Tag Archives: financial services

Airwallex raises $200M at a $4B valuation to double down on business banking

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Business, now more than ever before, is going digital, and today a startup that’s building a vertically integrated solution to meet business banking needs is announcing a big round of funding to tap into the opportunity. Airwallex — which provides business banking services both directly to businesses themselves, as well as via a set of APIs that power other companies’ fintech products — has raised $200 million, a Series E round of funding that values the Australian startup at $4 billion.

Lone Pine Capital is leading the round, with new backers G Squared and Vetamer Capital Management, and previous backers 1835i Ventures (formerly ANZi), DST Global, Salesforce Ventures and Sequoia Capital China, also participating.

The funding brings the total raised by Airwallex — which has head offices in Hong Kong and Melbourne, Australia — to date to $700 million, including a $100 million injection that closed out its Series D just six months ago.

Airwallex will be using the funding both to continue investing in its product and technology, as well as to continue its geographical expansion and to focus on some larger business targets. The company has started to make some headway into Europe and the UK and that will be one big focus, along with the U.S.

The quick succession of funding, and that rising valuation, underscore Airwallex’s traction to date around what CEO and co-founder Jack Zhang describes as a vertically integrated strategy.

That involves two parts. First, Airwallex has built all the infrastructure for the business banking services that it provides directly to businesses with a focus on small and medium enterprise customers. Second, it has packaged up that infrastructure into a set of APIs that a variety of other companies use to provide financial services directly to their customers without needing to build those services themselves — the so-called “embedded finance” approach.

“We want to own the whole ecosystem,” Zhang said to me. “We want to be like the Apple of business finance.”

That seems to be working out so far for Airwallex. Revenues were up almost 150% for the first half of 2021 compared to a year before, with the company processing more than US$20 billion for a global client portfolio that has quadrupled in size. In addition to tens of thousands of SMEs, it also, via APIs, powers financial services for other companies like GOAT, Papaya Global and Stake.

Airwallex got its start like many of the strongest startups do: it was built to solve a problem that the founders encountered themselves. In the case of Airwallex, Zhang tells me he had actually been working on a previous start-up idea. He wanted to build the “Blue Bottle Coffee” of Asia out of Hong Kong, and it involved buying and importing a lot of different materials, packaging and of course coffee from all around the world.

“We found that making payments as a small business was slow and expensive,” he said, since it involved banks in different countries and different banking systems, manual efforts to transfer money between them and many days to clear the payments. “But that was also my background — payments and trading — and so I decided that it was a much more fascinating problem for me to work on and resolve.”

Eventually one of his co-founders in the coffee effort came along, with the four co-founders of Airwallex ultimately including Zhang, along with Xijing Dai, Lucy Liu and Max Li.

It was 2014, and Airwallex got attention from VCs early on in part for being in the right place at the right time. A wave of startups building financial services for SMBs were definitely gaining ground in North America and Europe, filling a long-neglected hole in the technology universe, but there was almost nothing of the sort in the Asia Pacific region, and in those earlier days solutions were highly regionalized.

From there it was a no-brainer that starting with cross-border payments, the first thing Airwallex tackled, would soon grow into a wider suite of banking services involving payments and other cross-border banking services.

“In last 6 years, we’ve built more than 50 bank integrations and now offer payments 95 countries payments through a partner network,” he added, with 43 of those offering real-time transactions. From that, it moved on the bank accounts and “other primitive stuff” with card issuance and more, he said, eventually building an end-to-end payment stack. 

Airwallex has tens of thousands of customers using its financial services directly, and they make up about 40% of its revenues today. The rest is the interesting turn the company decided to take to expand its business.

Airwallex had built all of its technology from the ground up itself, and it found that — given the wave of new companies looking for more ways to engage customers and become their one-stop shop — there was an opportunity to package that tech up in a set of APIs and sell that on to a different set of customers, those who also provided services for small businesses. That part of the business now accounts for 60% of Airwallex’s business, Zhang said, and is growing faster in terms of revenues. (The SMB business is growing faster in terms of customers, he said.)

A lot of embedded finance startups that base their business around building tech to power other businesses tend to stay arm’s length from offering financial services directly to consumers. The explanation I have heard is that they do not wish to compete against their customers. Zhang said that Airwallex takes a different approach, by being selective about the customers they partner with, so that the financial services they offer would never be the kind that would not be in direct competition. The GOAT marketplace for sneakers, or Papaya Global’s HR platform are classic examples of this.

However, as Airwallex continues to grow, you can’t help but wonder whether one of those partners might like to gobble up all of Airwallex and take on some of that service provision role itself. In that context, it’s very interesting to see Salesforce Ventures returning to invest even more in the company in this round, given how widely the company has expanded from its early roots in software for salespeople into a massive platform providing a huge range of cloud services to help people run their businesses.

For now, it’s been the combination of its unique roots in Asia Pacific, plus its vertical approach of building its tech from the ground up, plus its retail acumen that has impressed investors and may well see Airwallex stay independent and grow for some time to come.

“Airwallex has a clear competitive advantage in the digital payments market,” said David Craver, MD at Lone Pine Capital, in a statement. “Its unique Asia-Pacific roots, coupled with its innovative infrastructure, products and services, speak volumes about the business’ global growth opportunities and its impressive expansion in the competitive payment providers space. We are excited to invest in Airwallex at this dynamic time, and look forward to helping drive the company’s expansion and success worldwide.”


By Ingrid Lunden

Nuula raises $120M to build out a financial services ‘superapp’ aimed at SMBs

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A Canadian startup called Nuula that is aiming to build a superapp to provide a range of financial services to small and medium businesses has closed $120 million of funding, money that it will use to fuel the launch of its app and first product, a line of credit for its users.

The money is coming in the form of $20 million in equity from Edison Partners, and a $100 million credit facility from funds managed by the Credit Group of Ares Management Corporation.

The Nuula app has been in a limited beta since June of this year. The plan is to open it up to general availability soon, while also gradually bringing in more services, some built directly by Nuula itself and but many others following an embedded finance strategy: business banking, for example, will be a service provided by a third party and integrated closely into the Nuula app to be launched early in 2022; and alongside that, the startup will also be making liberal use of APIs to bring in other white-label services such as B2B and customer-focused payment services, starting first in the U.S. and then expanding to Canada and the U.K. before further countries across Europe.

