UpSWOT & the Venture Capital Landscape for Fintech w/ Igor Ulis

ABOUT THIS EPISODE

Fintech is at the cusp of revolutionizing markets across the world, but specifically legacy markets. Breaking into these legacy markets is proving to be a competitive landscape rich with opportunity to provide value to consumers.

The great news is all of this value should translate into a much better consumer experience. Because ultimately, everybody is fighting for the same consumer and they want to make sure their experience is superior compared to the competition.

In this episode, we talk about this and more with Dmitry Norenko, CEO and Founder of upSWOT and Igor Ulis, Chief Digital Officer of Liberty Lending and Managing Partner at Common Ocean. We also covered:

 

  • VC landscape in fintech broken down by stages, valuations, etc
  • How fintech evolving currently and where will it be in the future
  • Defining strategic shifts in the fintech landscape as of now

For the entire interview, tune in to Apple Podcasts, Spotify, or wherever you get podcasts. Find Dmitry Norenko on LinkedIn or at https://upswot.com/. Find Igor Ulis on LinkedIn or https://www.commonocean.co/.
 

Welcome to start up success, thepodcast for startup founders and investors here you'll find stories ofsuccess from others in the trenches as they work to scale some of the fastestgrowing startups in the world stories that will help you in your own journeystart up. Success starts now welcome to start up success. We have areally fun lineup. Today, I first of all, I have Steve Lord, who is the headof Broklyn's fintech practice out of New York, who will be hosting the showtoday, and he has two exciting gasts from the FINTEC sector with him today.So I'm going to turn it over to Steve and his guests, thanks for being Har,Steve, yeah sure thanks Lokkid, so I'm here with egor us and Dmitri Norenko etalking about today is up Swat and some of the recent developments at thatcompany and what that means for the broader fintechicosystem and justgenerally talk about why Thintech is where it is today, N, where some of USthink it's going to go both from a you know. We have the financial investmentside and then we have the on the ground practitioner side and we are all veryclose to this industry d. So there's a bunch of longer term trends that Ithink are starting to shape up together, which we're going to talk about alittle bit today. So let's kick off and I wanted to go ahead and introduce egor.You GAR WANC, you mention who you're with and what you're doing and and whatyou guys like to focus on had gooin thank fe, Tho. Eba, you John Partner ofcommed Ocean, where Iventure Fun, bated out of New York, focusing on a earlypeat stage Inmesmin. We primarily investen the companies that are usuallypost product of some early markattraction and really need capitaland extratasthe scale. Our pieces is entirely based on financial, wolgnessand FINTEX. Tat Focus on financial woman of pub fit very nicely into thatpieces and we're excited to be backing them in this next lug of their journey.Okay, great and then we also have from up Swat. We have to meet Tru Ma Tury.One should give us a few minutes about the company and yourself and and whereyou guys are in the process, yeah sure ti thanks. What, for the invitation iseager already mentioned, we are the Fentek the trace, our four point: threemillion sedrunt with Igor an some of the institutional investors. So we arethere fintec that helps the bands financial institutions to fightphientax. So, according to the research of big four in two thousand and eight,only thirty four percent of the businesses were thinking that the banksare not very supportive. Nowbat is more than seventy per cent of the businessesare looking for the support from cabbage lending clock, Quare, Papl,challing events. It means that phoetix eaten a huge piece of the Benkumpineright. We are changing this. What the businesses are looking in fentix is avaluable through the banks, thanks to our technology, which providesactionable inside scheshuable forecast, tersonalist addvice to make businessesperform better with the help of their blanks and two years old business.Forty five people in the team, sorving modern tinto financial institutions, D,with the help of eager his team and resources, would plean to grow muchfastr all right great thanks. So I'd like to kind of kick this off bytalking about two core elements of what both of you guys are here today for andone is the sort of VC landscape into Fintech, the stages valuations and acouple o other questions, I'm going to have around there and then I'm alsoWinling, I'm Gona Wan to talk about Dmitr, how you guys have seen thebusiness of Ollor even the last couple of years and when what that sort ofstrategic shift in the Landscape Ani'll make this more clear when we get therewhat that means for not only upswots success down the road but other fintechcompanies and the FINTEX PACE in general. So Egor when you look atcompanies like of Swat two years old, you know before the podcast started. Wewere talking a little bit about of Swat, and you know a lot of a lot of existingpeople on the Cap Table. Are you seeing...

