On the road: Toronto

Last week, I spent three days in Toronto, speaking at one of tech’s biggest conferences and spending some wonderful time with our portfolio companies. Here's a look into the memorable time I spent north of the border.

The post-SVB ecosystem

On Thursday, I spoke on a panel on Collision’s Centre Stage with FPV’s Wesley Chan and senior CBC tech journalist Nisha Patel.

We discussed the SVB fallout, the role of the regulators, who is stepping in to fill the void and what can be done to ensure a similar banking collapse won’t happen in the future.

As I wrote in yesterday’s monthly QED newsletter, SVB clearly conflated stickiness and friction with customer loyalty and consequently underestimated the unprecedented speed at which money would move away – the so-called deposit beta.

So who will fill the gap?

In our portfolio, we see companies reinventing these services with extreme customer focus. For example, Meow is a treasury-management and corporate banking company that has partnered with Treasury Prime to stitch together up to $125 million in insured deposits by working with hundreds of banks. Meow and Tribal – a small-business banking fintech in LatAm – are working with Atomic to make it point and click easy to manage cash through Treasury securities.

On the lending side, we see a variety of smaller players stepping into the venture debt market.?We’re also investors in Wayflyer out of Ireland, a lender specializing in supporting e-commerce companies, and CapChase, a lender focused on supporting SaaS companies.?

Building a recession-proof company

Truth will out.

That was the takeaway with which I wanted to leave the Collision audience after my keynote presentation about building successful companies in recessionary environments.

As you’ve no doubt seen, public fintechs have been tarred with the same tech brush over the past two years. It caused many world-class public companies to see their stock price plummet which, unfortunately, can sometimes be interpreted as a reflection of the business performing poorly.

But truth will out. And by that, I mean that good companies with sound unit economics and capable leadership team will prevail as the wheat is separated from the chaff.

QED had five companies go public in 2021. All five saw their price decline by 30 to 80 percent from what they went out at, but all five have since seen a strong rebound from their low. One – Flywire – went out at $24, dropped to less than $18 and is now above $31, for example.

Great companies can and will earn their way back to attractive valuations. That is one repeatable data point I have seen in my 40-year career in financial services that has included building and leading business through the early ‘90s recession, the dot-com recession, the Great Recession and, most recently, the COVID-19 recession.

Venture is inherently volatile as an asset class, on a parallel with PE and private real estate in terms of risk, but with a higher return upside. There’s a reason why around 60 percent of companies that raise a seed or pre-seed round fail before raising their Series A.

When the economy is worse, credit risk becomes higher, the cost of funds increases and funding eventually dries up. When you match that economic landscape with the specific pitfalls fintechs need to avoid – credit, regulation and compliance, treasury, fraud, AML/KYC, you can see why we fervently believe you need specialists like QED on your cap table.

I closed my keynote by sharing the advice I gave our CEOs at our annual CEO Summit last fall. Most, if not all, of it still rings true today. Focus on solving your customers’ problems and don’t lost perspective. Do fewer things and do them really well – now is not the time to embark on science experiments; instead build sequentially and not in parallel.

At this point of the cycle, execution is the differentiator and the survivors will be in pole position. Be resilient, even if you’re exhausted, and focus on your teams who are no doubt stressed as well. This too will pass, and we’re here with you to help every step of the way.

Spending time with our portcos

One of my favourite things to do is to sit down with our portfolio companies and speak with the teams. Most of the investor-investee relationship is at the higher levels – attending board meetings and advising the C-Suite on a variety of topics from product-market fit to culture.

So when I do get a chance to spend time with companies on the road, I enjoy taking part in informal town hall-style meetings that are open to the entire team and where Q&A guides the conversation.

Last week, I was thrilled to visit ClearScore’s Canadian office for the first time.

Having incubated ClearScore in the U.K. as a British spinoff of another widely successful QED portfolio company Credit Karma, the business is near and dear to my heart and in a space that QED knows exceptionally well.

I sit on ClearScore’s board as its Chairman, and its CEO Justin Basini has done a marvelous job of growing the company both at home and abroad following expansion to Australia, South Africa and New Zealand. With more than 18 million customers, it’s fair to say it has been a massive success with plenty of greenfield ahead of it, especially in Canada where there’s a lot of optimism, a big market and few challengers.

I spoke with the team about scaling, AI’s role as a next-gen statistical analysis tool, the opportunity for more international expansion, whether central bank digital currencies will change the fintech space, and dealing with my own imposter syndrome!

It was an incredibly rich discussion. Hats off to ClearScore Canada’s general manager Tassie Milne and the team she has assembled in Toronto. They're building a great business.

Networking effects

In conjunction with the Collision conference, QED and ClearScore co-hosted a networking event and happy hour at Hotel Ocho.

The level of tech talent in Toronto is incredible. I was delighted to meet so many new entrepreneurs as well as many familiar faces of friends in the city for the conference, including QED portco Coru CEO Igor Senra, BTV’s Sheel Mohnot, Cambrian Ventures’ Rex Salisbury and ex Capital One consulting Brent Reynolds. In fact, a show of hands indicated more than 25 Capital One alums with us at the meetup.

Outside of the meetup, I was also delighted to spend time one-on-one with QED portfolio company Shakepay CEO Jean Amiouny and XpertSea CEO Katie Solasky, as well as Web Summit founder and CEO Paddy Cosgrave.

?

?

?