Current products include cash flow forecasting, personal and business credit score monitoring, and customer sentiment tracking; and monitoring of other critical metrics including financial, payments and eCommerce data are all on the roadmap.

“We’re building tools to work in a complementary fashion in the app,” CEO Mark Ruddock said in an interview. “Today, businesses can project if they are likely to run out of money, and monitor their credit scores. We keep an eye on customers and what they are saying in real time. We think it’s necessary to surface for SMBs the metrics that they might have needed to get from multiple apps, all in one place.”

Nuula was originally a side-project at BFS, a company that focused on small business lending, where the company started to look at the idea of how to better leverage data to build out a wider set of services addressing the same segment of the market. BFS grew to be a substantial business in its own right (and it had raised its own money to that end, to the tune of $184 million from Edison and Honeywell).  Over time, it became apparent to management that the data aspect, and this concept of a super app, would be key to how to grow the business, and so it pivoted and rebranded earlier this year, launching the beta of the app after that.

Nuula’s ambitions fall within a bigger trend in the market. Small and medium enterprises have shaped up to be a huge business opportunity in the world of fintech in the last several years. Long ignored in favor of building solutions either for the giant consumer market, or the lucrative large enterprise sector, SMBs have proven that they want and are willing to invest in better and newer technology to run their businesses, and that’s leading to a rush of startups and bigger tech companies bringing services to the market to cater to that.

Super apps are also a big area of interest in the world of fintech, although up to now a lot of what we’ve heard about in that area has been aimed at consumers — just the kind of innovation rut that Nuula is trying to get moving.

“Despite the growth in services addressing the SMB sector, overall it still lacks innovation compared to consumer or enterprise services,” Ruddock said. “We thought there was some opportunity to bring new thinking to the space. We see this as the app that SMBs will want to use everyday, because we’ll provide useful tools, insights and capital to power their businesses.”

Nuula’s priority to build the data services that connect all of this together is very much in keeping with how a lot of neobanks are also developing services and investing in what they see as their unique selling point. The theory goes like this: banking services are, at the end of the day, the same everywhere you go, and therefore commoditized, and so the more unique value-added for companies will come from innovating with more interesting algorithms and other data-based insights and analytics to give more power to their users to make the best use of what they have at their disposal.

It will not be alone in addressing that market. Others building fintech for SMBs include Selina, ANNA, Amex’s Kabbage (an early mover in using big data to help loan money to SMBs and build other financial services for them), Novo, Atom Bank, Xepelin, and Liberis, biggies like Stripe, Square and PayPal, and many others.

The credit product that Nuula has built so far is a taster of how it hopes to be a useful tool for SMBs, not just another place to get money or manage it. It’s not a direct loaning service, but rather something that is closely linked to monitoring a customers’ incomings and outgoings and only prompts a credit line (which directly links into the users’ account, wherever it is) when it appears that it might be needed.

“Innovations in financial technology have largely democratized who can become the next big player in small business finance,” added Gary Golding, General Partner, Edison Partners. “By combining critical financial performance tools and insights into a single interface, Nuula represents a new class of financial services technology for small business, and we are excited by the potential of the firm.”

“We are excited to be working with Nuula as they build a unique financial services resource for small businesses and entrepreneurs,” said Jeffrey Kramer, Partner and Head of ABS in the Alternative Credit strategy of the Ares Credit Group, in a statement. “The evolution of financial technology continues to open opportunities for innovation and the emergence of new industry participants. We look forward to seeing Nuula’s experienced team of technologists, data scientists and financial service veterans bring a new generation of small business financial services solutions to market.”


By Ingrid Lunden

PayEm comes out of stealth with $27M and its answer to the expense report

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Itamar Jobani was a software developer working for a medical company and “hated that time of the month” when he had to use the company’s chosen reimbursement tool.

“It was full of friction and as part of the company’s wellness team, I felt an urge to take care of the employee experience and find a better tool,” Jobani told TechCrunch. “I looked for something, but didn’t find it, so I tried to build it myself.”

What resulted was PayEm, an Israeli company he founded with Omer Rimoch in 2019 to be a spend and procurement platform for high-growth and multinational organizations. Today, it announced $27 million in funding that includes $7 million in seed funding, led by Pitango First and NFX, with participation by LocalGlobe and Fresh Fund, as well as $20 million in Series A funding led by Glilot+.

How a band of P2P hackers planted the seeds of a unique expense management giant

The company’s technology automates the reimbursement, procurement, accounts payable and credit card workflows to manage all of the requests and invoices, while also creating bills and sending payments to over 200 territories in 130 currencies.

It gives company finance teams a real-time look at what items employees are asking for funds to buy, and what is actually being spent. For example, teams can submit a request and go through an approval flow that can be customized with purchasing codes tied to a description of the transaction. At the same time, all transactions are continuously reconciled versus having to spend hours at the end of the month going through paperwork.

“Organizations are running in a more democratized way with teams buying things on behalf of the organization,” Jobani said. “We built a platform to cater to those needs, so it’s like a disbursement platform instead of a finance team always being in charge.”

The global B2B payments market is valued at $120 trillion annually and is expected to reach $200 trillion by 2028, according to payment industry newsletter Nilson Report. PayEm is among many B2B payments startups attracting venture capital — for example, last month, Nium announced a $200 million in Series D funding at a $1 billion valuation. Paystand raised $50 million in Series C funding to make B2B payments cashless, while Dwolla raised $21 million for its API that allows companies to build and facilitate fast payments.

Meanwhile, PayEm itself saw accelerated growth in the second quarter of 2021, including increasing its transaction volume by four times over the previous quarter and generating millions of dollars in revenue. It now boasts a list of hundreds of customers like Fiverr, JFrog and Next Insurance. It also launched new features like the ability to create corporate cards.

The company, which also has an office in New York, has 40 employees currently, and the new funds will enable the company to triple its headcount, focusing on hiring in the United States, and to bring additional features and payment capabilities to market.

“Each person can have a budget and a time frame for making the purchase, while accounting still feels in control,” Jobani added. “Everyone now has the full context and the right budget line item.”


By Christine Hall

Ramp and Brex draw diverging market plans with M&A strategies

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Earlier today, spend management startup Ramp said it has raised a $300 million Series C that valued it $3.9 billion. It also said it was acquiring Buyer, a “negotiation-as-a-service” platform that it believes will help customers save money on purchases and SaaS products.

