Vindicia in the News

Catastrophe breeds innovation — at least in terms of new business concepts.

But capital brings those concepts to life.

And in a roundtable with Karen Webster, five panelists from innovative companies — and one investor who gave insight into what he looks for when funding such firms — said digital-first should be the guiding light in backing nascent business ventures.

The panel included Flywire CEO Mike Massaro, Ternio CEO Daniel Gouldman, OMNi CEO Nayid Aguilar, Vindicia CEO Sharath Dorbala, i2c President Jim McCarthy and TCV General Partner Nari Ansari.

There are echoes now in the midst of the pandemic to earlier, Black Swan events, such as the financial crisis seen earlier in the millennium and 9/11, namely a rush to form new companies that are equipped to deal with and serve changes in consumer tastes and habits. To get a sense of scale, headed into the fall of 2020, there were more than 3.2 million applications for employee identification numbers, year to date, versus 2.7 million at the same point in 2019, according to Census Bureau stats.

That’s the highest level since 2004.

And venture capital funding is up in the third quarter versus a year ago, although first round and seed funding activity has lagged, and investors seem to be interested in keeping their powder dry for relatively well-established companies.

It stands to reason then that displaced workers are using funds to start their own micro-firms, and innovators see opportunity to monetize the great digital shift. That begs the question: With a hypothetical $25 million in hand, where would these innovators park the funds?

At a high level, said i2c’s McCarthy, there’s a pattern seen in Black Swan events.

“When you look at them historically, they are an accelerant to behaviors that are kind of moving slowly from a secular sense — and payments has historically been a fairly slow mover.”

Changing consumer behavior or getting merchants to invest and create a network effect is hardly a lightning-fast process, he said.

But this time is different for a key reason: Capital is not scarce. This time, said Ansari said, talent is scarce, especially when finding workers for a new venture marked by a decentralized, work-from-home environment.

“Typically, dislocations reduce the time to establish product market fit, so you don't necessarily have the luxury of experimentation,” Ansari said.

And yet, if you aren’t digital- or mobile-first, you’d better be, said McCarthy.

And payments need to be intuitive and tied to the devices we encounter in everyday life.

In a world where embedded finance seems buzzword but has been around for a while, payments increasingly remains at the core of everything we as consumers do nowadays, and the expectation is that commerce be frictionless, no matter the setting (although PYMNTS research has shown that only 15 percent of people who bought holiday presents on Black Friday did so in a physical store).

Everything, then, is moving online, and as Massaro noted, the digital shifts are increasingly showing up in new direct-to-consumer (D2C) models, in developing nations where mobile infrastructure has spurred online shopping, and where, rather quickly, cryptocurrencies have been on the radar (Ternio’s Gouldman likened cryptos to “digital cash” that crosses geographical boundaries).

But drilling down a bit, there are certain verticals that are more than ripe for digital-first ways of doing things, especially transactions. Healthcare and education were also cited by several panelists.

TCV’s Ansari said that paper-based industries, such as banking, insurance and real estate (particularly in mortgages), are shifting. Healthcare, especially, needs to get better, faster and cheaper, he said.

“These are typically analog, historically analog, relationship-driven, industries at the local level that are seeing acceleration of pure digital-type disruptors and formats,” he told the panel.

How to spend $25 million

With those seismic changes in place, given the chance to have $25 million in hand, and fund a new business in the new year, with the twin engines of digitization and pent-up demand, the sextet pointed to the consumer sector, per Massaro, who stated: “Look at what’s going on in China. There are super apps that govern a lot of commerce, but [here in the states] I feel like I’m stuck in 2003. I’m getting emails … and it’s like every small busines has gone back to the old playbook. [There’s] a lack of proper CRM tooling, or modernized tooling, or there’s a lack of a super app in our region.”

Consumers are not likely, at least immediately, to rush back into in-store commerce (with wariness over touching things on site), and that opens the door to innovators who seek to bring super apps to new markets.

Aguilar, of OMNi, said that super apps underline the importance of the consumer experience, and panelists agreed that consumers want to engage with brands digitally, but through relationships that make sense to them and where they don’t have to dig through emails or text messages to find promo codes.

Of his $25 million capital designed to launch new companies, said Massaro: “I'd focus on super apps and try and come up with something that empower small business and streamlines the engagement for the consumer.”

McCarthy noted that such firms must choose their markets wisely, as regulators are the ones who ultimately have to let companies aggregate all that data and functionality into an app-driven ecosystem.

He contended that there’s value in starting companies akin to “picks and shovel” providers — in other words, that help provide the infrastructure needed to empower mobile devices and the digital pivots. Payments functions have been built around business process, and then the rails reflected the process.

“If you think about the last 20 years, there's not an engineer in Silicon Valley or in any kind of technology hotspot around the world that looks at payments and says, ‘Oh, this is rational,’” he told Webster.

Digital wallets that connect cards, he said, can help consumers make smarter payments decisions based on the optimization of any number of artificial intelligence (AI)-driven paths of transaction routing. The payment relationships, whether B2B or B2C, he said, exist as the most fundamental relationships between parties especially for banks — not the accounts or the treasury operations.

“Mobile devices as a payment still has a ways to go,” he said.

Bringing tens of millions of merchants into the digital age and able to accept mobile payments represents a huge market opportunity, he said, especially with softPOS combined with PayFlex capabilities.

Vindicia’s Dorbala pointed to the education space and gaming industries as ripe for disruption and ready for platforms that can serve as a way to “democratize” those sectors (and keep students from incurring huge debts for in-person learning).

“We've observed over the course of the pandemic that moving education online is a challenge for all grades, especially for younger kids,” he said.

Massaro concurred that although four-year colleges are not disappearing, the incumbents will change and become more tech savvy, much in the way that big banks have been disrupted by challenger banks.

Panelists agreed that no matter the sector, focus remains key, as does being flexible enough to engage with the changing needs of (sometimes fickle) consumers.

As Aguilar summed up on advice for would-be captains of industry: “Be resilient and go digital.”