Weekly Briefing No. 106 | Paradise Lost is Crypto’s Gain

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We invite you to peruse our choices for the week that will take you around the world and to the Garden of Eden.

*Note: We’re bookending Thanksgiving with special editions on November 18th and November 25th. We’ll be back with a standard FR on December 2nd.

  • The Paradise Papers and cryptoassets
  • Praise for a bank CEO who “dared” to learn Python basics
  • The path to VC greatness: Data or daughters?
  • Crux Informatics; OCC’s Keith Noreika; A $240-million gaffe
  • Commandiv’s Tom Goldenberg’s new opinion piece
  • Comings & Goings: Bill Donnelly headlines a troika of new LendUp hires

Is the paradise of institutional trust lost?

“Long is the way and hard, that out of Hell leads up to light.” That’s from John Milton’s Paradise Lost. Sadly for many of the world’s elite, their fortunes have turned hellish as details of their offshore fortunes have emerged through the leaking of the Paradise Papers. The huge size of the leak to an organization of journalists given access to the files meant that it couldn’t have been quickly synthesized without help. That assistance came from Swedish start-up Neo4j, whose specialty is turning datasets into visualizations that make sense. In this case, the graphs painted an embarrassing picture, not necessarily because laws were broken in every instance, but because the elite don’t want to be seen as playing by different rules — which brings us to cryptoassets. Technology, of course, can be used for both good and bad. Just as Bitcoin is used by bad actors, it’s also used by people living in nations that repress their citizenry with the butt of a rifle. Is it Bitcoin’s fault if bad guys use it? As far as we know, the assets hidden by everyone from Queen Elizabeth to Shakira were sequestered in fiat currencies. The docs don’t lie, but should we blame the dollar? Is Neo4j to be blamed for its role? Before you answer yes, consider the start-up’s client list, which is a bible of iconic companies. So while we respect many of the opinions of those who think Bitcoin is in its Semper Augustus phase (Bitcoin is up over 600% this year despite this week’s thrashing), we hope that Secretary Mnuchin doesn’t side with the ‘Bitcoin is for bad guys’ crowd. Because as Milton also said, truth comes into the world like a bastard. And the truth is that cryptoassets, which have their faults, have entered the world partially as an expression of institutional mistrust felt by many honest people. Can you really blame them?

The back office is the front office.

To paraphrase Andrew Carnegie, don’t listen to banks that tell you they are technology companies. Watch who they promote to C-level jobs. Mind you, we’re not saying that banks should aspire to become technology companies. But if most of a firm’s senior management comes from banking, trading or consulting, tech-first claims are a stretch. With that dissonance in mind, we’re taking note of revelations that SocGen chief Frédéric Oudéa has spent time learning Python. Some bankers we talked to scoffed at Oudéa’s “PR stunt,” but they’re missing the point. Oudéa’s move evokes a recent conversation we had with a polished ex-Wall Streeter who jumped to fintech. “In most banks,” he said, “the tech people are still the ‘back office.’ But in my seat, the power dynamics are switched. The developers look at me and ask, ‘What have you done for me lately?’” That’s the mindset Oudéa is channeling. Is his Python education symbolic? Of course, but symbols matter to professionals with options at incumbent firms. And when in-house developers see their CEO demonstrating humility and respect for them, it conveys the message that they are no longer viewed as the back office by the front office (which is the new back office).

Is the future path to VC greatness paved with data or daughters?

It’s tough to argue with the pervasive King Quant sentiment in the air. And while we prefer more old fashioned attitudes when it comes to backing start-ups, we liked Union Square Ventures’ Andy Weissman’s cautious support for CircleUp Growth’s machine learning approach in its new fund (See Quantitative Investing in Shampoo). Still, we can’t rid the Peter Lynch voice from our head and would point to another recent story that supports the invest-in-what-you-know mantra. The proof is Music.ly’s acquisition by Beijing Bytedance Technology for the minimally acceptable amount of $1 billion. The lip-syncing app that has a core base of teen and pre-teen girls wasn’t well known by the US investment community for some time after its 2014 launch. But all you needed to know about its potential could have been discovered by watching how its Musers engaged with the app. So while we respect the idea of tech-fueled, data-rich sourcing strategies, investors wouldn’t have needed Big Data to spot this company early on. All they would have needed was a daughter and time to spend with her. And as to the question posed in the title about data or daughters, perhaps the answer is both.