The round and deal were announced just a week after competitor Brex shared news of its own acquisition — the $50 million purchase of Israeli fintech startup Weav. That deal was made after Brex’s founders invested in Weav, which offers a “universal API for commerce platforms”.

From a high level, all of the recent deal-making in corporate cards and spend management shows that it’s not enough to just help companies track what employees are expensing these days. As the market matures and feature sets begin to converge, the players are seeking to differentiate themselves from the competition.

But the point of interest here is these deals can tell us where both companies think they can provide and extract the most value from the market.

These differences come atop another layer of divergence between the two companies: While Brex has instituted a paid software tier of its service, Ramp has not.

Earning more by spending less

Let’s start with Ramp. Launched in 2019, the company is a relative newcomer in the spend management category. But by all accounts, it’s producing some impressive growth numbers. As our colleague Mary Ann Azevedo wrote this morning:

Since the beginning of 2021, the company says it has seen its number of cardholders on its platform increase by 5x, with more than 2,000 businesses currently using Ramp as their “primary spend management solution.” The transaction volume on its corporate cards has tripled since April, when its last raise was announced. And, impressively, Ramp has seen its transaction volume increase year over year by 1,000%, according to CEO and co-founder Eric Glyman.

Ramp’s focus has always been on helping its customers save money: It touts a 1.5% cashback reward for all purchases made through its cards, and says its dashboard helps businesses identify duplicitous subscriptions and license redundancies. Ramp also alerts customers when they can save money on annual vs. monthly subscriptions, which it says has led many customers to do away with established T&E platforms like Concur or Expensify.

All told, the company claims that the average customer saves 3.3% per year on expenses after switching to its platform — and all that is before it brings Buyer into the fold.


By Ryan Lawler

Genesis raises $45M to expand its fintech-focussed low-code platform to more verticals

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Low-code and no-code tools have been a huge hit with enterprises keen to give their operations more of a tech boost, but often lack the resources to handle more complex integrations. Today, one of the startups that has been building low-code finance tools is announcing funding to tap into that trend and expand its business.

Genesis — which has to date primarily worked with financial services companies, giving non-technical employees the tools to create ways to monitor and manage real-time risk, high-frequency trades and other activities — has picked up $45 million. It plans to use to bring the tools it has already built to a wider set of verticals that have some of the same needs to manage risk, compliance, and other factors as finance — healthcare and manufacturing are two examples — as well as to continue building more into the stack. 

This Series B includes a mix of financial investors along with strategic backers that speak to who already integrates with Genesis’ tools on their own platforms.

Led by Accel, it also includes participation from new backers GV (formerly Google Ventures) and Salesforce Ventures, in addition to existing investors Citi, Illuminate Financial and Tribeca Venture Partners, who also invested in this round. To give you an idea of who it works with, Citi, along with ING, London Clearing House, and XP Investments, are some of Genesis customers.

Originally conceived in 2012 in Brazil by a pair of British co-founders — Stephen Murphy (CEO) and James Harrison (CTO), who cut their teeth in the world of investment banking — Genesis had raised less than $5 million before this round, mostly bootstrapping its business and leaning on Murphy and Harrison’s existing relationships in the world of finance to grow its customer base.

Today, Murphy lives in and leads the business from Miami — where he moved from New York just as the Covid-19 pandemic was starting to gain steam last year — while James Harrison (CTO) leads part of the team based out of the UK.

As you might imagine with so little funding before now for a company going on nine years old, Genesis was doing fine financially before this Series B, so the plan is to use the funding specifically to grow faster than it could have on its own steam. The startup is not disclosing its valuation with this round.

“We were not really fixated on valuation,” said Murphy in an interview, who said the funding came about after a number of VCs had approached the startup. “The most important thing is the future opportunity and where we could take the company with additional funding… this will help us hyper scale up.” He did note that the term sheets contained “some amazing numbers and multiples,” given the current interest in no-code and low-code technology.

Indeed, the vogue for no-code and low-code tech — other well-funded names in the crowded space include startups like Zapier, Airtable, Rows, Gyana, Bryter, Ushur, Creatio, and EasySend, as well as significant launches from Google and Microsoft and other bigger players — is coming out of two trends colliding.

On one side, we’ve well and truly entered an era in enterprise technology — with the same trend playing out in consumer tech, too — where smart developers are taking sophisticated and complex services and putting “wrappers” around them by way of APIs and simpler (low- or no-code) interfaces, so that those sophisticated tools can in turn be integrated and implemented in more places. This saves needing to build or integrate that complexity from scratch and expands access to the processes within those wrappers.

On the other side, the thirst for tech knowledge has become well and truly mainstream and as a result getting far more democratized. Working in a variety of applications, using different digital tools and devices, and seeing the fruits of tech pay off are all second nature to today’s working world — whether or not you are a technologist. So it’s no surprise to see more proactive, non-technical people looking for more ways to get their hands on these tools themselves.

“You now have a whole citizen developer world, for example business analysts who understand the solution you want but might not know how to get there,” Murphy said. “We play to seasoned developers first but the investment will help us put more low code and no code tools into place to widen the tools out to them.”

Starting out in finance made sense not just because that was where the two founders had previously worked, but also because of the history of how different software tools were already being used. Specifically, he noted that the ubiquity of microservices — which themselves are collections of services as apps — laid the groundwork for more low-code. “We saw that if we could build a low-code entry point to microservices, that would be powerful.”

On top of that, investment banks, he said, have a history of wanting to build things themselves to tailor to their specific needs. “Buying off the shelf means you are at the mercy of the vendor,” he said. These factors made financial services companies very receptive to what Genesis was offering.

While a lot of the no/low-code players are coming at the concept with specific verticals in mind — no surprise, since different verticals have very specific use cases and needs — so what’s interesting with Genesis is how the company is leveraging what it already knows about finance, and then looking at other industries that have similar demands, structures and rules.

Murphy said that Genesis will stay “very focused on financial markets for 2021” but that it’s identified a number of other verticals similar to it, and is actually already seeing some inbound interest from them.

“A number of people have already approached us from the world of healthcare,” he said, pointing out that these organizations, like financial services, face challenges around how to audit data and regulations around performing transactions. Manufacturing, meanwhile, has some parallels around the area of complex event processing similar to equity algorithmic trading, he said. (In short, this relates to how external events might trigger more transactions, not unlike how external factors affect manufacturing operations.)

