QED Investors says new fund's investment pace will be 'very disciplined'

Welcome to Overpass! If you got this in your inbox, thank you for signing up and for your vote of confidence. If you are reading a post on our website, please sign up here so you can receive it directly in the future. Each week, we take a look at the hottest fintech news from the previous week. This will include everything from funding rounds to trends to analysis of specific sectors to buzz about a particular company or phenomenon. There’s a lot of fintech news out there, and it’s our job to stay on top of it – and understand it – so you stay informed. — Mary Ann and Christine

Hi, hi. It’s been an exceptionally active week for the fintech funding scene, as evidenced by the sheer number of startup funding rounds we cover (more on that below). Last week, QED Investors also announced that it had raised $925 million through two new funds to support global fintech startups — a $650 million early-stage fund and a $275 million growth-stage fund. The venture capital firm has been around for more than a decade and specializes in investing in companies building financial technology. To dig deeper, I interviewed QED managing partner and co-founder Nigel Morris after news of the fund’s closure broke. Here’s the Q&A (edited for brevity). What does it mean to invest in “early growth stage”?

A significant portion of the Growth Fund, approximately two-thirds to three-quarters, is earmarked for continuing capital . So the money comes in when early-stage funds dwindle, usually after the Series A round.

Growth Fund I and Growth Fund II primarily for Series B and Series C investments allow us to continue supporting our breakthrough companies while giving us the option to opportunistically Investing in companies we may have missed the first time around.

Who quit recently?

QED has five portfolio companies with 2021 IPOs – Remitly, AvidXchange, Sofi, Nubank and Flywire . JPMorgan Chase also acquired OpenInvest in 2021. We don’t have any exits so far in 2022 or 2023, but expect more in 2024 as the late thaw continues.

We spend a lot of time working with our late-stage portfolio companies to make sure they are ready for sale or IPO, and we are supporting our entrepreneurs to Their Next Round of Capital offers opportunistic fundraising.

Which areas of financial technology are you particularly optimistic about and why?

Considering our strong Capital One heritage, we as a team have expertise in core financial services such as credit and payments rich experience. We remain particularly bullish on the embedded finance theme, as well as countercyclical businesses, which are more important than ever given the current macroeconomic environment. Looking ahead, we are excited to explore specific use cases around blockchain technology and infrastructure and their corresponding orbits, and we are excited about the prospects for the next iteration of InsurTech and PropertyTech. With our deep background in data science, we also believe that many of the major trends that people are talking about in AI/ML frameworks today are already reflected in many fintech companies.

Which regions are you particularly optimistic about and why?

QED is now a global venture capital firm, and our investments in emerging markets such as Latin America, Africa, India and Southeast Asia Opportunity is especially exciting. The potential to build groundbreaking companies in these regions is very exciting to us because we can really democratize financial inclusion at scale.

While North America and Europe will continue to embrace fintech and digital adoption, the greatest multiple growth will come from emerging Asia-Pacific, MENA and Latin Large numbers of people are unbanked and underbanked. The potential to build world-class transformational companies and dramatically improve people’s lives in places like Singapore, Indonesia, Egypt, Nigeria, Brazil, and Mexico is enormous. In these developing markets, QED believes we are in the earliest stages of fintech development.

fintech in the past year or so. What do you think about this? Is there too much hype?

After 15 years of going up and to the right, the market has a lot of bubbles. Valuations become unsustainable, And in the second quarter of 2021, it will reach the peak of revenue multiple expansion of 20 times. With valuations soaring and cheap capital flowing freely, it can be difficult to pinpoint exactly what a company is really worth, and as a result, the industry is overpaying for companies that it might not have. There is no business model or traction to get such a price.

My colleague and co-founder Frank Rotman likened it to Darwin taking a two-year sabbatical, only to finally return. Some companies will struggle to raise their next round of funding, while others will falter. QED remains focused on building durable businesses with strong fundamental unit economics and solving real problems.

How many companies do you intend to invest in from these new funds, and what is the average check size?

Pacing will be strictly disciplined, but we will be opportunistic where it makes sense. In general, we expect the deployment of funds across the ecosystem to be well measured, especially compared to recent years.

We expect approximately 35 to 45 investments from Fund VIII with an average investment of $15 million. We might make about 20 investments out of Growth II, with an average investment size of $15 million. While we prefer to participate in the early growth stages, we… also have the ability to create co-investment opportunities for our LPs and take advantage of them as the IPO window begins to unfreeze and M&A activity picks up. — Mary Ann

Your move, Step

Just when you think you’re a “castle” King,” someone came to challenge you for the throne. Last week, I wrote about Step, a digital banking service for teens and young adults, which announced a 5% interest rate on its savings accounts.

At the time, I also mentioned that neobanks and other financial organizations were competing (pun intended) with traditional banks, some of which were inspired by Apple’s 4.15% launch earlier this month Savings account interest rate inspiration.

Referring to Step’s high interest rates, co-founder and CEO CJ MacDonald told me that the company’s goal has always been to offer the highest rates among its competitors.