...from a VC's perspective? Are you seeingthe makeup of these startups changing as Fintech matures absolutely so? Acouple of interesting things that we've seen in the market is that, because ofthe amount of capitalizer thatc chasing the sintex landscape, syntexs haveessentially a bit more freedom in terms of who they decide to take caol fromand other conditions they decide to bring people into their cap table andthere's been a readio move towards what you what it's generally referred to asmark money. You mean that it's not just capital but thei'r capital Clut,whether that Cluk is subject betterits for teas, I pranc the certain market orwhatever the gate might be so they're bringing more than just o check right.Exactly exactly so we're seeing a lot of prinsecs out there looking to havethec firms or other in investment entities bring more than just a checkto the table, and that's where we came in as we you know in our decessions. Wefelt that we can bring more than just a check. We can bring our subject matter:Fo, tes, our understanding of particular audiences. That upslot isworking with attes the capital market. ETCEA, and do you find valuations are trackingthat hadded value, like you know you seevcs, that have to compete for reallygood deals. Now we had a recent one where the where the VC stood up at thedinner. This is sort of a virtual thing, but thanke the company for letting themparticipate in their around, and I had never heard that. Do you find theability to still make deals make sense in the environment were in, given whatyou just said. I mean. Obviously you do otherwise. You Wend up ing theinvestment, but I mean I'm just wondering how you guys think about thatnow, with the valuations where they are yeah, it's an in you know, therearecertain fendamental laws of supplies and man dynamics that are playing outof the marketplace. Pash supply is rich. The number of companies that that catchis available to be deflot into is a necessarily peficient and so you'reseeing valuations go up you're, seeing certain certain deals that that wouldnever have occurred in the past, where we sees are preumpting round. SES areputting money into evaluations that are F that are based on three four fiveyear: Projections of runway into companies that may not have had a hit athree four five year, history of previous runaway. So all sorts ofinteresting things are evolving in the market. But to me I just speak to thefact that we're in the rise market, whenever you see this much competitionwhenever you see this mo o now your Aujiton to e Man Yeah, you know yourAunto something now you know. Are there a deal that may turn upside down atsome point in the future? Absolutely, but I believe that's why they call itventure Bot thing right: Al Right, Righ, Al Part of the deal when this is goingto be a good segue over to you demitree. But so I one last question Egor. So youknow ten years ago, when we first started this Fintech journey sort ofofficially, you saw vcs, focusing mostly on guys that were going todisintermediate the banks now with an investment like upswat. Doyou see that shifting and Dmitri this is going to be kind of joint questionfor both of you guys? Do you see the value chain moving torward companiesthat are either working with or on behalf of banks to help them do whatthey do? We loke to think about market as a pendulum that playing one way andthen it'll ultimately swing the other way and then itll keep swinging backand forth, and the swing may take five years. It may take ten years of Ma rihtsix month. It just depends on how jrastic of a technology shift you're,introducing it any given MARKETPLAC and you're right. Ten years ago we saw thependulum start to swing where a lot of capital was being attracted to sinsectsthat were essentially inserting themselves into the value chain andtaking money out of banking pokets right right, O Toneo Bank attractingdeposit, even though it can be argued that a neo bank necessarily isn't abank at the right, theyre, a Mila...