The trend is one that analysts forecast will only grow in the coming years: Gartner, for example, says that by 2024, low-code platforms will account for no less than 65% of all app development activity.

“Low-code promises business users the autonomy to make their own technology usage and purchase decisions while enabling them to actually build their own applications without having to rely on IT,” said Andrei Brasoveanu, a partner at Accel, said n a statement. “By bringing one of the most transformative innovations in software development to financial services, Steve and the Genesis team are taking on a huge market of legacy vendors – and winning too – while delivering on the promise of low-code. The confidence they’ve gained from serving such large institutions is proof that there’s a real and urgent need for a purpose-built low-code solution for financial markets. We’re excited to partner with Genesis and support them in delivering this across the world.” Brasoveanu is joining the startup’s board with this round.


By Ingrid Lunden

Hasura raises $25 million Series B and adds MySQL support to its GraphQL service

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Hasura, a service that provides developers with an open-source engine that provides them a GraphQL API to access their databases, today announced that it has raised a $25 million Series B round led by Lightspeed Venture Partners. Previous investors Vertex Ventures US, Nexus Venture Partners, Strive VC and SAP.iO Fund also participated in this round.

The new round, which the team raised after the COVID-19 pandemic had already started, comes only six months after the company announced its $9.9 million Series A round. In total, Hasura has now raised $36.5 million.

“We’ve been seeing rapid enterprise traction in 2020. We’ve wanted to accelerate our efforts investing in the Hasura community and our cloud product that we recently launched and to ensure the success of our enterprise customers. Given the VC inbound interest, a fundraise made sense to help us step on the gas pedal and give us room to grow comfortably,” Hasura co-founder and CEO Tanmai Gopa told me.

In addition to the new funding, Hasura also today announced that it has added support for MySQL databases to its service. Until now, the company’s service only worked with PostgreSQL databases.

Rajoshi Ghosh, co-founder and COO (left) and Tanmai Gopal, co-founder and CEO (right).

Rajoshi Ghosh, co-founder and COO (left) and Tanmai Gopal, co-founder and CEO (right).

As the company’s CEO and co-founder Tanmai Gopal told me, MySQL support has long been at the top of the most requested features by the service’s users. Many of these users — who are often in the health care and financial services industry — are also working with legacy systems they are trying to connect to modern applications and MySQL plays an important role there, given how long it has been around.

In addition to adding MySQL support, Hasura is also adding support for SQL Server to its line-up, but for now, that’s in early access.

“For MySQL and SQL Server, we’ve seen a lot of demand from our healthcare and financial services / fin-tech users,” Gopa said. “They have a lot of existing online data, especially in these two databases, that they want to activate to build new capabilities and use while modernizing their applications.

Today’s announcement also comes only a few months after the company launched a fully-managed managed cloud service for its service, which complements its existing paid Pro service for enterprises.

“We’re very impressed by how developers have taken to Hasura and embraced the GraphQL approach to building applications,” said Gaurav Gupta, partner at Lightspeed Venture Partners and Hasura board member. “Particularly for front-end developers using technologies like React, Hasura makes it easy to connect applications to existing databases where all the data is without compromising on security and performance. Hasura provides a lovely bridge for re-platforming applications to cloud-native approaches, so we see this approach being embraced by enterprise developers as well as front-end developers more and more.”

The company plans to use the new funding to add support for more databases and to tackle some of the harder technical challenges around cross-database joins and the company’s application-level data caching system. “We’re also investing deeply in company building so that we can grow our GTM and engineering in tandem and making some senior hires across these functions,” said Gopa.

Hasura launches managed cloud service for its open-source GraphQL API platform


By Frederic Lardinois

How startups can leverage elastic services for cost optimization

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Joey Lei
Contributor

Joey Lei is director of service management at Synoptek, a global systems integrator and managed services provider. Prior to joining Synoptek, he was a lead product manager for Dell EMC’s Data Protection Division and was a founding product manager for Dell EMC PowerProtect Data Manager, Dell EMC’s newest generation data protection and data management solution.

Due to COVID-19, business continuity has been put to the test for many companies in the manufacturing, agriculture, transport, hospitality, energy and retail sectors. Cost reduction is the primary focus of companies in these sectors due to massive losses in revenue caused by this pandemic. The other side of the crisis is, however, significantly different.

Companies in industries such as medical, government and financial services, as well as cloud-native tech startups that are providing essential services, have experienced a considerable increase in their operational demands — leading to rising operational costs. Irrespective of the industry your company belongs to, and whether your company is experiencing reduced or increased operations, cost optimization is a reality for all companies to ensure a sustained existence.

One of the most reliable measures for cost optimization at this stage is to leverage elastic services designed to grow or shrink according to demand, such as cloud and managed services. A modern product with a cloud-native architecture can auto-scale cloud consumption to mitigate lost operational demand. What may not have been obvious to startup leaders is a strategy often employed by incumbent, mature enterprises — achieving cost optimization by leveraging managed services providers (MSPs). MSPs enable organizations to repurpose full-time staff members from impacted operations to more strategic product lines or initiatives.

Why companies need cost optimization in the long run


By Walter Thompson

Thought Machine nabs $83M for a cloud-based platform that powers banking services

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The world of consumer banking has seen a massive shift in the last ten years. Gone are the days where you could open an account, take out a loan, or discuss changing the terms of your banking only by visiting a physical branch. Now, you can do all this and more with a few quick taps on your phone screen — a shift that has accelerated with customers expecting and demanding even faster and more responsive banking services.

As one mark of that switch, today a startup called Thought Machine, which has built cloud-based technology that powers this new generation of services on behalf of both old and new banks, is announcing some significant funding — $83 million — a Series B that the company plans to use to continue investing in its platform and growing its customer base.

To date, Thought Machine’s customers are primarily in Europe and Asia — they include large, legacy outfits like Standard Chartered, Lloyds Banking Group, and Sweden’s SEB through to “challenger” (AKA neo-) banks like Atom Bank. Some of this financing will go towards boosting the startup’s activities in the US, including opening an office in the country later this year and moving ahead with commercial deals.

The funding is being led by Draper Esprit, with participation also from existing investors Lloyds Banking Group, IQ Capital, Backed and Playfair.

Thought Machine, which started in 2014 and now employs 300, is not disclosing its valuation but Paul Taylor, the CEO and founder, noted that the market cap is currently “increasing healthily.” In its last round, according to PitchBook estimates, the company was valued at around $143 million, which at this stage of funding puts this latest round potentially in the range of between $220 million and $320 million.

