisions about incentive stock options
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If you’re fortunate enough to be considering cashing in on vested stock options, this guest column is worth a read.
“Most companies admit they need to be better at explaining how ISOs work in general, but they can’t legally work one-on-one with employees to help them exercise and sell shares the right way,” Wealthramp’s Pam Krueger and John Chapman write.
“That’s why, when the time is right, many employees actively look for help from a qualified fiduciary financial adviser who can walk these could-be ‘options millionaires’ through various cash-in scenarios.”
Demand Curve: Questions you need to answer in your paid search ads
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At some point, almost every early-stage startup will use paid search ads to connect with customers and throw down the gauntlet with their competitors.
Most of these initial attempts at paid search are unsuccessful. There’s a steep learning curve when it comes to transforming passive searchers into paying customers, and almost no one gets it right the first time.
In a comprehensive guest post, growth marketing expert Stewart Hillhouse identified “14 questions your paid search should answer to ensure you’re only paying for the highest-intent shoppers.”
Question 1? “What’s in it for me?”
5 lessons from Duolingo’s bellwether edtech IPO of the year
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Duolingo’s debut last week was a bright spot, Alex Wilhelm and Natasha Mascarenhas write, with the language learning app’s stock price landing above a raised IPO range.
Alex and Natasha detail five lessons to take from Duolingo’s flotation:
- The IPO event will bring “more sophistication” to Duolingo’s core service.
- Roadshow investors didn’t view Duolingo as an edtech company.
- China’s edtech crackdown will have a “neutral” impact on Duolingo.
- In certain cases, post-COVID growth declines aren’t lethal.
- Growth can still absolve rising losses.
Can your startup support a research-based workflow?
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In the U.S. alone, yearly spending on AI R&D is expected to reach $100 billion by 2025.
But can your humble startup attract and retain users while it conducts research and product development?
“For obvious reasons, companies want to make things that matter to their customers, investors and stakeholders. Ideally, there’s a way to do both,” says João Graça, CTO and co-founder of Unbabel, an AI-powered language operations platform.
Kodiak Robotics’ founder says tight focus on autonomous trucks is working
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As part of an ongoing series with transportation startup founders, Rebecca Bellan interviews Kodiak Robotics CEO and co-founder Don Burnette about why the autonomous trucking company remains private when so many of its rivals have gone public.
“I think there’s also lots of opportunity within the VCs and the private markets,” said Burnette.
“Kodiak is one of the only remaining serious AV trucking companies still in the private sector, and so I think that gives us some advantages in a lot of ways.”
How public markets can help address venture capital’s limitations
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After interviewing Draper Esprit co-founder Stuart Chapman, Alex Wilhelm and Anna Heim took a look at the trend of European VCs floating themselves.
Traditional VC models “can foist artificial time constraints on investors and force them to focus their deal flow into particular stages for fund-construction reasons,” Alex and Anna write for The Exchange.
“As we found out researching this piece, the public venture model highlights some of these limitations — and may be able to alleviate them in part.”
Robinhood’s CFO says it was ready to go public
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After Robinhood failed to burn up the stock charts, Alex Wilhelm wondered why, exactly, the investing and trading app’s IPO didn’t live up to expectations.
He spoke to Robinhood CFO Jason Warnick, who shared a few reasons why it was time for the company to float:
… Warnick indicated that there were a few factors at play, including that Robinhood had built out its leadership team and its internal processes, and that it had worked on user-safety-related tasks and expanded the site’s use cases. All of that is true.
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How public markets can help address venture capital’s limitations
British venture capital firm Draper Esprit recently moved its listing from the AIM to the main board in London, the LSE. The investing group also moved its secondary listing from Dublin’s Euronext Growth Market to its larger sister exchange, Euronext Dublin, which makes sense given its long connection to Irish capital.
Draper has always felt like something of an anomaly from our perspective, a generalist venture capital firm that was itself public. But this July, Forward Partners listed its shares on the AIM, and there are other venture firms in Europe that are also listed.
