On Wednesday, December 5, 2012, I attended a December NY Fintech Meetup featuring Matt Harris of Bain Capital Ventures and Hugh Nguyen of ClearServe.
Hugh Nguyen, founder of ClearServe first joined Fidelity as an internal consultant. “I hated the idea of a big company,” Nguyen said and joined a small VC firm in London as an Associate. “This firm turned out to be the small alternative for family offices.” Nguyen moved back to Boston and went back into consulting. “I was in management consulting for four years.
ClearServe came from over 200 hedge funds leaving the market in the fall of 2010. “This happened with Wall Street shrinking,” Nguyen said. “They all left to manage finances for to manage finances for wealthy families. When I asked them ‘What is challenging for you?’ they responded, ‘Infrastructure,’ so that got me thinking. “There were a few problems with this,” Nguyen said. Data, analytics and data reports were few and hard to come by. Nguyen decided to take some features from Mint.com — suggestions on saving money, graphical information and a robust database.
To Nguyen, the biggest challenge was not having a technical founder. “You can’t souce them,” he said. “You can’t write code and you don’t have credibility.” Nguyen said if there is an idea, make sure to bounce it around with your friends and family. “Don’t worry about your idea getting stolen,” he said. “People can’t execute the exact same business model that you’ve made. Structure your business model and show it to people who are smart and your model will grow.”
Matt Harris joined Bain Capital for the second time as they raised over $600 million to invest in early-stage startups. “Bain Capital does a lot of early startup venture capital,” Harris said. “Our growth equity is about $10-15-50 million to companies that have $20-30 million revenue. There’s not a lot of middle investing, but there’s a lot at the beginning.” Harris revealed that there is a lot of investing “across the board, but mostly in business services.”
Harris deals with financial services that are divided up into four subsections: payment, leasing, capital market and insurance.
Payment is almost all done in the retail space, according to Harris. “Almost all startups start as p2p. There’s no business in p2p, although it is lightly regulated. There’s a lot of risk involved, however. You wouldn’t want to send money to strangers and immediacy and risk management are key issues.” Harris outlined forms of payments: card not present payments, which is “hot right now, but mostly hype,” and through “mobile payment changing the nature of the market,” to card present payments, which is “when you swipe your card and there is some sort of bank penetration,” and b2b payments, “which is 40 times larger in transaction volume. It’s dominated by cash regiment group banks and less regulated than p2p. Bain spends a lot of time in this space.” Harris also revealed that there is not a lot of technological progress in this field. “If someone were to be able to tap into this market, they would be financially successful,” he said.
On lending, there are three costs and competencies: credit, access to capital and customer acquisition. “Customer acquisition is hard to find,” Harris said. “You will not have a good credit model until you lose a lot of money. There’s a 40-50% cost ratio so it’s not going to be lucrative at all. Starting lending companies is incredibly difficult. It’s a space where entrepreneurs are desperately needed but it’s difficult to penetrate.”
Capital markets encompass asset management companies, asset management product companies and information providers. “It’s niches within niches,” Harris said. “It’s relatively capital intense. There’s not a lot of modern startup models involved. There’s not pivoting or lean marketing.”
Insurance “is a huge business,” Harris said. “It’s dominated by slow moving companies.” He recommended that no one start a carrier in insurance. “There’s no scalability. They use lead generation, which is not a great business model. Insurance is heavily regulated. If you want to get into this space, look into big data and data analytics. They desperate need an improvement in those fields.”
Harris suggested that startups figure out credit early on. “A credit model only comes from credit crisis,” he said. He also added, as a side note, “Customer acquisition is where competition is.”