Thought Machine is not yet profitable, mainly because it is in growth mode, said Taylor. Of note, the startup has been through one major bankruptcy restructuring, although it appears that this was mainly for organisational purposes: all assets, employees and customers from one business controlled by Taylor were acquired by another.

Thought Machine’s primary product and technology is called VaultOS, a platform that contains a range of banking services — they include current/checking accounts; savings accounts; loans; credit cards and mortgages — that Thought Machine does not sell directly to consumers, but sells by way of a B2B2C model.

The services are provisioned by way of smart contracts, which allows Thought Machine and its banking customers to personalise, vary and segment the terms for each bank — and potentially for each customer of the bank.

It’s a little odd to think that there is an active market for banking services that are not built and owned by the banks themselves. After all, aren’t these the core of what banks are supposed to do?

But one way to think about it is in the context of eating out. Restaurants’ kitchens will often make in-house what they sell and serve. But in some cases, when it makes sense, even the best places will buy in (and subsequently sell) food that was crafted elsewhere. For example, a restaurant will re-sell cheese or charcuterie, and the wine is likely to come from somewhere else, too.

The same is the case for banks, whose “Crown Jewels” are in fact not the mechanics of their banking services, but their customer service, their customer lists, and their deposits. Better banking services (which may not have been built “in-house”) are key to growing these other three.

“There are all sorts of banks, and they are all trying to find niches,” said Taylor. Indeed, the startup is not the only one chasing that business. Others include Mambu, Temenos and Italy’s Edera.

In the case of the legacy banks that work with the startup, the idea is that these behemoths can migrate into the next generation of consumer banking services and banking infrastructure by cherry-picking services from the VaultOS platform.

“Banks have not kept up and are marooned on their own tech, and as each year goes by, it comes more problematic,” noted Taylor.

In the case of neobanks, Thought Machine’s pitch is that it has already built the rails to run a banking service, so a startup — “new challengers like Monzo and Revolut that are creating quite a lot of disruption in the market” (and are growing very quickly as a result) — can integrate into these to get off the ground more quickly and handle scaling with less complexity (and lower costs).

It’s not the only company providing a platform for banking services that are in turn

Taylor was new to fintech when he founded Thought Machine, but he has a notable track record in the world of tech that you could argue played a big role in his subsequent foray into banking.

Formerly an academic specialising in linguistics and engineering, his first startup, Rhetorical Systems, commercialised some of his early speech-to-text research and was later sold to Nuance in 2004.

His second entrepreneurial effort, Phonetic Arts, was another speech startup, aimed at tech that could be used in gaming interactions. In 2010, Google approached the startup to see if it wanted to work on a new speech-to-text service it was building. It ended up acquiring Phonetic Arts, and Taylor took on the role of building and launching Google Now, with that voice tech eventually making its way to Google Maps, accessibility services, the Google Assistant and other places where you speech-based interaction makes an appearance in Google products.

While he was working for years in the field, the step changes that really accelerated voice recognition and speech technology, Taylor said, were the rapid increases in computing power and data networks that “took us over the edge” in terms of what a machine could do, specifically in the cloud.

And those are the same forces, in fact, that led to consumers being able to run our banking services from smartphone apps, and for us to want and expect more personalised services overall. Taylor’s move into building and offering a platform-based service to address the need for multiple third-party banking services follows from that, and also is the natural heir to the platform model you could argue Google and other tech companies have perfected over the years.

Draper Esprit has to date built up a strong portfolio of fintech startups that includes Revolut, N26, TransferWise and Freetrade. Thought Machine’s platform approach is an obvious complement to that list. (Taylor did not disclose if any of those companies are already customers of Thought Machine’s, but if they are not, this investment could be a good way of building inroads.)

“We are delighted to be partnering with Thought Machine in this phase of their growth,” said Vinoth Jayakumar, Investment Director, Draper Esprit, in a statement. “Our investments in Revolut and N26 demonstrate how banking is undergoing a once in a generation transformation in the technology it uses and the benefit it confers to the customers of the bank. We continue to invest in our thesis of the technology layer that forms the backbone of banking. Thought Machine stands out by way of the strength of its engineering capability, and is unique in being the only company in the banking technology space that has developed a platform capable of hosting and migrating international Tier 1 banks. This allows innovative banks to expand beyond digital retail propositions to being able to run every function and type of financial transaction in the cloud.”

“We first backed Thought Machine at seed stage in 2016 and have seen it grow from a startup to a 300-person strong global scaleup with a global customer base and potential to become one of the most valuable European fintech companies,” said Max Bautin, Founding Partner of IQ Capital, in a statement. “I am delighted to continue to support Paul and the team on this journey, with an additional £15 million investment from our £100 million Growth Fund, aimed at our venture portfolio outperformers.”


By Ingrid Lunden

IEX’s Katsuyama is no flash in the pan

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When you watch a commercial for one of the major stock exchanges, you are welcomed into a world of fast-moving, slick images full of glistening buildings, lush crops and happy people. They are typically interspersed with shots of intrepid executives veering out over the horizon as if to say, “I’ve got a long-term vision, and the exchange where my stock is listed is a valuable partner in achieving my goals.” It’s all very reassuring and stylish. But there’s another side to the story.

I have been educated about the realities of today’s stock exchange universe through recent visits with Brad Katsuyama, co-founder and CEO of IEX (a.k.a. The Investors Exchange). If Katsuyama’s name rings a bell, and you don’t work on Wall Street, it’s likely because you remember him as the protagonist of Michael Lewis’s 2014 best-seller, Flash Boys: A Wall Street Revolt, which explored high-frequency trading (HFT) and made the case that the stock market was rigged, really badly.

Five years later, some of the worst practices Lewis highlighted are things of the past, and there are several attributes of the American equity markets that are widely admired around the world. In many ways, though, the realities of stock trading have gotten more unseemly, thanks to sophisticated trading technologies (e.g., microwave radio transmissions that can carry information at almost the speed of light), and pitched battles among the exchanges, investors and regulators over issues including the rebates stock exchanges pay to attract investors’ orders and the price of market data charged by the exchanges.

I don’t claim to be an expert on the inner workings of the stock market, but I do know this: Likening the life cycle of a trade to sausage-making is an insult to kielbasa. More than ever, trading is an arcane, highly technical and bewildering part of our broader economic infrastructure, which is just the way many industry participants like it: Nothing to see here, folks.