At first blush, the setup may seem odd; venture capital firms invest in companies that they hope to see go public one day — why would they float themselves? But Draper Esprit co-founder Stuart Chapman told TechCrunch in an interview that he finds it shocking “that venture capital backs some of the most mind-blowing tech advances in our history over the last 70 years, using the same legal structure as a 1958 property vehicle in New York.” It’s a reasonable point.
Perhaps fundraising success is part of why the venture model has not seen much disruption in recent decades, apart from rising fund sizes. But the model is not perfect. It can foist artificial time constraints on investors and force them to focus their deal flow into particular stages for fund-construction reasons. As we found out researching this piece, the public venture model highlights some of these limitations — and may be able to alleviate them in part.
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And yet we can’t come up with a single U.S. venture capital firm, for example, that has publicly listed in the same manner as Draper Esprit or Forward Partners.
To better understand why we’re seeing European VCs float, and not their peers in other markets, The Exchange reached out to Draper Esprit, Forward Partners, and fellow listed venture investors Mercia and Augmentum Fintech. From the group, we’ve learned that there are plenty of reasons why the model may be popular in the U.K. and not in the U.S.
But there are also reasons why being a public venture capitalist can make the VC game a rather different, longer-term effort. The firms in question did not go public on a whim.
So let’s talk about the good, the bad, and the regulatory concerning publicly listed venture capital firms. The future? Or just a regional quirk?
From exception to trend?
Following its move, Draper Esprit is now the largest “purely tech VC” listed on London’s Main Market. Its initial listing had also been a market milestone: “Listing Draper Esprit five years ago was a radical and unusual step for a venture capital business,” Chapman said of Draper’s 2016 dual-listing on London’s AIM and Dublin’s Enterprise Securities Market (ESM) — now Euronext Growth.
Just last month, two tech-related investment funds IPO’d on the London Stock Exchange: space-focused Seraphim Capital and Nic Brisbourne’s Forward Partners. In both cases, Draper Esprit was happy to assist with information, Chapman told us, adding that the firm also invested in Forward via its fund-of-funds effort.
The news adds up to a roster of listed investors that also includes fintech fund Augmentum Fintech, asset manager Mercia Asset Management PLC and intellectual property commercialization company IP Group. “We’re supportive of others following in our footsteps and we will be big fans of having much wider diversity,” Chapman told TechCrunch in an interview, which you can read in full here.
Having recently joined the club, Forward Partners’ founder and CEO Nic Brisbourne gave us a good overview of the three high-level reasons that could lead a fund to list: open opportunities to create more value from new initiatives that sit outside traditional investment capital; breaking the cycle of fundraising; and opening access to the early-stage venture capital asset class. Let’s take a closer look.
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FintechOS nabs $60M for a low-code approach to modernizing legacy banking and insurance services
“Challenger” startups in banking and insurance have upended their industries, and picked up significant business, by building more customer-friendly tools and services — more personalized, easier to access and usually competitively priced — than those typically provided by their bigger, incumbent rivals. Now, a startup out of Romania that is building tools to help the incumbents respond with better services of their own is announcing a significant round of funding as its business grows.
FintechOS, which has built a low-code platform aimed at larger (older) banking and insurance companies to help them build new services and analytics on top of and around their existing infrastructure, has raised €51 million ($61.5 million at today’s rates, but $60 million at the time of the deal closing) in a Series B round of funding.
FintechOS’s opportunity has been to target the wave of incumbents in the insurance and banking industries that have been slowly watching as newer players like Lemonade (in insurance) and a huge plethora of challenger banks (Revolut, N26, Monzo and many others) are swooping in and picking up customers, especially among younger demographics, while they have been unable to respond mostly because their infrastructure is too old and big. Turning a huge ship around, as we have seen, is no small task — a situation that has become only more apparent in the last year of pandemic living and the big shift to digital interactions that resulted from it.
