As a member of the MassChallenge Fintech community, we enjoy having the opportunity throughout the year to come together with fellow investors, innovation leaders, and startup founding teams to share best practices and lessons learned. Despite the challenges brought on by COVID-19 and a now not-so-new normal, we’ve also had an opportunity to witness just how resilient entrepreneurs can truly be and see exciting collaborations unfold in the industry bringing bold, new ideas to life.
We recently sat down with MassChallenge Fintech and ForwardLane to discuss the value of strategic investors, leaning into innovation during times of crisis and how to prepare for the rest of 2020 and beyond.
Recently at MassChallenge, we’ve heard countless questions from startups about fintech funding in light of COVID-19: how are investors thinking about it? How do perspectives differ across various funding types, geographies, and industries? And most importantly, what can founders looking to raise do to succeed?
MassChallenge FinTech sat down with 2019 alum ForwardLane and 2020 partner SEI Ventures, SEI’s corporate venture capital program, to learn more. In January, SEI Ventures announced its strategic investment in ForwardLane. We spoke with both teams about the value of strategic investment and corporate venture capital, the current investment landscape, and the importance of ecosystem building in financial services.
MCFT: First off – checking in. How are you doing in light of COVID-19 and how have you had to adapt as a result of social distancing?
SEI Ventures: We’ve been pretty fortunate in that a lot of what we do on a day-to-day basis has been easily adaptable in this new environment. The biggest change for us is not being able to travel or attend in-person events. However, in a way, this has actually made it easier for us to engage in the broader startup ecosystem. Events, demo days and networking efforts are constantly going on all over the world, and you can develop some FOMO when you have to pick and choose what you can attend. So, rather than attending an event in London one day and racing to another one on the West Coast the following day, the rise of virtual event options has made it possible for us to participate in many programs around the world—from our homes.
When it comes to social distancing, we find it most helpful to stay focused on the positives and control what we can control. It’s certainly hard to replace a human connection when it comes to getting to know a founder, assessing cultural fit with a startup or doing due diligence. But we’re finding value in embracing digital options and making it work! We continue to look for emergent and potentially disruptive investment opportunities that align with our thesis. We are concentrating on cultivating meaningful relationships and purposeful engagement on all fronts—with startups, fellow VCs, key internal stakeholders, accelerators, etc. Despite these challenging circumstances, we believe that now is not the time to pull back. It’s the time to lean into the power of innovation and bold, new ideas. We’re thrilled that we’re still having exciting conversations with startups that are creating meaningful solutions to today’s fintech challenges.
ForwardLane: ForwardLane was early to move to complete remote working arrangements. We have daily virtual standups where we talk about our goals for the day, then an informal end of day 15 minutes to talk about anything that came up during the day. For our client engagement, we are learning best practices from our strategic partners at Salesforce in how to be empathetic, understanding and kind in our outreach. To play our part in the community, for each advisor that participates in our AI evaluation program we make a small donation on their behalf to the RiverFund, a nonprofit that assists families hardest hit by COVID-19 in New York. We’re generating new ways to experience ForwardLane, and continue to find solutions for clients big and small that may be affected by the crisis.
MCFT: As we look to the future, we’ve heard a lot of comparisons made to the Great Recession. While challenging times lie ahead, we believe that innovation is key, and at SEI, you’ve certainly weathered environments like these. Can you share your perspectives about the value of innovation during a time of crisis?
SEI Ventures: Innovation has been part of SEI’s DNA since day one. Our company prides itself on managing our business for the long-term, empowering our workforce, challenging mental models and taking risk. With innovation at our core, we have successfully navigated challenges and changing markets for more than a half-century.
In the remote work environment triggered by COVID-19, we believe it’s even more important to challenge conventional thinking and embrace creative problem solving. It causes us to ask, “How might we?” innovatively solve the challenges of working remotely by applying digital technologies – whether it’s supporting business processes or how the end investor is engaged a personalized way. And because SEI believes that innovation is everyone’s job, it empowers our workforce during times of crisis to rally around opportunities to support our clients.
