Global Themes

On Globalization & Venture Capital

FinSum @ Tokyo, Sept ’16

Great to have been at FinSum in Tokyo last week…The energy and excitement was palpable! I participated in a panel that Sheel moderated + led a session on FinTech in Development…

Here are the slides and an artist’s visualization of my talk (it’s flattering!):


Will try and share notes soon…


September 26th, 2016 Posted by | Conferences and Panels, Development Issues, My Presentations | no comments

Fintech startups – Can they make any money?

Extracts from, “Here’s the huge question facing fintech startups — can they make any money?”

Something strange happened to a few hundred customers of startup, app-only bank Number26 last week — their accounts started closing.

With no explanation other than to cite terms and conditions allowing unexplained account closures, Berlin-based Number26 emailed a clutch of its 160,000 customers to tell them their accounts would shortly be shutting down.

Many customers took to Twitter to complain. This, after all, is a bank that promised to be more like “Uber or Spotify” than a High Street lender.

Number26 told BI in an emailed statement that the account closures were for “various reasons”, including suspicious activity, but admitted at least some of the closures were for a very weird reason indeed — customers using their services too much.

…Essentially, Number26 let users withdraw money for free on the assumption that they wouldn’t really do it very much. But people did use it and it ended up costing Number26 too much money.

This odd incident gets to the heart of a key question asked over and over about the fintech (financial technology) sector — can any of these guys actually make money?

…Many startups have underpinned their promises with services delivered either at cost or with razor-thin profit margins. Think of TransferWise, which charges just 0.5% on top of the mid-market rate on many international money transfers, and Revolut, which lets people spend money at the best rate abroad on its card with no commission.

But these kinds of models aren’t exactly money spinners. While TransferWise’s revenues and total transfers are rocketing, the startup made a loss of £11 million in the year to March 2015, up from just £2 million the year before.

Even Funding Circle — the biggest UK peer-to-peer lender, which takes a cut of loans made over its platform — lost £10.8 million in 2014, the most recent year accounts are available for.

…But critics say many of the business models are unsustainable and simply being supported by the financial teat of venture capital money. The likes of TransferWise and Revolut can only afford to offer such cheap services because of a plentiful supply of free and easy cash from investors that subsidises prices, so the argument goes, not because of any real technical innovation.

…We could be about to see which side is right. VC cash is drying up —with investment in UK fintech startups collapsed 41% in the first quarter of the year. That could spell trouble for business models conceived during the boom times.

Keep Reading…

October 24th, 2016 Posted by | FinTech, Tech & Innovation in Europe, Venture Capital in Europe | no comments

Digital-only banks face big challenge to usurp traditional high street giants

Interesting excerpts from Digital-only banks face big challenge to usurp traditional high street giants (emphasis added):

Only a small minority of consumers strongly agree that (online, digital) providers will offer better service, rates, or security than they receive from their existing banks, and well over half would prefer to avoid banks that lack a track record or do not have a high street presence.

He added: “Consumers’ primary criteria when selecting banks include whether the organisations have an established reputation and conveniently located branches. This plays right into the hands of traditional banks and leaves the challengers at a disadvantage.

To emphasise the importance of actual walk-in branches, the analysis revealed that although online is growing in significance as an acquisition channel, more than half of current accounts opened between 2013 and 2016 were arranged in-branch.

Our research finds that, if anything, younger consumers are even more dependent upon branches for day-to-day banking than those in older age groups,” said Mr Fakhri.

Given that these new entrants are targeting precisely this younger demographic, they will find it particularly difficult to gain significant numbers of customers.

Borrowers are sceptical about non-traditional lenders, with over half stating they do want to use lenders that lack established reputations and a minority agreeing that online lenders offer better rates or service.

Keep Reading…

October 23rd, 2016 Posted by | FinTech, Tech & Innovation in Europe | no comments

Why the Minimum Wage may not be such a good idea after all…

Watch Milton Friedman explain why such a move might actually hurt the ones it intends to help

and read why “Raising the Minimum Wage is Still a Bad Idea” and why good intentions end up as bad policy

Minimum Wage Cartoon Henry Payne

Cartoon by Henry Payne, courtesy 

..and while on this, here is a thought-provoking, nuanced take on child labour..

October 16th, 2014 Posted by | Development Issues, Miscellaneous | no comments

The Math of VC Returns…

…or how important winners are to venture returns and how difficult it is to find them. Excerpts from a recent Seth Levine post (emphasis added):

Based on their data, a full 65% of financings fail to return 1x capital.  And perhaps more interestingly, only 4% produce a return of 10x or more and only 10% produce a return of 5x or more.

…This really underscores the challenge of creating a venture portfolio that produces reasonable returns. If you were to actually construct a portfolio based on these averages, a $100M venture fund investing in 20 companies would produce a gross return of approximately $206M (that’s before fees and expenses). The resulting fund would have an IRR in the range of 10% (the exact IRR would depend on the timing of the cash flows, but I constructed a few models to approximate this and 10% was the average return). That’s hardly something to write home about and underscores the challenge of being “average” in this industry.

Hidden in this exercise – and perhaps more important – is the challenge of finding companies at the right side of the distribution chart. In my hypothetical $100M fund with 20 investments, the total number of financings producing a return above 5x was 0.8 – producing almost $100M of proceeds. My theoretical fund actually didn’t find their purple unicorn, they found 4/5ths of that company. If they had missed it, they would have failed to return capital after fees. Even if we doubled the number of portfolio companies in the hypothetical portfolio, a full quarter of the fund’s return comes from the roughly ½ of a company they invested in that generated 10x or above. Had they missed it, they would have produced a return that roughly approximated investing in bonds – not the kind of risk adjusted return they or their investors were looking for.

…All of this math simply underscores how important winners are to venture returns and how difficult it is to find them.

Here’s the sobering chart that accompanied the post:


Related Posts: A very sobering and a humbling reminder..

October 11th, 2014 Posted by | Venture Capital | no comments

Twilight Session on SocEnt at London Business School..

Looking forward to a “Twilight Taster Session” on Social Entrepreneurship at London Business School this evening!Taster Session Myths and Models

September 25th, 2013 Posted by | Miscellaneous | no comments

Next Page »