Personal blog of Yzmir Ramirez

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 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 $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 U.K. and that will be one big focus, along with the U.S.

The quick succession of funding and 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 startup idea. He wanted to build the “Blue Bottle Coffee” of Asia Pacific out of Australia, 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 the last six years, we’ve built more than 50 bank integrations and now offer payments across 95 countries, payments through a partner network,” he added, with 43 of those offering real-time transactions. From that, it moved on to 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 at 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.”

Updated to note that the coffee business was in Australia, not Hong Kong.

SellersFunding secured $166.5 million in a combination of Series A equity funding and a credit facility to continue developing its technology and payments platforms for e-commerce businesses.

Northzone led the round and was joined by Endeavor Catalyst and Fasanara. SellersFunding CEO Ricardo Pero did not disclose the funding breakdown, but did say the company previously raised two seed rounds for a total of $40 million in equity and more than $100 million in credit facilities, including one that the company was expanding to $200 million.

SellersFunding, with offices in Florida, New York and London, created a digital platform that delivers financial tools and resources to streamline global commerce for thousands of marketplaces, including working capital, cross-border cash management, tax solutions and business valuation.

Pero got the idea for the company after spending 20 years in the financial industry. He left JP Morgan in 2016 with a drive to start his own company. He was consulting for a friend selling on Amazon who asked him to help make sense of Amazon’s fees and to review the next year’s budget because the friend was struggling to keep up with growth.

“I helped him address the fees issue, but when I went to talk to traditional lenders, I found that they have no clue about e-commerce and the needs of SMEs,” he said.

In addition to being a lending source for businesses selling on these marketplaces, SellersFunding leverages sales data provided by the marketplaces and e-commerce platforms to create sales and cash flow estimates based on the credit limits given to clients so that owners can better understand the fees they are paying and make more informed decisions.

He founded the company in 2017, and today has over 30,000 registered users and is approaching $10 billion in sales volume that is feeding data into SellersFunding’s daily models. The company makes money as both a lender and on fees it charges for payments collected by its customers. Merchants can collect money from marketplaces and pay their suppliers in local or foreign currency.

SellersFunding has consistently grown 300% year over year, Pero said. As such, he intends to use the new funding to scale globally, expand the team, create a marketing budget and look for two small acquisitions in the U.S. and Europe.

The company will continue to invest on the payments side and to promote cross-border payments.

“When I look at the payments landscape, companies are competing on pricing and I don’t think we will ever have a focus there, but instead will compete on customer experience,” Pero added. “Our core business will always be lending and our core investments will be payments and technology, but then we will extend to other services that our clients want.”

With an eye on expanding internationally, it fit to bring on Northzone as a partner, he added. The venture firm is based in Europe and was of a similar vision for thinking globally.

Jeppe Zink, general partner at Northzone, said via email that Pero and his team “are the most experienced in this category” and are building a category leader that is “more experienced and understanding of the lending side than its competitors.”

“We have seen this massive rise in e-shopping, most of the new ones coming from marketplaces like Amazon and Shopify, and if you look at the sellers, thousands are small businesses sourcing their goods which means that they are very important customers,” Zink added. “Normal banks like Barclay can’t check credit. SellersFinding is helping small businesses get this credit, and rightly so. In the same way we thought neobanks won with accounts created when it comes to delivering credit and banking products, they are nowhere to be found yet.”

A Canadian startup called Nuula that is aiming to build a super app 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 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. 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 expanding further into 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 e-commerce 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.”

Small businesses have traditionally been underserved when it comes to IT — they are too big and have too many requirements that can’t be met by consumer products, yet are much too small to afford, implement or thoroughly need apps and other IT build for larger enterprises. But when it comes to neobanks, it feels like there is no shortage of options for the SMB market, nor venture funding being invested to help them grow.

In the latest development, Novo, a neobank that has built a service targeting small businesses, has closed a round of $40.7 million, a Series A that it will be using to continue growing its business, and its platform.

The funding is being led by Valar Ventures with Crosslink Capital, Rainfall Ventures, Red Sea Ventures and BoxGroup all participating. The startup is not disclosing valuation, but Novo — originally founded in New York in 2018 but now based out of Miami — has racked up 100,000 SMB customers — which it defines as businesses that make between $25,000 and $100,000 in annualized revenues — and has seen $1 billion in lifetime transactions, with growth accelerating in the last couple of years.

There are a wide variety of options for small businesses these days when it comes to going for a banking solution. They include staying with traditional banks (which are starting to add an increasing number of services and perks to retain small business customers), as well as a variety of fintechs — other neobanks, like Novo — that are building banking and related financial tools to cater to startups and other small businesses.

Just doing a quick search, some of the others targeting the sector include Rho, NorthOne, Lili, Mercury, Brex, Hatch, Anna, Tide, Viva Wallet, Open and many more (and you could argue also players like Amazon, offering other money management and spending tools similar to what neobanks are providing). Some of these are not in the U.S., and some are geared more at startups, or freelancers, but taken together they speak to the opportunity and also the attention that it is getting from the tech industry right now.