...they're actually doing with thing right.So that was an interesting shift. where, essentially, you started to see cash oryou know, funds move from you know one banking intitution into another bankinginstitution, more efficient rail or more carret attached to those rails.Where you have you know certain rewards or other incensives being provided tothose individuals who are willing to move their money away from traditionalbanks and into these banking partners of Fintex, and so you saw cash outclotsfrom traditional bank to more nontraditional banks or banks. Thatwould not have traditionally Attractiv that capital right and what we'reseeing now is we're seeing the the dopendual start to swing the other waywhere the bank are thinking about how to fight back against the momentum.That's been generated over the last ten years where cash was leaving their bankinstitution and now they're, trying to figure out a. How do we make sure thatthe cash doesn't leave, because we can offer the same utility that ittraditionally be offered by financially by a FINTEC that was competing for ourdollars or how do we create the right that of incentive in order for thatmoney, not to lieave so SCO? This through Thi combination of utility andincentive that traditional banking institutions are espentially keepingthe money that they have rather than having that money flowly leak out oftheir institution into a sinset attached banking intitution, a theykind of finally understood that they could plug that hole and provide thatsame service. So Demitry. How do you Doi? I S? Gon Saythe Thingis, like theamount of puns that were flowing out of this hole that your that they'replaning now has also changed right. So when it was not sufficient or maybe not,but it wasn't a big number that was flowing out. It wasn't the feel liketha was' non the Raar yeah now tha, the amount of funds that are being movedthrough these rails has increased dramatically. Ithey that there's justmore attention being paid to the movement that be fun, got it soDemetrat Fir. I didn't say this before a first Congratson the round. Do you do?What do you think about this whole process? Because your company, fromwhat I understand, is anchored really on being that provider to financialinstitutions and helping them sort of combat? What we were just talking aboutcan y, U Tell Su a little bit about how up spat slots into that ecosystem andhow you how you see that econsistem turning more your way and enabling thecompany to grow yeah, you have wer a nice question in any company for anystartup, especially for the FUNTEC. The timing is the Chritian lot of thebusiness suctess, so the bank. They know that they need to change. Theyknow that they are pretty old school guys that theiar process inefficientexpensive, not convenient, especially for the new generations, but they areslow. Yes, we ta them this for Mynamanes lots of smart people aresaying them this foking man years, but something recently changed, and this isQo. It covitis dramatically change ing the industry. People don't want to goto the branches, but they don't want to touch the papers. They don't want tostay in the wines. They want to communicate with the banks that waythey got used to communicate with the fintrux. The Ben should change, becauseif they don't change the itirand actually this is what is happening.Twenty twenty five years ago, there were twenty thousand of banks in theIES right now it's onlen line, so the benks unfortunately, are dying. We arecoming to the banks, especially Community Bank. This is why ICBindependen you need to bankers of America invested in us. We Ar send themthat guys n you generations. They don't think that Your Business Motal is thebest come into the branch drinking the coffee talking for two hours, withsomeone about your dalk about your bar and the way that you need to grow yourbusiness. Now they just want to push the botton and to know what to do nextright and weare kil them this. We are saying that businesses new generationsthey use quikbooks, for they have CP using quickbooks. They every day spendtheir money on marketing they seil on a...

Mazon, ebay and shopify. They use PABL.They you square. Let's give them the two to combine everything in one place,but in your bank and waste all this data from your Accountenc Yor, PcramiCommerce, marketing tools help them to know what to do next, when they need tobuy more goods for their stocks when they need to make to increase theselaries for the people when some of they inpluyse its not that leveldefficient as others what they have to do to perform better and make theirbusinesses more successful. This is what they're looking because as wediscussed, businesses is the blood of the economy, especially in the US. Theyneed the support, but they a the riskies segment. We are saying that thebanks might be the place to help them to perform better by help performbusiness bette, they create a more rliable, boromer, right and and a Wakior customer right, the customer stays with them longer and Righ canness. Ithink the data element is very important to flare right because, likeyou said, sweart square papal, quickbooks vouch all of these onlinefirms that are speaking more to the younger generation. They are veryheavily interested in the dataflood that they can see. So when you look ata stodgy old bank, that's desperately trying to figure out how to monertizetheir world. Are they talking about data? Is it a thing that theyunderstand the value of you know? I understand they tend to know that valueof the regulation of the data gdpr- and you know PSD two, and these other- youknow suck to all these other acronyms, but do they see the value yet in thepredictive element of the data, so that depends on the size of thepancase of now we are working with three out of top ten national banks inthe US. So with that yeah they se the Vatue, the Lok you put tin you ways tocut the couse, simplify the processes become mor in a way to its toughprocess. It takes a lot of time to pass the compliance with them to get holdtheir pruls, but they are looking for thes tecrilogist right, unlikecommunity lanks community banks, they know that their time unfortunatelygreat people but great businesses. They support lots of enves in the US, but tochange their business. Motal is something tremendously difficult forthem to accept something in a way to is difficult for them. So what weunderstood with the community banks as of now that they know that they need tochange, but they scare to change, and they have so time knowing how right so,you guys give him a turn key kind of mechanism to do that. Yes- and we were so successful that oneof the banks of community banks- We have five of them working with us rightnow. We'v got them during the last two months: Fos southe national ban- let'ssay not very big community Benk in Kentucky, they were so impressed a juntalk around Bein Qestatina. So this the bank isof O actualy ban. I the banitself. So this is the example. Ofthel community backs can change Yeang tochange. They want to be the part of these changes so that they in westerncompany so ic be invested in us, Fostol, the National Bancinvestertinus.Obviously we seein wested in US and lots of angels because different peoplefrom different verticles. They believe that the vote will move this way,they're trying to take a look at what will happen with this life in fiveyears. Intenyes yeah, that's the value of it. L, let's hold there for a secondyou in the precall. We were talking a little bit about those angels and whatI was struck by when you were kind of rattling them off was the level atwhich some of these individuals have been engaged in the traditional financeworld and they come from that world and they see the value in what you're doingso. Can you talk? I don't know how much you can talk about that on this call,but can you give us a little bit of an idea of the the kinds of standard orlegacy industries that your angels come from, so that defents we have differentangels. For example, we have cuo of Glarma, which is the largest FENTRAC inEurope. They are helping. Businesses...