“When we launched FintechOS in 2017, we could already see existing solutions to digital transformation would struggle to deliver tangible results. By contrast, our unique approach has quickly inspired a sea-change in how financial institutions address digitization and engage with their customers,” said Teodor Blidarus, co-founder and CEO at FintechOS, in a statement. “Events over the last year have only increased pressure on our industry to evolve and as a result we’re seeing growing demand for our powerful platforms. Our latest round of funding will help us grow at the pace needed to improve outcomes for financial institutions and their customers globally.”
(It is not the only one. Others out of Europe in the space of bringing new tools to incumbent banks to help them make more modern and competitive products include 10x, Thought Machine, Temenos, Mambu and many more.)
The Series B round of funding is being led by Draper Esprit, with Earlybird, Gapminder Ventures, Launchub and OTB Ventures (which all participated in its Series A in December 2019) also participating. There are other backers in the round that are not being disclosed at this time, the startup added. FintechOS is also not disclosing its valuation. The company, based out of Bucharest, has raised just under $80 million to date.
FintechOS is active today in the U.K. and Europe — where it has been growing at a CAGR of 200% and says its services touch “millions” of people, with some of its key customers including the likes of banking giants Societe Generale and IdeaBank and international insurance brokers Howden. The plan will be to continue investing in those markets, as well as expanding internationally.
And it will be adding more services. Today, the banking platform is designed to help banks launch more retail services for consumers and small and medium business customers, and for insurance companies to build new health, life and general insurance products (there are a lot of synergies in how insurance and financial services companies have been built over the years, and so it’s a natural couplet when it comes to building tools for those industries).
In the financial sector, FintechOS lets banks build in new digital onboarding flows, credit cards and loan products, savings and mortgage products. Insurance products include new approaches to generating and handling quotes, customer onboarding and management and claims automation — which may well bring FintechOS into closer contact and collaboration with the most successful startup to come out of its home country to date, the RPA juggernaut UiPath. In all cases, it helps stitch together data from a bank’s own systems with more modern tooling, and to link that up with yet more modern tools to help process that data more easily.
This is “low code,” but it typically means that the company needs to work with third parties to enable all of this. Partners include the likes of integrators and other global services technicians, such as Microsoft, Deloitte, CapGemini, KPMG and so on. (And the founders of the startup themselves come from consulting backgrounds so they well understand the role these companies play in the process of bringing technology into big businesses.)
FintechOS is tapping into a couple of very big trends that have arguably been the biggest in the financial and related insurance industries.
The first of these is the fact that core services around things like credit/loans, current deposits and savings are not just very complex to build but actually have largely become commoditized — similar to digital payments — and so packaging them up and turning them into services that can be integrated by way of an API makes them more easily accessed without the heavy lifting needed to build them from scratch. This lets companies focus instead on customer service or building more interesting tools around those basic services to customise them (for example AI-based personalization). Disintermediating basic functions from the services built around them is arguably a bigger trend, but it has been especially prevalent in enterprise, which has long been a slow-moving space when it comes to innovation in the back-end, and the front-end.
The second of these is the big swing toward using no-code and low-code tools to empower more people within organizations to get stuck in when they can see something not working as efficiently as it could, and building the workflows themselves to improve that. This also applies to trying out and testing new products — again something that typically has not been done in financial and insurance services but can now be possible with low-code and no-code tools.
“Not only is our technology helping financial institutions become customer centric, but it’s also helping them provide products and services to more people and businesses,” said Sergiu Negut, the other co-founder who is FintechOS’s CFO and COO, in a separate statement. “With so many markets still underserved, the ability to tailor offerings to a segment of one offers the opportunity to increase financial inclusion and adheres to our ideal that easy access to financial services is essential. We’re delighted to be working with investors who share our views on how fintech should be transforming the financial services industry.”