Meanwhile, Katsuyama, company president Ronan Ryan and the IEX team have turned IEX into the eighth largest stock exchange company, globally, by notional value traded, and have transformed the concept of a “speed bump” into a mainstream exchange feature.

Brad Aug 12

Brad Katsuyama. Image via IEX Trading

Despite these and other accomplishments, IEX finds itself in the middle of a vicious battle with powerful incumbents that seem increasingly emboldened to use their muscle in Washington, D.C. What’s more, new entrants, such as The Long-Term Stock Exchange and Members Exchange, are gearing up to enter the fray in US equities, while global exchanges such as the Hong Kong Stock Exchange seek to bulk up by making audacious moves like attempting to acquire the venerable London Stock Exchange.

But when you sell such distinct advantages to one group that really can only benefit from that, it leads to the question of why anyone would want to trade on that market. It’s like walking into a playing field where you know that the deck is stacked against you.

As my discussion with Katsuyama reveals, IEX may have taken some punches in carving out a position for itself in this high-stakes war characterized by cutting-edge technology and size. However, the IEX team remains girded for battle and confident that it can continue to make headway in offering a fair and transparent option for market participants over the long term.

Gregg Schoenberg: Given Flash Boys and the attention it generated for you on Main Street, I’d like to establish something upfront. Does IEX exist for the asset manager, the individual, or both?

Brad Katsuyama: We exist primarily for the asset manager, and helping them helps the individual. We’re one step removed from the individual, and part of that is due to regulation. Only brokers can connect to exchanges, and the asset manager connects to the broker.

Schoenberg: To put a finer point on it, you believe in fairness and being the good guy. But you are not Robinhood. You are a capitalist.

Katsuyama: Yes, but we want to make money fairly. Actually, we thought initially about starting the business as a nonprofit, But once we laid out all the people we would need to convince to work for us, we realized it would’ve been hard for us to attract the skill sets needed as a nonprofit.

Schoenberg: Do you believe that the US equity market today primarily serves investors or traders?


By Gregg Schoenberg

Grasshopper’s Judith Erwin leaps into innovation banking

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In the years following the financial crisis, de novo bank activity in the US slowed to a trickle. But as memories fade, the economy expands and the potential of tech-powered financial services marches forward, entrepreneurs have once again been asking the question, “Should I start a bank?”

And by bank, I’m not referring to a neobank, which sits on top of a bank, or a fintech startup that offers an interesting banking-like service of one kind or another. I mean a bank bank.

One of those entrepreneurs is Judith Erwin, a well-known business banking executive who was part of the founding team at Square 1 Bank, which was bought in 2015. Fast forward a few years and Erwin is back, this time as CEO of the cleverly named Grasshopper Bank in New York.

With over $130 million in capital raised from investors including Patriot Financial and T. Rowe Price Associates, Grasshopper has a notable amount of heft for a banking newbie. But as Erwin and her team seek to build share in the innovation banking market, she knows that she’ll need the capital as she navigates a hotly contested niche that has benefited from a robust start-up and venture capital environment.

Gregg Schoenberg: Good to see, Judith. To jump right in, in my opinion, you were a key part of one of the most successful de novo banks in quite some time. You were responsible for VC relationships there, right?

…My background is one where people give me broken things, I fix them and give them back.

Judith Erwin: The VC relationships and the products and services managing the balance sheet around deposits. Those were my two primary roles, but my background is one where people give me broken things, I fix them and give them back.

Schoenberg: Square 1 was purchased for about 22 times earnings and 260% of tangible book, correct?

Erwin: Sounds accurate.

Schoenberg: Plus, the bank had a phenomenal earnings trajectory. Meanwhile, PacWest, which acquired you, was a “perfectly nice bank.” Would that be a fair characterization?

Erwin: Yes.

Schoenberg: Is part of the motivation to start Grasshopper to continue on a journey that maybe ended a little bit prematurely last time?

Erwin: That’s a great insight, and I did feel like we had sold too soon. It was a great deal for the investors — which included me — and so I understood it. But absolutely, a lot of what we’re working to do here are things I had hoped to do at Square 1.

Image via Getty Images / Classen Rafael / EyeEm

Schoenberg: You’re obviously aware of the 800-pound gorilla in the room in the form of Silicon Valley Bank . You’ve also got the megabanks that play in the segment, as well as Signature Bank, First Republic, Bridge Bank and others.


By Gregg Schoenberg

The startups creating the future of RegTech and financial services

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Marc Gilman
Contributor

Marc Gilman is General Counsel and VP of Compliance at Theta Lake. He is also an Adjunct Professor at Fordham University School of Law.

Technology has been used to manage regulatory risk since the advent of the ledger book (or the Bloomberg terminal, depending on your reference point). However, the cost-consciousness internalized by banks during the 2008 financial crisis combined with more robust methods of analyzing large datasets has spurred innovation and increased efficiency by automating tasks that previously required manual reviews and other labor-intensive efforts.

So even if RegTech wasn’t born during the financial crisis, it was probably old enough to drive a car by 2008. The intervening 11 years have seen RegTech’s scope and influence grow.

RegTech startups targeting financial services, or FinServ for short, require very different growth strategies — even compared to other enterprise software companies. From a practical perspective, everything from the security requirements influencing software architecture and development to the sales process are substantially different for FinServ RegTechs.

The most successful RegTechs are those that draw on expertise from security-minded engineers, FinServ-savvy sales staff as well as legal and compliance professionals from the industry. FinServ RegTechs have emerged in a number of areas due to the increasing directives emanating from financial regulators.

This new crop of startups performs sophisticated background checks and transaction monitoring for anti-money laundering purposes pursuant to the Bank Secrecy Act, the Office of Foreign Asset Control (OFAC) and FINRA rules; tracks supervision requirements and retention for electronic communications under FINRA, SEC, and CFTC regulations; as well as monitors information security and privacy laws from the EU, SEC, and several US state regulators such as the New York Department of Financial Services (“NYDFS”).

In this article, we’ll examine RegTech startups in these three fields to determine how solutions have been structured to meet regulatory demand as well as some of the operational and regulatory challenges they face.

Know Your Customer and Anti-Money Laundering


By Danny Crichton

Fintech and clean tech? An odd couple or a perfect marriage?