ForwardLane: The financial services firms that invest in innovation now will be well-positioned as we emerge from the crisis. With AI, first movers win by a long margin that is difficult to assail - across productivity, efficiency and client experience. One example of the application of innovative technologies in this time of crisis is ForwardLane’s partnership with Salesforce, which can augment the capabilities of sales and advisory people in financial services, help them rise above the noise in digital communications, bring efficiencies with automation of insights and guide them with next best actions.
MCFT: Leading up to COVID-19, corporate venture capital funding in fintech was at an all-time high. What do you believe is the value a strategic investor brings and what is their role in helping startups grow?
SEI Ventures: Strategic investors—particularly CVCs—take a different lens when evaluating startups. They look at how a startup can drive innovation and bring value to their firm and the ecosystem of clients they serve. Therefore, the mindset of the strategic investor leans more toward business impact and value, as compared to a pure return-focused metric (and the pressures that can sometimes come with that focus).
At the same time, a CVC can bring the experience, longevity and strength that comes with being a large-scale enterprise. That longevity and experience enables them to navigate times of crisis, weather market cycles and make smart business decisions. This type of experience and wisdom can be incredibly valuable to startups, especially during difficult times. They’ve been in their respective industries for quite some time, and as a result they understand what it takes to sell into large enterprises, build comprehensive marketing programs, drive product development and launch enterprise scalable technology. As a result, a CVC can offer startups helpful mentorship, opportunities to gain exposure or potentially provide introductions.
We believe the role that strategic investors have in helping startups grow moves well beyond providing capital and ‘working a rolodex’ to make connections. It’s about a true partnership that’s collaborative and immersive, and one that brings mutual benefit and growth to each party. Strategic investors want the startup to succeed not just because they invested capital, but because they inherently believe in the value of their solution and how it can potentially transform or bring value to the industry.
ForwardLane: Forward-thinking strategic investors like SEI Ventures are important explorers and validators of our product in the market. They are providing unique input from their experience in the industry across our product marketing and growth strategies, seeding relationships across the ecosystem that align with their interest in learning more about the impact of AI in wealth and asset management. We are developing programs to enable a wider number of people and organizations to learn more about and experience ForwardLane.
A great strategic investor is really a partner, one that you enjoy working with that inspires you and motivates you to do more, think bigger and better. It’s creative and fun, interesting and exciting.
MCFT: As you’ve pointed out, working with strategic investors is a unique partnership. What do you think is the biggest or most common misconception about CVCs/working with CVCs?
SEI Ventures: The main misconception we’ve heard is that CVCs are often slow when it comes to making funding decisions. Our advice? Do a bit of digging, because often times that’s not the case. Determine how many people are involved in funding decisions and due diligence. Ask whether or not investments need to have business line sponsorship or near-term commercialization. Find out if those decisions can be made separately, when appropriate. Do some investigating to learn how a specific CVC operates, how much they align with your goals and the value they can bring. For example, at SEI Ventures, our investment committee consists of four individuals, and our investments do not require line of business sponsorship or a simultaneous commercial contract. This enables us to make timely decisions that best fit our investment thesis and align with our strategic goals.
ForwardLane: A common misconception faced by CVCs is that they may limit the long-term options of a startup. With the right partner, they can provide access to new markets, technological expertise and connections to potential clients, and look at seeding and brokering engagements and deals as value adds to themselves and a way to de risk investments. SEI has been an outstanding partner in this regard.
MCFT: With that in mind, how do you find a CVC (or corporation) to partner with that’s right for your startup? Are there specific criteria or qualities you look for?
ForwardLane: In finding the right investors, we think about strategic fit first and foremost. Are we aligned in our worldviews? How can we complement each other's strategies to expand the pie and generate new growth? Finding a CVC and firm who has use cases that you currently have product/solutions for that might provide distribution opportunities and have mutual clients is a good starting point. The more powerful CVCs will have the capability to apply your technology beyond the initial use cases, and help develop this into foundational commercial engagements that equally deliver functional and economic value to the corporate.