As CEO and co-founder Michael Rangel — who hails from Miami — described it to me, one of the key differentiators with Novo is that it’s approaching SMB banking from the point of view of running a small business. By this, he means that typically SMBs are already using a lot of other finance software — on average seven apps per business — to manage their books, payments and other matters, and so Novo has made it easier by way of a “drag and drop” dashboard where an SMB can integrate and view activity across all of those apps in one place. There are “dozens” of integrations currently, he said, and more are being added.

This is the first step, he said. The plan is to build more technology so that the activity between different apps can also be monitored, and potentially automated

“We’re able to see this is your balance and what you should expect,” he said. “The next frontier is to marry the incoming with outgoing. We’re using the funding to build that, and it’s on the roadmap in the next six months.”

Novo has yet to bring cash advances or other lending products into its platform, although those too are on the roadmap, but it is also listening to its customers and watching what they want to do on the platform — another reason why it’s clever to make it easy to for those customers to integrate other services into Novo: not only does that solve a pain point for the customer, but it becomes a pretty clear indicator of what customers are doing, and how you could better cater to that.

Listening to the customers is in itself becoming a happy challenge, it seems. Novo launched quietly enough — between 2018 and the end of 2019, it had picked up only 5,000 accounts. But all that changed during 2020 and the COVID-19 pandemic, which Rangel describes as “just hockey stick growth. We grew like crazy.”

The reason, he said, is a classic example of why incumbent banks have to catch up with the times. Everyone was locked down at home, and suddenly a lot of people who were either furloughed or laid off were “spinning up businesses,” he said, and that led to many of them needing to open bank accounts. But those who tried to do this with high-street banks were met with a pretty significant barrier: you had to go into the bank in person to authenticate yourself, but either the banks were closed, or people didn’t want to travel to them. That paved the way for Novo (and others) to cater to them.

Its customer numbers shot up to 24,000 in the year.

Then other market forces have also helped it. You might recall that banking app Simple was shut down by BBVA ahead of its merger with PNC; but at the same time, it also shut down Azlo, it’s small business banking service. That led to a significant number of users migrating to other services, and Novo got a huge windfall out of that, too.

In the last six months, Novo grew four-fold, and Rangel attributed a lot of that to ex-Azloans looking for a new home.

The fact that there are so many SMB banking providers out there might mean competition, but it also means fragmentation, and so if a startup emerges that seems to be catching on, it’s going to catch something else, too: the eye of investors.

“The ability of the Novo team to grow the company rapidly during a year where businesses have faced unprecedented challenges is impressive,” said Andrew McCormack, founding partner at Valar Ventures, the firm co-founded by Peter Thiel, another big figure in fintech. “Novo tripled its small business customer base in the first half of 2021! Their custom infrastructure and banking platform put them in prime position to expand their services at an even faster pace as we come out of the health crisis. All of us at Valar Ventures are excited to join this team.”

Vena, a Canadian company focused on the Corporate Performance Management (CPM) software space, has raised $242 million in Series C funding from Vista Equity Partners.

As part of the financing, Vista Equity is taking a minority stake in the company. The round follows $25 million in financing from CIBC Innovation Banking last September, and brings Vena’s total raised since its 2011 inception to over $363 million.

Vena declined to provide any financial metrics or the valuation at which the new capital was raised, saying only that its “consistent growth and…strong customer retention and satisfaction metrics created real demand” as it considered raising its C round.

The company was originally founded as a B2B provider of planning, budgeting and forecasting software. Over time, it’s evolved into what it describes as a “fully cloud-native, corporate performance management platform” that aims to empower finance, operations and business leaders to “Plan to Grow” their businesses. Its customers hail from a variety of industries, including banking, SaaS, manufacturing, healthcare, insurance and higher education. Among its over 900 customers are the Kansas City Chiefs, Coca-Cola Consolidated, World Vision International and ELF Cosmetics.

Vena CEO Hunter Madeley told TechCrunch the latest raise is “mostly an acceleration story for Vena, rather than charting new paths.”

The company plans to use its new funds to build out and enable its go-to-market efforts as well as invest in its product development roadmap. It’s not really looking to enter new markets, considering it’s seeing what it describes as “tremendous demand” in the markets it currently serves directly and through its partner network.

“While we support customers across the globe, we’ll stay focused on growing our North American, U.K. and European business in the near term,” Madeley said.

Vena says it leverages the “flexibility and familiarity” of an Excel interface within its “secure” Complete Planning platform. That platform, it adds, brings people, processes and systems into a single source solution to help organizations automate and streamline finance-led processes, accelerate complex business processes and “connect the dots between departments and plan with the power of unified data.”            

Early backers JMI Equity and Centana Growth Partners will remain active, partnering with Vista “to help support Vena’s continued momentum,” the company said. As part of the raise, Vista Equity Managing Director Kim Eaton and Marc Teillon, senior managing director and co-head of Vista’s Foundation Fund, will join the company’s board.