...sell better to their consumers, andthis is very innovative company. So not who is this ou of Theof Clarma? Hestrongly believes that this is the future of the relationship betweenfinantial institutions and small media size and businesses. Carry is theformer president of Western Union and he is managing on Sagh in as Pacificand carry believes that we will change the industry as well. That's why hejoined us. We have former chiefress officer of cabbage thes, guys providedseventeen billion of dollars in lawns in ten years, having no papers right,no branches, no Vaute, no branch, no coffee, nothing like they're, justokering their cluns to share the data and Costof believs that we found in youway how to push the clients to share the data, and this data can be used notonly in underwritimens coring, but help the clients perform better. We havelots of other great professionals that joined us from transunion. For example,frons Tuart cle was leadum sales intems interesting. We have general managerand Executive Vice President of American Express who is leading allsndy business in this company, so his great person. He knows this businesswerever Heis very helpful, so we have brilliant people that believe thatwe're moving the right way and there's PO is precious because their level ofnetwork, their strategic approach. They are helping hiring the people theyre.Helping closing the deals is something that we can't bynotithe level yeah.What I'm struck by is that these are the people who will know where theholes exist at Western Union at American, express in the payment railsin the banking and how theyare servicing small and medium sizebusinesses right now in these traditional places.I know that you know we work with a lot of founders and a lot of small startupsthat are struggling to deal with really cutting edge stuff inside their company,and then they have to go to a legacy, mainline bank and still fill out apaper deposit ticket and it' STRUC. They struggle to understand how farbehind some of those processes can be. Okay, good. So let's prive it for aminute a little bit. Both of you guys have hinted to this, but when Fintecfirst kind of came out- and I mentioned this earlier- We talked a lot about how,like I said, these traditional banks were going to be disinemediated and alot of companies popped up like cabbage, like stripe, like square paypal to totake a piece of the Banking Pie and put it over here. It seems like, and a couple of the bigdeals last year, a kind of hit to this that we're moving toward almost now thereverse of that, as you were saying, Egor, the Pendulumtorny e other waywhere we see consolination may be starting to happen where we see banksstarting to cobble some of this back together. Again, arguably, what UF SWATis doing is helping cobbe some of those systems and data collection sourcestogether in one thing and allowing a bank to do it. Do you guys see thistrend continuing that we blew it all apart and now, maybe for the next fiveor so years, we're going to pull it all back together. Again, he Gor I'll startwith you sure I guess it's probably not as binary as that. It's likely going NAland somewhere in the middle, where certainly banks are not going to standby and watch our pie get fliced into tenter rihe in our slices right. Theywill act proactively to make sure that they continue to exist. These are youknow, intitutions that have been around for a long time and are planning on teAran for really long time, but at the same time innovation is stoppable ECAS.They will need- and you look at what's happening, for example in the defimarket, that whole new horizon of technological innovation, thattraditional financial seutions are Goingno eed, to figure out figure outhow o how to swim in those water. And so I think this is just a nongoingthing. That's going to continue, but the good news as there's not that therewill never be a lack of opportunity.