SEI Ventures: Finding the right CVC or corporation to partner with is similar to searching for a co-founder – it’s like a marriage. At an organizational level, you need to have the right cultural fit and alignment of values. While you need partners who will bring unique perspectives and challenge you to be your best, at the end of the day, you also need to make sure you see the world the same way and are on the same wavelength when it comes to goals and expectations. For CVCs specifically, look for ones who focus beyond pure ROI. Look for ones who sees this as a partnership too, who are excited about the learning opportunity and the power of collaboration.
It’s also critical to dive deeper into the organization. Find out who at that organization you will be working with on a regular basis after an investment is made or a partnership agreement is signed. Determine who those people would be sooner rather than later because they will be critical to your journey – whether it’s to help build out your product roadmap, connect you with industry experts or simply be available for any day-to-day question. You need to look for people specifically that you can trust and are genuinely excited to work with. They can become invaluable resources – or even allies – for you within the broader organization and the startup ecosystem.
MCFT: What is the venture capital investor landscape like right now? Do you think investors are adjusting their lens for evaluating opportunities in this climate?
SEI Ventures: While the uncertainty has caused everyone to sit a bit more upright in their chairs, how we are approaching the market is consistent with the general tone of what we are hearing from other corporate venture capital and venture capital firms: we continue to invest in strong founders, strong teams and strong solutions. That being said, we are seeing more of a focus on the financial resiliency of the startup to ensure they can endure longer sales cycles and have well-defined plans for managing burn. We are also seeing VCs and CVCs look at how founders and their core teams are communicating during this current crisis and the decisions they are making, as both give you significant insight into their leadership abilities. Lastly, as in any significant market downturn, we are starting to see a shift from founder-led terms to investor-led terms, as well as a more pragmatic reflection of valuations.
ForwardLane: We have seen a range of activity, with at least 60% of investors slowing down, pausing or “focusing on portfolio companies.” However, there is a record amount of dry powder in 2020, the highest amount ever, so we expect that companies that can firm up their pipelines and offer compelling value propositions that meet the new macro trends will see investment return.
MCFT: Given this landscape, what advice would you share with a startup who was hoping to raise a round in Q3 2020?
SEI Ventures: Here are a few pieces of advice:
- Find that balance between optimism and realism. In order to power through these challenging times, you need to stay positive and believe in yourself, your team and your company. That said, make sure you’re also being realistic when it comes to things like timelines, costs and pipeline expectations.
- Remember you’re human and you’re allowed to have your moments. It’s okay to have “off” moments when you say, “This stinks!” but then you need to shift gears and power through challenges in front of you. As tough as things are right now, you can get through this.
- Capitalize on the opportunities you do have. It may seem like many are slowing down processes, but that’s not true across the board. And things certainly aren’t at a halt. Many investors are still actively hunting for that next opportunity. As we mentioned, investors may be a bit more selective and will be very thorough with due diligence – but they’re ready to deploy capital for companies with exciting and disruptive ideas.
- Stay top of mind (without being annoying!) Be proactive, personal and purposeful with your communication. For presentations, find ways to strategically realign your value proposition to align with the acceleration in digitization, shifts in consumer behavior and more.
- Tap into your strengths. Use the innate qualities and skillsets that make you a strong entrepreneur, such as resilience, mental toughness, grit and determination. Now more than ever is a time to use those (and others) to your advantage.
ForwardLane: Reassess your business strategy in the context of the crisis, does it hold up? What adjustments do you need to make? Are there new opportunities that will emerge that precipitates action. Answer the ‘Why now?' and 'Why Me?’ questions. We are all having to adapt; figuring out this story and articulating it in a clear and concise fashion will help investors see the clear potential for growth and the “silver lining” of this storm cloud.