A CRITICAL VIEW OF THE STATUS QUO
If viewed critically, the financial services industry can be seen as a parasite sucking money out of society. The basic issue is that financial products are boring and complex. Everyone needs insurance, but no one likes taking the time to analyse an insurance policy, and few have the competency to do so. Worse, most humans are bad at math and financial products are nothing but complicated math formulas. The foreign exchange shops at the airport advertise zero commissions on large billboards, but the spreads between currencies are typically exorbitant. People are just unable to calculate these in their heads, especially when stressed while on the way to catching a flight to somewhere.
The financial services industry has been exploiting its own complexity and peoples’ mental weaknesses by essentially overcharging consumers and corporates alike. Worse, often while delivering mediocre products and poor user experience.
THE ARRIVAL OF THE REBELS
Fortunately, thousands of start-ups have emerged globally over the last decade that aim to improve financial products and services by utilizingmodern technology. These typically aim to increase the transparency, reduce costs, improve the work efficiency, or change the consumer behaviour.
Although there have been significant improvements in certain areas of the financial industry like payments (TransferWise, Revolut, Klarna), banking (Starling Bank, N26), or asset management (Nutmeg, Deposit Solutions, Raisin), there are still many opportunities for disruption.
Identifying frictions is easy, e.g. FX payments are too expensive, but many problems are too challenging to solve due to incumbents being unwilling to support change,or regulations thatprohibit innovation.
For every unicorn fintech company, there are thousands of start-ups that perished on their way.
PARTNERING WITH ENTREPRENEURS
Understanding the nuances and complexity of the global financial system are critical when evaluating business opportunities, where Jackdaw Capital has decided to partner with entrepreneurs via its recently launched fintech venture capital fund.
Jackdaw Capital’s management team has worked in various parts of the financial services industry in Europe, Asia, and the US, as senior executives as well as entrepreneurs. Roles included investing capital at hedge funds and sovereign wealth funds, running brokerage businesses, working at investment banks and digital finance businesses.
This experience provides the management team a thorough understanding of the global financial services industry, as well as its problems, and aunique perspective on whichof these are solvable and offer the opportunity to create a profitable business.
THE JACKDAW FINTECH FUND
Jackdaw Capital has started deploying capital into fintech start-ups in 2021 and is on its way of building a diversified global portfolio of promising companies, mostly at seed and series A stages. There are no restrictions on the type of fintech and many of the initial investments like Qredo, VRM, or EpiKoriginated in the blockchain space.
In addition to providing capital, the focus is to provide founders with operational support and strategic advice, when needed. Entrepreneurs should be focused on executing their ideas, but are often challenged by the complexity of building a business, where the experience of Jackdaw Capital’s management team comes into play.
THE INVESTMENT OPPORTUNITY
Jackdaw Capital’s management team strongly believes that financial services and products should be better than what is currently being offered to consumers and corporates. Managing a bank account, investing capital, making transfers, getting a mortgage or loan, and similar financial services, can be dramatically simplified while also becoming cheaper with the right technology.
However, investing in private companies also offers a much higher potential for returns than when allocating capital to public markets. Global stock and bond markets have become highly efficient, and investors are well-served with low-costs ETFs to get exposure to these markets.
In contrast, there are large information asymmetries available in private markets. The successful entrepreneur usually owns on secret, which he has gained through years in an industry or learned by chance. Providing capital to such a founder, so that he can exploit his secret and build his empire, represents a unique investment opportunity that can results in receiving multiple times the capital that was invested. Such opportunities are rare in public markets, which makes venture capital an attractive asset class.
Naturally investing in start-ups comes at a high risk as most start-ups fail. Key to creating a successful venture capital fund is the investing and industry experience, where Jackdaw Capital’s management team is fortunately blessed with both.
A GLIMSPE INTO THE FUTURE
Jackdaw Capital’s view is that financial services will becomes less complex and cheaper in the coming decades. Products and services will be more transparent and easier to access, more like utilities. Trust and security are essential to accomplish this future, where especially the blockchain technology has a large potential role.
Ultimately, financial services will become slightly more boring, but that will be a good thing for consumers and corporates alike.