When you have such a drastic financialchange coming into legacy market, each of the new players, old players,interim players, they will continue to compete and they were continuing togenerate value. The good newes is that all of this values should translateinto a much better consumer. extrence has ultimately everybody's fighting forthe same eyball, yeah and the better product you can build and faster. Youcan satisfy that. I want, I get hur the longer life fan you have in thisindustry, and so I think, th. Basically that's what you know. Everybody isbying for right. I read a thing where it's all about interaction, speed,convenience and permanency, actually that they don't have to worry about itagain. They can fill out the form hit, submit and they're done. You know, dometrat you many thoughts on what I was saying about, like it blew itself apart.Now, it's kind of kind of come back together again. You know like, forexample, one of our business models is through the partnerships, and so we areworking with several corbanininsystem providers and they are se levelexecutives, for example Hanessly, but from FINASA hinvested in US and shefinancial officer of Terminos he livestet in us as well, because theybelieve that core ban consistent providers that SORV touzands ofthousands of banks they need to CA. This guys, they are tategic minded ifthey invest in such a small company that s serving only thirty threeclients, as of now big financial stitutions, but only firty three, andthey invest their own money in our company. They believe that the voultewill Lov in this way nothing is coming back. Everyone is moving online themmoving into the cloud they're creating they are in the demand of the newtechnologies that will simplify internal processes right. So westrongly believe tha, the least of the angel, those people that invested in usfrom different segments like American, express Corbat, consistent providers,lots of thentix and so on, if all of them they've wored that the wote ismoving that way, nothing wull change, Theboutis Womin that direction this.What people tey know that the wot is moving the direction and they trust usthat this team will build the company that is moving the sine is going to goin the same direction. Yeah. Let me ask you you guys both are regulatorskeeping up with this? Why are the banking regulators on allof this because you mentioned DFI before you know? I the background inthat as well- and you know the regulations are still kind of beingmade up as we go along and most of the banking regulations haven't beentouched in fifty years. You see still, we are touching OPETEAM API enable datafinancial data. So that means that we are not touching your personase dataGara. We give an opsion to share the data that you own, based on yourpermission with the bank. We Aknow, as you did, but the reacher that you gaveto us and which an form this data, the way that it will help you why sixty sixmillions of people are using mute mean from intride corporation because itgives them to pall you out of the Dat it combines everything one place helpsto build the credit score right, make finice very clean, very easy yeah. Weare mean for businesses, we take mint foccuns, you must created men forbusinesses and why clabel this to thepenks, because people need this ifthey need this as consumers, they need this as the businesses so like with into it. The businesses bare, given the data optim, authorized access to thedata. The data is transformed to give back and help businesses to perform Bak.Why? It's? So you don't see ig, there's no regulatory construct here, that'sgoing to, because I keep thinking at some point: Fintech innovation inFintec beyond, if you take the crypto out of it, if you just take paymentrails- and you take some of the other stuff, that really is the Lion ShareifINTEC work. There will be a coming to sort of coming to the realization thatregulations are not dealt for this modern world. This construct in general,where it is so, data driven and anonymized and API calls andcloudstorage, and all that they're the...