Dive into our fintech pool.

On December 13th, Dr. Daniel Nadler of Kensho Technologies, Margaret Hartigan of Marstone, Lowell Putnam of Quovo and other leading fintech executives are joining S&P Global Market Intelligence and The Financial Revolutionist for a deep dive into financial innovation. Want to jump in?

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IN BRIEF

One hot Series A.

This week, Fannie Mae revealed that it’s beta testing an API platform that aspires to “level the playing field” for actors who play in the multi-gazillion-dollar mortgage market. We still can’t shake our financial crisis mindset when it comes to this particular GSE, but maybe it will one day rise again. And speaking of rising, we’re taking note this week of Crux Informatics, which closed a Series A led by Goldman Sachs Principal Strategic Investments. Crux, which appears to be playing in the data prep and cleansing space, announced a $10-million close on strong interest. If its website is any indication, Crux looks to be in a strong position to delight its clients.

The prime lending rate of Amazon Prime.

Whether you relish or detest the prospect of tech giants owning banks, we suggest you read a speech by acting OCC head Keith Noreika at the recent Clearing House Annual Conference, in which he argued against the separation of banking and commerce: “The narrative persists to keep commercial interests from owning or having controlling interests in banks, in part because many view [banks] as ‘public interests’ rather than as the private businesses they are.” Although Noreika used historical references including “the Rockefellers wanting to stick it to the Morgans” and household names such as Walmart and Target in support of his argument, he never mentioned any of the tech giants by name. That said, it sounds to us like Amazon orange was pervading the room.

A fat-fingered mistake for a digital wallet.

Imagine if a group of investors lost $240 million due to a fat-finger mistake at a major stock exchange, and market participants were told that the only way to get their money back was for everyone to unwind the entire trading day. Couldn’t happen, right? Now imagine you were one of the investors using a wallet offered by Parity Technologies. You might be pretty upset to learn that an ‘accidental’ activation of a bug in the Parity wallet may have locked up $150 million worth of Ether for good. Why can’t the Ether be returned easily? Martin Holst Swende, who runs security for the Ethereum Foundation, explains it this way: “Any solution which makes the locked funds accessible requires a hard fork." And hard forks are hard.

Acorns’ momentum grows, but there’s room for others, too.

The momentum continues for Acorns as it welcomes the addition of Portland-based retirement specialist Vault to create Acorns Later (clever name). Without knowing the price paid, we think that this deal looks like a smart extension of the Acorns tree. But Acorns’ low-cost investment model isn’t the only one that makes sense. A younger seedling with a twist is Commandiv, which offers customized trade recommendations via a subscription. We’ve been following this company since it was part of the Queen City Fintech program and are happy to offer a new opinion piece scribed by Commandiv’s CTO and co-founder Tom Goldenberg.

COMINGS AND GOINGS

LendUp loads up.

This week, financial wellness start-up LendUp went public with a big hire when it announced that Bill Donnelly has joined as the company’s first CFO. Previously, Donnelly served as Tesla’s head of financial services and president of Tesla Finance LLC, which put him in charge of several groundbreaking financing initiatives deployed by the auto and energy company. Also joining LendUp are Anu Shultes, formerly with Swych, who will serve as general manager of the company’s loan business, and Dr. Leonard Roseman, who previously served as head of group decision sciences at Commonwealth Bank of Australia. The new blood at LendUp, which received a strategic investment from PayPal in June, should help to support the company’s efforts to expand its home-grown credit offerings alongside educational content.

QUOTE OF THE WEEK

“Karma's not a liar. She keeps receipts.”

~ Katy Perry (Swish Swish)