Fighting for Their Financial Freedom: Millennials Reinventing FinTech

One of the more enlightening sessions at this year’s Money 20/20 payment industry conference (9,000+ attendees) featured new findings from a Foundation Capital survey on Millennials and Financial Services. The survey found that U.S. Millennials as a generalized group (those born between 1984 to 1997) are financially stuck – they have bank accounts, but are swimming in student debt and thus have no money to spend on investments and the extras after food and rent. Not surprisingly, most Millennials do not believe that what savings they have – mandatory Social Security contributions – will actually materialize for them in retirement.
And as indicated by such emerging social constructs as the post-college group house, Millennials are essentially stuck in the bottom tiers of the needs pyramid — not only can’t they save for big purchases, but they are also postponing milestone life events such as getting a place of one’s own, marriage and family.
Ergo you could say that millennials – even more so than the capitalist generation before them (i.e. the wolves of Wall Street) – are obsessed with money. And how it holds them back.
At the same time, Millennials are very facile with their mobile financial apps and rely heavily on them for financial information, services and purchase decisioning. They may have big brand bank accounts, but to them the brick and mortar branch, the ATM, even physical money– are becoming less relevant.
All the above lays the groundwork for continued massive disruption in financial services as Millennials fixate and act on their [lack of] money obsession and the status quo education and financial systems that have literally left them living in their parents’ basements.
And thus driven by the financially disenfranchised (but still optimistic) Millennials, a new FinTech Renaissance is emerging. From alternative methods of lending like SoFi ($1 billion capital raised in Sept. 2015 to help consumers refinance their student loans) to services focused on helping consumers to understand and take control of their credit scores (Credit Karma raised $175 million in June 2015), to bitcoin and other cryptocurrency technology that represent a new payment rail and partial replacement for fiat ($1 billion+ investment in 2015 with blockchain development companies like Chain raising $30 million), Millennials are taking down – or at least making less relevant — the traditional financial power structure one sector at a time.
Over the course of the next year, we’ll take a look at some of the emerging financial services disruptors and trends coming out of Y-Combinator and other incubators and launchpads such as Draper FinTech Connection and Plug and Play’s Fintech Accelerator.

Engaging with startups

There’s a growing recognition that early use of disruptive technologies can require engagement with startups. More large corporations are looking to increase their engagement with fledgling tech firms, and the venture ecosystem is happy to comply by encouraging their involvement.
Incubators, accelerators, and corporate VCs
Incubators and accelerators that may or may not invest in some or all of the startups that may or may not be housed within their facilities have proliferated in recent years. Just this week ex-IDF officers launched a high-tech incubator in Israel. Last month, the U.K. retailer John Lewis launched a modest incubator in the form of a competition. Also last month, DreamIt Ventures launched an angel investor crowd-sourced microfund to augment one of its accelerators. And this week reported on a recent tour linking African-American professionals with various entrepreneur-support programs in countries across Africa. Within the U.S., not only private interests but also state development funds and local authorities have become involved in sponsoring local resources for tech entrepreneurs.
As CB Insights reports, corporate VCs grew in number by 38% from 2010 to 2013, and by 2013 traditional VCs outnumbered corporate VCs making at least one deal by only 169%. Corporate VCs may invest primarily for financial or strategic reasons, or for a combination of both motivations, but the more strategic their interests in the startup technology for their own use, the closer managerial control they are likely to exert over their investments.
An enterprise IT accelerator
I talked this week with Cameron Campbell, who is the head of business development at Work—Bench, a New York City-based accelerator for enterprise IT startups. Work—Bench is backed by RR Donnelley with a $10 million fund that invests in some, but not all the startups housed in the accelerator. For Donnelley, Work—Bench is its more hands-off corporate VC play, in contrast to its other, more directly managed, R&D resources. As the largest printer in North America, Donnelley has diversified and updated its services to become a more complete communications services provider. The company is also leveraging its printing technology to develop functional printing of batteries and sensors for applications from credit card chips to RFID sensors and the Internet of Things.
Work—Bench, however, is intentionally unencumbered with supporting Donnelley’s business operations and is instead cultivated as a means to escape the Innovator’s Dilemma. Work-Bench startups do not have a narrow focus on meeting the needs of Donnelley’s current customers. To place it in the midst of the greatest possible concentration of Fortune 500 firms, the accelerator is based in New York City.
An expansion upon early VC and enterprise experience
Campbell is a veteran of Intel Capital, where he worked directly with the major investment banks in New York. Intel Capital of course is one of the longest-running and most successful corporate VC firms, and the big investment banks have been among the earliest and most committed enterprises working aggressively with early tech startups.
With that experience, he brings a low-key but proactive approach to bringing enterprise businesses into the startup community. Yes, he organizes events that bring enterprise executives and managers together with startup teams and presentations, so that enterprise can find potential new technology partners. But rather than looking at his contacts primarily as prospects for Work—Bench startups, he tries to work the other way. He asks his enterprise contacts what sorts of technology they are interested in, and then sees if through his venture community contacts he can find and cultivate a potential match for that enterprise.
Recommendations for enterprise involvement with startups
Among the recommendations that Campbell offers to enterprises looking to work with startups are the following:

  • Keep an open mind as to the approaches and solutions that new companies offer. Innovation tends to come from the unexpected by offering up a new twist on a perceived problem, and so preconceived ideas of what a technology should offer can close off the potential benefit to a startup partnership.
  • Understand the limits to startup time and resources. This is especially important when it comes to seeing a startup through the enterprise procurement and compliance processes. Bigger tech firms have the resources and experience to navigate enterprise buying processes, but startups are likely to need as much internal help as possible to negotiate the maze.
  • Be a good citizen within the startup community. Even though most startups will end up not being a match for an enterprise, they all gain from honest and constructive feedback from their interaction with enterprise managers and executives. Participation in the new venture community is a likely entrée to an eventual match, however, and providing active feedback is an easy way to build the relationships that could lead to the finding the right startup.
  • Understand that needlessly bending a startup to the specific needs of an enterprise may not be the wisest course. An early enterprise customer may have enough influence to sway the development of a startup’s product, but that de facto customization may not be the best course for a startup to maximize its potential. A startup that pursues the best product roadmap for its position in the market and thrives long-term is ultimately a better partner than one that gets off its optimal course at the behest of an early customer.
  • Become a valuable partner to worthy startups. In working with a startup that has a worthy product, an enterprise can add tremendous value by becoming a reference account and by introducing the startup to other enterprise prospects. This role can not only be acknowledged in negotiating a deal with a startup, but it can also significantly mitigate the risk of working with a new company by strengthening its viability in the market.

Look beyond local, and beyond customer relationships
Most enterprises will not find the best startup technologies by simply strolling into, say, a local, state-funded, incubator. It generally takes a wider and more informed search, involving network contacts such as colleagues at other enterprises, venture capitalists of some type focused in a target technology area, and/or industry analysts with a similarly matched focus.
But local and nonlocal VCs and incubators or accelerators can provide a good education on the opportunities, pitfalls, and methods of working with startups. The community can lead to a broader network and more valuable contacts.
For some enterprises, it will be worthwhile to engage more deeply with startups than by the informal partnerships of early customer relationships. In that case, some sort of accelerator, incubator, and/or corporate VC role will also make sense.
In all circumstances, enterprises have a broad range of relevant resources for tapping new or experimental technologies and for supporting startup partners. Intelligent reciprocity is the key to finding and leveraging the innovation available in the venture community.

Media distribution getting its due

For all the innovation around content creation, comparatively little investment or innovation has gone into new tools for how content is distributed and monetized online. But that may be starting to change.

NYC shapes up with new health tech incubator

Backed by the New York Economic Development Corporation, the Bio & Health Tech Entrepreneurship Lab will next month announce its first class of startups. Although it doesn’t provide funding or space, it is the latest program to provide health tech funders with mentorship and coaching.

GameFounders pushes deadline back after ‘big uptake’

Game-focused startup accelerator GameFounders has decided to knock back its deadline for applications by three days, in what the founders say is an attempt to accommodate a surge in submissions. Applicants will now have until Friday to apply for the Estonian-based program.

TechStars NYC 2012: 7 startups to watch

Thirteen would-be darlings of New York’s tech scene are hitting the stage today at startup incubator TechStars NYC’s third Demo Day to present its latest class of graduates.