Well, the challenger that came out this week is M1, a financial app that offers automated investing, lending and banking products, and it matches Step’s new M1 High Yield Savings Account with 5% annual yield.

M1 also seems to have a Step-like idea of ​​always having a high savings rate at work. It was 4.5 percent in November. Like Step and others, you don’t get the 5% automatically; there are some things you have to do, like have an active M1 Plus membership. M1 says it offers three months of free service, a $30 value, so there’s some incentive to try it out. — Christine

TechCrunch (Virtual) in Atlanta

On June 7, TechCrunch will host City Spotlight: Atlanta. We have a series of great shows planned, including a fireside chat with Ryan Glover, co-founder of fintech firm Greenwood, and an event that examines the Atlanta-area venture ecosystem and determines the best ways to raise money and meet Panel discussion with local venture capitalists. But that’s not all. If you’re an early-stage founder in Atlanta, apply to pitch to our panel of guest investors/judges at our live pitch competition; the winner will get a free booth at this year’s TechCrunch Disrupt to showcase in our Startup Alley their company. Register here.

Weekly News

Among other fintech-focused fund news, US An SEC filing revealed that London-based venture capital firm Anthemis is seeking to raise $200 million in funding. It’s apparently been on the market since last year and has only received $36.4 million in commitments so far, leading us to believe that Anthemis is struggling to raise money. The company had to cancel plans to raise a SPAC late last month and lay off 28% of its workforce earlier this year, respectively, as part of a “restructuring.” We reached out to Anthemis for comment, but didn’t hear back (companies usually can’t talk about the fundraising process, so that’s not surprising).

Speaking of hymns. . . Portfolio company Daylight , a new bank targeting the LGBTQ+ community, has revealed it has closed. That’s not surprising, considering an NY Mag article from earlier this year detailed a lawsuit filed by three former employees and CEO and co-founder Rob Curtis of alleged fabrication and misconduct. While Curtis amusedly concluded that the startup couldn’t deliver in a way that would cover its costs, and that this “could be the job of the big banks,” some suggest Daylight’s demise could also be due to a lack of real differentiation change. perhaps. But to be sure, that lawsuit — and the resulting negative publicity — didn’t help. You can hear Alex Wilhelm and I go back and forth on this topic (and more!) on Friday’s episode of the Equity podcast.

As reported by Ingrid Lunden: “Anne Boden lost control of the almost a few years ago when Neobank was in the midst of a coup led by its CTO. Control of Starling Bank, but now it looks like Borden is walking away. The outspoken founder of Starling Bank has announced that she is stepping down as CEO of the company, But will remain on the board, which was last valued at more than $3 billion and is profitable and has 3.6 million customers.The statement came as the company released its annual results, which showed revenue, profit, deposits and loan books were on par with previous results. Year-over-year increase.” Find out why she left here.

Sarah Perez reports: “Amazon One, the retailer’s palm-scan payment technology, now has a new feature for its age-verification service. Company announces customers using Amazon One devices will be able to purchase Adult beverages — like beer at a sporting event — are served just by hovering your palm over the Amazon One device.” More here.

According to Aisha Malik – Competition in teen banking is getting tougher: “ Venmo Announcing the launch of Teen Accounts, which allows parents and legal guardians to open a Venmo account for their teen so they can send and receive money. The account has no monthly fee and comes with a Venmo Teen Debit Card. Every Venmo Teen accounts are linked to and managed by the parent’s personal Venmo account, but the balance on the teen account is separate from the parent’s account.” More here.

Kruze Consulting looked at data for 160 startups , about $2 billion in cash, found that the share of startups with accounts at big banks such as JPMorgan Chase & Co, Morgan Stanley and Bank of America jumped from 9% in February to 72% in April. root cause? In a written statement provided to TechCrunch, Healy Jones, vice president of Kruze Consulting, said: “The banking landscape following the collapse of Silicon Valley Bank and First Republic Bank impacted not only startups’ banking operations, but also the accounts they held their banking on. “Recently, we’ve been seeing term sheets requiring startups to maintain two bank relationships.” Read more about our coverage of the SVB and FRB debacles.

Daffy.org has launched its open API with the goal of Helps fintech companies “integrate donations into their apps,” they told TechCrunch. The goal is to make it easier for companies and developers to make it easier for their customers to donate cash, stock or cryptocurrency “to nearly every US charity.” TechCrunch has previously covered Daffy.org here and here.

Ecuadorian fintech Kushki says it is now Access to the Mexican market as an acquirer. It aims to be “a major player in Mexico that expands without middlemen or relies on bank sponsors.” TechCrunch last reported on Kushki raising $100 million at a valuation of $1.5 billion last June.

See what led to Better Tomorrow Ventures’ Sheel Mohnot became a venture capitalist, check out this colorful feature on his life here.

Anne Bodden, CEO of Starling Bank, UK. PHOTO CREDIT: GEOFF CADDICK/AFP via Getty Images

Other titles