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The Valley’s rocky history with clean tech investing has been well-documented.

Startups focused on non-emitting generation resources were once lauded as the next big cash cow, but the sector’s hype quickly got away from reality.

Complex underlying science, severe capital intensity, slow-moving customers, and high-cost business models outside the comfort zones of typical venture capital, ultimately caused a swath of venture-backed companies and investors in the clean tech boom to fall flat.

Yet, decarbonization and sustainability are issues that only seem to grow more dire and more galvanizing for founders and investors by the day, and more company builders are searching for new ways to promote environmental resilience.

While funding for clean tech startups can be hard to find nowadays, over time we’ve seen clean tech startups shift down the stack away from hardware-focused generation plays towards vertical-focused downstream software.

A far cry from past waves of venture-backed energy startups, the downstream clean tech companies offered more familiar technology with more familiar business models, geared towards more recognizable verticals and end users. Now, investors from less traditional clean tech backgrounds are coming out of the woodworks to take a swing at the energy space.

An emerging group of non-traditional investors getting involved in the clean energy space are those traditionally focused on fintech, such as New York and Europe based venture firm Anthemis — a financial services-focused team that recently sat down with our fintech contributor Gregg Schoenberg and I (check out the full meat of the conversation on Extra Crunch).

The tie between clean tech startups and fintech investors may seem tenuous at first thought. However, financial services has long played a significant role in the energy sector and is now becoming a more common end customer for energy startups focused on operations, management and analytics platforms, thus creating real opportunity for fintech investors to offer differentiated value.

Finance powering the world?

Though the conversation around energy resources and decarbonization often focuses on politics, a significant portion of decisions made in the energy generation business is driven by pure economics — Is it cheaper to run X resource relative to resources Y and Z at a given point in time? Based on bid prices for Request for Proposals (RFPs) in a specific market and the cost-competitiveness of certain resources, will a developer be able to hit their targeted rate of return if they build, buy or operate a certain type of generation asset?

Alternative generation sources like wind, solid oxide fuel cells, or large-scale or even rooftop solar have reached more competitive cost levels – in many parts of the US, wind and solar are in fact often the cheapest form of generation for power providers to run.

Thus as renewable resources have grown more cost competitive, more, infrastructure developers, and other new entrants have been emptying their wallets to buy up or build renewable assets like large scale solar or wind farms, with the American Council on Renewable Energy even forecasting cumulative private investment in renewable energy possibly reaching up to $1 trillion in the US by 2030.

A major and swelling set of renewable energy sources are now led by financial types looking for tools and platforms to better understand the operating and financial performance of their assets, in order to better maximize their return profile in an increasingly competitive marketplace.

Therefore, fintech-focused venture firms with financial service pedigrees, like Anthemis, now find themselves in pole position when it comes to understanding clean tech startup customers, how they make purchase decisions, and what they’re looking for in a product.

In certain cases, fintech firms can even offer significant insight into shaping the efficacy of a product offering. For example, Anthemis portfolio company kWh Analytics provides a risk management and analytics platform for solar investors and operators that helps break down production, financial analysis, and portfolio performance.

For platforms like kWh analytics, fintech-focused firms can better understand the value proposition offered and help platforms understand how their technology can mechanically influence rates of return or otherwise.

The financial service customers for clean energy-related platforms extends past just private equity firms. Platforms have been and are being built around energy trading, renewable energy financing (think financing for rooftop solar) or the surrounding insurance market for assets.

When speaking with several of Anthemis’ clean tech portfolio companies, founders emphasized the value of having a fintech investor on board that not only knows the customer in these cases, but that also has a deep understanding of the broader financial ecosystem that surrounds energy assets.

Founders and firms seem to be realizing that various arms of financial services are playing growing roles when it comes to the development and access to clean energy resources.

By offering platforms and surrounding infrastructure that can improve the ease of operations for the growing number of finance-driven operators or can improve the actual financial performance of energy resources, companies can influence the fight for environmental sustainability by accelerating the development and adoption of cleaner resources.

Ultimately, a massive number of energy decisions are made by financial services firms and fintech firms may often times know the customers and products of downstream clean-tech startups more than most.  And while the financial services sector has often been labeled as dirty by some, the vital role it can play in the future of sustainable energy offers the industry a real chance to clean up its image.


By Arman Tabatabai

OpenFin raises $17 million for its OS for finance

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OpenFin, the company looking to provide the operating system for the financial services industry, has raised $17 million in funding through a Series C round led by Wells Fargo, with participation from Barclays and existing investors including Bain Capital Ventures, J.P. Morgan and Pivot Investment Partners. Previous investors in OpenFin also include DRW Venture Capital, Euclid Opportunities and NYCA Partners.

Likening itself to “the OS of finance”, OpenFin seeks to be the operating layer on which applications used by financial services companies are built and launched, akin to iOS or Android for your smartphone.

OpenFin’s operating system provides three key solutions which, while present on your mobile phone, has previously been absent in the financial services industry: easier deployment of apps to end users, fast security assurances for applications, and interoperability.

Traders, analysts and other financial service employees often find themselves using several separate platforms simultaneously, as they try to source information and quickly execute multiple transactions. Yet historically, the desktop applications used by financial services firms — like trading platforms, data solutions, or risk analytics — haven’t communicated with one another, with functions performed in one application not recognized or reflected in external applications.

“On my phone, I can be in my calendar app and tap an address, which opens up Google Maps. From Google Maps, maybe I book an Uber . From Uber, I’ll share my real-time location on messages with my friends. That’s four different apps working together on my phone,” OpenFin CEO and co-founder Mazy Dar explained to TechCrunch. That cross-functionality has long been missing in financial services.

As a result, employees can find themselves losing precious time — which in the world of financial services can often mean losing money — as they juggle multiple screens and perform repetitive processes across different applications.

Additionally, major banks, institutional investors and other financial firms have traditionally deployed natively installed applications in lengthy processes that can often take months, going through long vendor packaging and security reviews that ultimately don’t prevent the software from actually accessing the local system.

OpenFin CEO and co-founder Mazy Dar. Image via OpenFin

As former analysts and traders at major financial institutions, Dar and his co-founder Chuck Doerr (now President & COO of OpenFin) recognized these major pain points and decided to build a common platform that would enable cross-functionality and instant deployment. And since apps on OpenFin are unable to access local file systems, banks can better ensure security and avoid prolonged yet ineffective security review processes.