Notably, Draper Esprit also has backed Thought Machine, another big player in the world of fintech that is taking some of the learnings and models that have helped new entrants disrupt incumbents, and is packaging them up as services for incumbents, too. It takes a different approach to doing this, not using low-code but smart contracts, which could be one reason why the VC doesn’t see the investments as conflict of interest. They are also tackling an enormous market, and so at least for now there is room for them, and many others in the space, such as 10x, Temenos, Mambu, Rapyd and many others.
“When we met Teo and Sergiu, we were immediately convinced of their vision: a data led, end-to-end platform, facilitated with a low-code/no-code infrastructure,” Vinoth Jayakumar, partner at Draper Esprit, said in a statement. “Incumbent financial services firms have cost-to-income ratios up to 90%, so we see a huge and increasing need for infrastructure software that allows digitisation at speed, ease and lower cost. Draper Esprit builds enduring partnerships; with the team at FintechOS we hope to build an enduring fintech company that will dramatically change financial services experiences for people all over the world.”
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Freetrade, the UK challenger stockbroker, completes $15M Series A
Freetrade, the U.K. challenger stockbroker that offers commission-free investing, has closed $15 million in Series A funding. The round includes a $7.5 million investment from Draper Esprit, the U.K. publicly listed venture capital firm, along with previously announced equity crowdfunding via Crowdcube.
The funding will be used by Freetrade for further growth and product development, including “doubling down” on engineering hires. The firm, which claims more than 50,000 customers, is also planning to expand to Europe next year.
In addition, Adam Dodds, CEO and founder of Freetrade, tells me there will be a marketing and content push to help reach more of the challenger stockbroker’s target millennial customers and help educate the market as a whole that investing in the stock market doesn’t have to be prohibitively expensive or complicated.
Amongst a number of new stock trading and investment apps in the U.K., London-based Freetrade was first out of the gate as a bona fide “challenger broker” after deciding early on to build its own brokerage. This included obtaining a full broker license from the FCA, rather than simply partnering with an established broker.
The Freetrade app lets you invest in stocks and ETFs. Trades are “fee-free” if you are happy for your buy or sell trades to execute at the close of business each day. If you want to execute immediately, the startup charges a low £1 per trade. The idea is to put the heat on the larger incumbents that can charge up to £12 per trade, which is off-putting to people wanting to only invest a small amount or regularly refresh a modestly sized portfolio.
Meanwhile, Dodds says that next on the product roadmap will be a new investment platform that will give users the option to purchase U.K. and European “fractional” shares, not just U.S. ones, which he claims will be a first.
With that said, competition has been steadily increasing since Freetrade set up shop. Silicon Valley’s Robinhood is gearing up for a U.K. launch, having recently received regulatory approval. Bux has also recently launched commission-free trading and now bills itself as a challenger broker just like Freetrade. Then, of course, there’s Revolut, the fast-growing challenger bank that tentatively launched fee-free stock investing in August.
Noteworthy, André Mohamed, previously CTO and a co-founder of Freetrade, joined Revolut as its new head of Wealth & Trading Product, adding a bit of extra spice to that rivalry. As I wrote at the time, the circumstances that saw Mohamed depart Freetrade remain unclear. According to my sources, his contract was terminated last year and the two parties settled, with Freetrade accepting no liability.
“Freetrade are on a mission to open up investment opportunities for everyone, as are we,” says Simon Cook, CEO of Draper Esprit, in a statement. “In this sense, their mission is totally aligned with our own, as a rare tech-focused VC listed on the stock exchange. The company have shown exceptional growth in the short time since they first launched the platform last year. We could not be more delighted to support Adam, Viktor, Ian and their wider team as they enable Europe’s 100 million millennials to benefit from the world’s economic growth.”
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Interview: Tim Draper Doubles Down On Europe
DFJ, the storied Silicon Valley venture capital firm, has built out a global presence not just through direct investments but through a network of firms that are affiliated with the mothership yet raising and investing from their own funds. Now that network is going through some changes, and with it comes a new role for one of the firm’s founders. The DFJ Network has rebranded to… Read More
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