...privacy laws, don't really work wellwith it. The banking laws amlky see all of that sort of stuff is predicated ona world where they spend two hours having coffee with you. What do youthink Egar, so the goodnews of that the market in which upfuck is operating and the debtor relations have or therulings around theter relations have AGISI quite a lit. As you said, theseare not crypto based transactions. These are not the left or understoodfrom a regulatory perspective. The rules here are fairly well establishedand their cut and dry the data, and we work with a Bougt to make sure thatthis is all done properly, but the data isdored in a way that, if compliantethat can be audited, that can be shown that it operates within regulatoryboundaries and can be audited to be shown that it operated in regulaaryboundary. So I think that what Upflat is doing is very different from some ofthe very unknown defie world cutting Assa that yeah, and so I think it'sleftregulatory Landcapeis left of a concern for Upcov and maybe some of thenewer SISEC organizations that are using Crypto as their fundamentiltvalue store in exchange. So then tying back that idea that we woill do thisphase of consolidation over the next, maybe five years or so, and, as yousaid, you're right, it's not it's not as cut ang dry as a tob. But do youthink that increasingly, those existing banking regulations will cover theinclusion of this technology inside that sort of traditional bankingumbrella? I absolutely I believe that that that will happen. There werecertain Commons being made by the SC that essentially boil down to the jobof these regulary bodies is to ensure that markets exist to support peopleright and revulaforyo restrictions, and whatever guidelines will come out ofthe future. That's the foundation of all those things D. it's to make surethat markets can continue to operate efficiently, to make sure that theindividuals or small businesses or whoever the users, the unusers of thesearcets, can continue to achieve their desire outcome in the most cost,efficient and tritulus method possible, and I think all regulations are goingto move it. You know continue to move toar tat right, so demetre and you',looking at upswadend, where you guys have been and where you are now. Areyou working only with financial institutions like banks, or do you havea casting a wider net? Yeah, like you know, before Sidroun we wanted to showwe see and our angels that we can go in different diraction. So, for example,other technology is used by one of the largest telcos in Europe, its MPTS WE'vGut a couple of Phintix like tribal credit that is usin our technology andmaking their clients more. Stick it to atornantm landers. But this week weannounced that we started working with Mustercud, so masterca sn ourtechnology to intererract, with business owners directly. We arechanging their business. Motel they're also very excited, because this issomething new for them, because mastercut is not the place to help thebusinesses accept, playments and make the transes mustecrat is the place tohelp businesses perfor better, and we believe that by showing our wesee a show in our investor showing our clients that we have banks. We havetelcouse, we have one insurance company. We have themtax, we have mastercud.This is applicable in any direction, but we will focus on tankes off now, oget the huge piece o then Marketby, yeah mastercareis such an interestingcompany, because they're so big. I followed them for years and they are sokeen on understanding. Innovation like they may not go, innovate itself, butthey are watching very closely. I remember when Crypto was first gettingyou know really going. Everybody was going to try and go put Master Card outof business and Buri, don't you're not going to put them out of business.They're goingto know what exactly what...

...you're doing and then they're going todo it themselves so egar. I wanted to also ask you guys so now you made thisinvestment in upswat. What's next for your Fundar? Is this an area you guysare? Are staying in you're going to go a little wider inside Fintech or what'snext we are going to condice the pictures, our mission, which is tointhis into sinset and faunders, who are on an emission to put people on Hapath to pressberry? That's we think, that's a fairly wide ses, apretty big anther, the there's, not a Lak, the wonderful newsis Thaf. Thereis not a lack of justrilliant founders yeah, who are tacking the look atsystems that have been in place for decades and decades and finding ways toiterate and very quickly bring products that are truly aggegating value to theeither, and so we're very excited about that, and we would welcome and on allinquiries from these founders, the possible. You know, fivots an a finatin our WAI. I see the same thing t with Berklyn yeah, so many really reallycool ideas and really really really smart people all right, great andIthink wor. That's good that'lwell leave it there. Thank you guys both forjoining us on this. We love getting good founders and good vcs together totalk about what they're doing and with that Kate I'll hand it back to you.Thank you Steve What fascinating and sightful conversation you know. I readall about this, but to hear from people that are on the front lines, andactually you know innovating it was. It was really fun. So, thank you bothDmitri congrats again on your round. If people are interested in learning moreabout UPSWAT and want to get in touch with you, where should they go so theycan easily reach me on Linktin and obviously oar website, especially thosepeople who are looking for each job, sales, people, datascience project,product management to be Ar Higan great professionals, and we are happy toinvite people to Donometa Olgrea, that's great! Thank you and egor. Ilove what you said about. You know innovation so where or can start upfounders reach out to you, link then or by our website at common ocean? THAT'STHE UP, excellent! Thank you and Steve. Lord is again head of Breoklyn'sfintech practice. You can reach him at hello at Brooklyn, Associatescom,correct, Steve, Yep, that's great! That works all right. Well, thanks everyonefor being here today. It was very insightful and I hope to have you allback soon. You've been listening to start up success to make sure you don'tmiss out on future episodes subscribe to the show in your favorite podcastplayer. Like would you hear tap the number of stars? You think the showdeserves an apple podcast for more tools and resources for your own startup. Success check out Berklan Associatescom. Thank you so much forlistening until next time.

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