And the value proposition offered by OpenFin seems to be quite compelling. Openfin boasts an impressive roster of customers using its platform, including over 1,500 major financial firms, almost 40 leading vendors, and 15 out of the world’s 20 largest banks.

Over 1,000 applications have been built on the OS, with OpenFin now deployed on more than 200,000 desktops — a noteworthy milestone given that the ever popular Bloomberg Terminal, which is ubiquitously used across financial institutions and investment firms, is deployed on roughly 300,000 desktops.

Since raising their Series B in February 2017, OpenFin’s deployments have more than doubled. The company’s headcount has also doubled and its European presence has tripled. Earlier this year, OpenFin also launched it’s OpenFin Cloud Services platform, which allows financial firms to launch their own private local app stores for employees and customers without writing a single line of code.

To date, OpenFin has raised a total of $40 million in venture funding and plans to use the capital from its latest round for additional hiring and to expand its footprint onto more desktops around the world. In the long run, OpenFin hopes to become the vital operating infrastructure upon which all developers of financial applications are innovating.

“Apple and Google’s mobile operating systems and app stores have enabled more than a million apps that have fundamentally changed how we live,” said Dar. “OpenFin OS and our new app store services enable the next generation of desktop apps that are transforming how we work in financial services.”


By Arman Tabatabai

Movius raises $45M for its business communications service

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Atlanta-based Movius, a company that allows companies to assign a separate business number for voice calls and texting to any phone, today announced that it has raised a $45 million Series D round led by JPMorgan Chase, with participation from existing investors PointGuard Ventures, New Enterprise Associates and Anschutz Investment company. With this, the company has now raised a total of $100 million.

In addition to the new funding, Movius also today announced that it has brought on former Adobe and Sun executive John Loiacono as its new CEO. Loiacono was also the founding CEO of network analytics startup Jolata.

“The Movius opportunity is pervasive. Almost every company on planet Earth is mobilizing their workforce but are challenged to find a way to securely interact with their customers and constituents using all the preferred communication vehicles – be that voice, SMS or any other channel they use in their daily lives,” said Loiacono. “I’m thrilled because I’m joining a team that features highly passionate and proven innovators who are maniacally focused on delivering this very solution. I look forward to leading this next chapter of growth for the company.”

Sanjay Jain, the chief strategy officer at Hyperloop Transportation Technologies and Larry Feinsmith, the head of JP Morgan Chase’s Technology Innovation, Strategy & Partnerships office are joining the company’s board.

Movius currently counts more than 1,400 businesses as its customers and its carrier partners include Sprint, Telstra and Telefonica. What’s important to note is that Movius is more than a basic VoIP app on your phone. What the company promises is a carrier-grade network that allows businesses to assign a second number to their employee’s phones. That way, the employer remains in charge, even as employees bring their own devices to work.


By Frederic Lardinois

Forget Watson, the Red Hat acquisition may be the thing that saves IBM

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With its latest $34 billion acquisition of Red Hat, IBM may have found something more elementary than “Watson” to save its flagging business.

Though the acquisition of Red Hat  is by no means a guaranteed victory for the Armonk, N.Y.-based computing company that has had more downs than ups over the five years, it seems to be a better bet for “Big Blue” than an artificial intelligence program that was always more hype than reality.

IBM to buy Red Hat for $34B in cash and debt, taking a bigger leap into hybrid cloud

Indeed, commentators are already noting that this may be a case where IBM finally hangs up the Watson hat and returns to the enterprise software and services business that has always been its core competency (albeit one that has been weighted far more heavily on consulting services — to the detriment of the company’s business).

Watson, the business division focused on artificial intelligence whose public claims were always more marketing than actually market-driven, has not performed as well as IBM had hoped and investors were losing their patience.

Critics — including analysts at the investment bank Jefferies (as early as one year ago) — were skeptical of Watson’s ability to deliver IBM from its business woes.

As we wrote at the time:

Jefferies pulls from an audit of a partnership between IBM Watson and MD Anderson as a case study for IBM’s broader problems scaling Watson. MD Anderson cut its ties with IBM after wasting $60 million on a Watson project that was ultimately deemed, “not ready for human investigational or clinical use.”

The MD Anderson nightmare doesn’t stand on its own. I regularly hear from startup founders in the AI space that their own financial services and biotech clients have had similar experiences working with IBM.

The narrative isn’t the product of any single malfunction, but rather the result of overhyped marketing, deficiencies in operating with deep learning and GPUs and intensive data preparation demands.

Jefferies gives IBM Watson a Wall Street reality check

That’s not the only trouble IBM has had with Watson’s healthcare results. Earlier this year, the online medical journal Stat reported that Watson was giving clinicians recommendations for cancer treatments that were “unsafe and incorrect” — based on the training data it had received from the company’s own engineers and doctors at Sloan-Kettering who were working with the technology.

All of these woes were reflected in the company’s latest earnings call where it reported falling revenues primarily from the Cognitive Solutions business, which includes Watson’s artificial intelligence and supercomputing services. Though IBM chief financial officer pointed to “mid-to-high” single digit growth from Watson’s health business in the quarter, transaction processing software business fell by 8% and the company’s suite of hosted software services is basically an afterthought for business gravitating to Microsoft, Alphabet, and Amazon for cloud services.

To be sure, Watson is only one of the segments that IBM had been hoping to tap for its future growth; and while it was a huge investment area for the company, the company always had its eyes partly fixed on the cloud computing environment as it looked for areas of growth.

It’s this area of cloud computing where IBM hopes that Red Hat can help it gain ground.

“The acquisition of Red Hat is a game-changer. It changes everything about the cloud market,” said Ginni Rometty, IBM Chairman, President and Chief Executive Officer, in a statement announcing the acquisition. “IBM will become the world’s number-one hybrid cloud provider, offering companies the only open cloud solution that will unlock the full value of the cloud for their businesses.”

The acquisition also puts an incredible amount of marketing power behind Red Hat’s various open source services business — giving all of those IBM project managers and consultants new projects to pitch and maybe juicing open source software adoption a bit more aggressively in the enterprise.

As Red Hat chief executive Jim Whitehurst told TheStreet in September, “The big secular driver of Linux is that big data workloads run on Linux. AI workloads run on Linux. DevOps and those platforms, almost exclusively Linux,” he said. “So much of the net new workloads that are being built have an affinity for Linux.”


By Jonathan Shieber