Thomvest is a VC firm that is heavy into Fintech with investments in firms like SoFi and Figure or Kabbage and Creditjusto. Several investments (IE Kabbage and SoFi) have been successfully exited, while others remain portfolio companies. Overall, Thomvest touts 9 investments in unicorns and 65 investments in total.
Founded in 1996 by Peter J. Thomson, who is a Director of Thomson Reuters Corporation, the company is “committed to helping entrepreneurs build industry-leading companies in large and growing markets.”
Recently, Crowdfund Insider connected with Nima Wedlake, a Principal at Thomvest, who is targeting the real estate and Fintech verticals. Last year, Wedlake was recognized as one of 25 Rising Stars of Fintech VC by Business Insider – a nice recognition.
As the world knows, Fintech is hot as financial services experience a multi-decade digital transformation. Brick and mortar operations are on the decline and Fintech everywhere is on the rise.
CI sat with Wedlake to discuss Thomvest as well as his perspective on the future of financial services. Our conversation is below.
Thomvest has been pretty active in the Fintech sector with portfolio investments in a good number of Fintech unicorns including some recent exits. How did your investments perform?
Nima Wedlake: As a firm, we’ve been investing in the financial technology vertical since 2011 (LendingClub was our Fintech first investment). During that time, we were in the aftermath of the Great Recession and banks were reticent to begin lending actively.
Simultaneously, smartphone adoption was on the rise and Facebook was emerging as a powerful advertising platform. These factors created an opening for new entrants to both fill a gap created by banks and acquire users at scale online. Over the last decade, we’ve seen a massive wave of attention and capital into Fintech across every segment of consumer and commercial banking.
We’ve been fortunate to partner with some incredible companies, including Kabbage (an SMB lender acquired by American Express in 2020), Tala (a microlender active in developing countries), Blend (a SaaS platform helping banks provide better consumer lending experiences), and many more.
Today, consumers and businesses have come to expect elegant, effortless digital experiences to manage their financial lives, and it’s startups — not banks — that have risen to meet those needs.
What is your thesis on Fintech in general? Is digital transformation in the financial services industry hot for the next few years? Decades? Longer?
Nima Wedlake: The thesis that informed our Fintech investing over the last decade is: “increasingly complex financial transactions are moving online, and eventually every financial transaction will be conducted online.” COVID-19 certainly accelerated the digitization of finance, and over the next decade we expect this thesis to continue playing out as venture-backed startups mature into public companies and banks evolve further into technology companies. In particular, we are excited about two historically complex categories of finance:
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- Wealth-building tools for everyone: According to Gallup , just over half of Americans own stock. Apps like Robinhood and Public.com have democratized access to investing, putting a brokerage in the hands of anyone with a phone. In doing so these companies are bringing a massive new segment of the population into the investing ecosystem. I expect more new tools to help Americans build long-term wealth, receive tailored financial advice, and invest responsibly across a number of asset classes.
- A truly digital home buying experience: Demographic tailwinds are driving demand for housing as well as demand for how the home buying process is done. According to the National Association of Realtors, 90% of home buyers search online during their home buying process. Buyers also expect all aspects of the home buying process to occur through digital channels, including securing a mortgage and closing a transaction. I expect to see the rise of “one stop shops” for home buying — connecting the search experience, brokerage, lending, title and closing into an elegant digital experience. For buyers, this will make moving easier and less costly. Companies like Opendoor are poised to do this, as well as Blend, Orchard and Homelight.
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You participated in Neo Financials Series A round in December. Why?
Nima Wedlake: The Neo founding team is incredibly strong, having previously founded SkipTheDishes which was acquired by JustEast in 2016 for more than $100M. We believe that Neo has an opportunity to become the preeminent banking partner for Canadian consumers, in the same way challenger banks like Chime and Current have reached impressive scale in the U.S.
Neo is reimagining banking by building the technology from the ground up for the Canadian ecosystem. Canadian Big 5 Banks are the primary players in Canada. That said, they are slow to innovate, driven by years of legacy technology and siloed products. There’s a gap in the Canadian market today that no one has been able to fill, largely due to the legacy of Canada’s banking technology infrastructure and the regulatory hurdles to overcome. Canadians still have the expectation for their banking experiences to behave like the technology companies they’re used to interacting with – whether it be Airbnb, Netflix, Uber, or SkipTheDishes. These expectations are not being fulfilled, and Neo is stepping in to solve that.
I see you have invested in PeerStreet, a real estate investment platform. How is this Fintech performing?