“The pandemic has emphasized the need for agile financial planning processes as companies respond to quickly-changing market conditions, and Vena is uniquely positioned to help businesses address the challenges required to scale their processes through this pandemic and beyond,” said Eaton in a written statement. 

Vena currently has more than 450 employees across the U.S., Canada and the U.K., up from 393 last year at this time.

Small and medium businesses and sole-traders account for the vast majority of businesses globally, 99.9% of all enterprises in the UK alone. And while the existence millions of separate companies, with their individual demands, speaks of a fragmented market, together they still represent a lot of opportunity. Today, a UK fintech startup looking to capitalise on that is announcing a round of growth funding to enter Europe after onboarding 20,000 customers in its home country.

ANNA, a mobile-first banking, tax accounting and financial service assistant aimed at small and medium businesses and freelancers, has closed a $21 million round of investment from a single investor, the ABHH Group, the sometimes controversial owner of Alfa Bank in Russia, the Amsterdam Trade Bank in the Netherlands, and other businesses.

The investment is a strategic one: ANNA will be using the funding to expand for the first time outside of the UK into Europe, and CEO Edouard Panteleev said that effort will be built on Amsterdam Trade Bank’s rails. He confirmed that the investment values ANNA at $110 million, and the founders keep control of 40% of the company in the deal.

The fundraising started before COVID-19 really picked up speed, but its chilling effect on the economy has also had a direct impact on the very businesses that ANNA targets as customers: some have seen drastic reductions in commercial activity, and some have shuttered their businesses altogether.

Despite this, the situation hasn’t changed measurably for ANNA, Panteleev said.

“Covid-19 hasn’t impacted us so far. We are designed as a digital business, and so working from home was a completely normal shift for us to make,” he said, but added that when it comes to the customers, “Yes, we have seen that our customers’ incoming payments are quite affected, with 15-30% decrease in the volume of customer payments.” The firm belief that ANNA and investors have, however, is that business will bounce back, and ANNA wants to make sure it’s in a strong position when it does.

ANNA is an acronym for “Absolutely No Nonsense Admin” and that explains the gist of what it aims to do: it provides an all-in-one service for smaller enterprises that lets them run a business account to make and receive payments, along with software for invoicing, accounting and managing taxes that is run through a chat interface to assist you and automate some of the functions (like invoice tracking). ANNA also offers additional services, such as connecting you to a live accountant during tax season.

ANNA is part of a wave of fintech startups that have cropped up in the last several years specifically targeting SMEs .

It used to be the case that SMEs and freelancers were drastically underserved in the world of financial services: their business, even collectively, is not as lucrative as accounts from larger enterprises, and therefore there was little innovation or attention paid to how to improve their experience or offerings, and so whatever traditional banks had to offer was what they got.

All that changed with the rise of “fintech” as a salient category: ever-smarter smartphones and app usage are now ubiquitous, broadband is inexpensive and also widespread, cloud and other technology has turbo charged what people can do on their devices, and people are just more digitally savvy. A wave of startups have taken advantage of all that to develop fintech services catering to SMEs, which also has meant competition from the likes of Monzo, Revolut, Tide, and  now even offerings from high street banks like NatWest.

Panteleev believes ANNA’s product stands separate from these. “We offer more of a financial assistant to users, rather than just moving their money, and it’s also a different business case, because we look at what a user needs more holistically,” he said. Pricing is also a little different: businesses with monthly income of less than $500 can use ANNA for free. It then goes up on a sliding scale to a maximum of £19.90 per month, for those with monthly income between £20,000 and £500,000.

Panteleev — who co-founded the company with Andrey Pachay, Boris Dyakonov, Daljit Singh, Nikita Filippov, and Slava Akulov — is a repeat entrepreneur, having founded two other banking startups in Russia with Dyakonov that are still going, Knopka (Russian for button), and Totchka (Russian for dot). These are older and more established: Totchka for example has some 500,000 users, but Panteleev has said that there are no plans to try to bring ANNA into the Russian market, nor take these other companies international.

For ABHH, the attraction of investing in this particular startup was probably two-fold. The businesses have Russian DNA in common, making for potentially a better cultural fit, but also it is yet another example of a legacy, large bank tapping into a smaller and more fleet-of-foot startup to address a market sector that the bigger company might be more challenged to do alone.

“I’m looking forward to embarking on this exciting journey together,” said Alan Vaksman, member of the supervisory board at Amsterdam Trade Bank and future chairman of ANNA, in a statement. “At this moment most SMEs find themselves in a challenging situation, however, once the pandemic comes to an end, there will be a very clear realisation that neither corporates nor family businesses can afford to run most operational processes manually. Tech services and platforms, like ANNA, are in for some dynamic times ahead.”

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 Vault, a platform that contains a range of banking services: checking accounts, savings accounts, loans, credit cards and mortgages. 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.

Food for Thought (Machine)

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).

Money talks

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 scale-up 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.”

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 Katsuyama. Image by Joshua Blackburn 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.

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?

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 you, 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?

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.

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 more than 1,500 major financial firms, almost 40 leading vendors and 15 of the world’s 20 largest banks.

More than 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.”