Nima Wedlake: PeerStreet is a great example of a company that fits into our thesis of “increasingly complex transactions moving online” — they’ve built a marketplace around real estate debt (specifically fix-and-flip loans) that was historically bespoke and highly localized. To do that, PeerStreet connects local lenders with retail and institutional investors on a single platform.
To date, the company has helped finance over 10,000 properties totaling more than $4 billion in loan originations. While COVID-19 was challenging for the entire commercial real estate lending market, activity has picked up meaningfully in 2021 and should continue to accelerate as COVID-related restrictions on housing are lifted.
Creditjusto is another portfolio company. Tell me about this firm. Are you looking at other LatAm Fintechs?
Nima Wedlake: Small businesses in Mexico are a historically underserved part of the country’s economy. Even though SMEs represent 80% of the country’s economy, they account for only 9% of total bank loans.
Mexico is controlled by an oligopoly of five banks who historically have not lent to the SME segment of the market – until recently, there wasn’t much data on SMEs which yielded in high underwriting costs for banks and non-bank lenders. As such, Mexico’s big 5 banks have 65% of their aggregate lending portfolios concentrated in only 300 large clients. Credijusto saw an opportunity to build a lending business by making sense of this data before anyone else. Core to Credijusto’s strategy is its proprietary scoring technology – the company has amassed a database of almost 1mm SMEs, giving them insight into supply chains and payment history on invoices. Credijusto combines these insights with these newly mandated electronic invoices pulled directly from the Mexican IRS and bank statements to create a holistic picture of the business. As a result of the technology that they’ve built, Credijusto can provide these larger SMEs with online and offline applications and funding that can come within 4 days – very different from the largely offline, manual processes that traditional Mexican lenders run that take several months.
We believe Credijusto has the possibility to become a potential hub for SME financial services with a product suite that encompasses credit scoring, checking accounts, accounting software, credit cards, invoice factoring, and more.
We are extremely excited about the LatAm Fintech market — there are many amazing entrepreneurs across the region innovating within financial services, and consumers in those markets are increasingly open to adopting Fintech products.
You are bullish on Insurtech. Why?
Nima Wedlake: Yes, we are big fans of insurance technology. In the same way that consumers are increasingly open to digital-first banking experiences, we are seeing an openness to online insurance models, such as Lemonade, Metromile, and Root Insurance. There are a few tailwinds we’re seeing in insurance benefiting startups over incumbents:
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- Digitization of insurance distribution: Buying insurance has historically been a painful task that requires hours with an advisor, paper forms, and weeks of waiting. COVID-19 pushed insurance carriers to digitize workflows so that human interaction was reduced or eliminated. Tech-enabled insurance startups like Lemonade, Hippo, Metromile, Root, and Kin have emerged to insurance via a digitally-native and user-friendly products experiences. These companies have a lighter cost structure that scales well, and have seen a surge in demand due to COVID (analogous to the rise of e-commerce spending).
- Self-service over agent-assisted: Increasingly, consumers prefer online buying tools vs. working with agents to secure an insurance policy. This presents an inherent channel conflict for legacy carriers who have a large network of agents through which they distribute policies.
- A la carte over bundled: Insurance is more frequently being distributed at the point of sale, i.e. when a renter is signing a lease for a new apartment (Jetty, Lemonade, Rhino). These embedded models carry compelling economics on multiple levels: they offer lower acquisition costs as a result of having a captured, high intent audience; reduced price sensitivity due the bundling of an insurance add-on with a larger principle purchase and the difficulty in finding and comparing other insurance offers at that moment; and access to new markets in the form of customers who might not consider buying insurance otherwise.
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Lemonade completed a successful IPO and now has a valuation of over $7 billion. Is this justified?
Nima Wedlake: I published a deep-dive on Lemonade’s S-1 when the company filed to go public last year. In that post, I remarked on the company’s rapid growth within a market that has historically been dominated by a few slow-growing incumbents. Since launching in New York in late 2016, the company has grown to capture approximately 7% of the in-state renters’ insurance market and continues to scale quickly both in New York and across the geographies in which it operates. However, I also had questions about the long-term profitability of the business given its low gross margin and high marketing expenses.
As a public company, Lemonade has continued to grow quickly and its operating losses relative to revenue is improving. Critically, the company launched several additional insurance products to complement its core renters insurance offering, including pet insurance and life insurance.
Core to the Lemonade strategy is its ability to successfully launch new insurance products, as discussed in the S-1:
“Our regulatory framework, technology stack, and brand are all extensible to new lines of insurance, and we anticipate that these will contribute to our growth in the future.”
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