Nov 28, 2022

Balancing Bold Disruption and Collaboration with Incumbents, Anthemis’s Elizabeth Davis Puts Women First

Financial service companies represent about 20 percent of GDP, but the risk-laden, heavily-regulated space has only just begun attracting venture dollars in a big way. Elizabeth Davis, who invests in pre-seed fintech companies founded by women, sees the relatively recent emergence of this startup space as an exciting opportunity to build equity in from the start. In her role on the Female Innovators Lab fund, created by Barclays and Anthemis in 2019, she works to identify early-stage talent and support development through resources and mentorship. Here’s some of the thinking informing that work. 

What excites you the most about investing in fintech companies? Why is it a core focus for you?

Embedded Finance is core to our thesis at Anthemis—creating a system that is powerful, intuitive and invisible; the idea that a financial experience is separate from the customer experience we believe will become obsolete. 

Personally, I couldn’t imagine a more exciting sector to invest in. While we believe that investors should prioritize diversity across all funds and vehicles, we also recognize the need for more focused efforts to support underrepresented groups and help build the companies we want to see in the world. Financial services is one of the most regulated industries in the world, and for good reason, it touches every single person in some way shape or form. This intersection of regulation, technology, incumbent processes, and challengers requires specific domain expertise that sector-focused funds like Anthemis have acquired over the past 10+ years. I sit on a fund, the Female Innovators Lab by Barclays and Anthemis, that was launched in 2019, dedicated to identifying diverse female entrepreneurial talent at the earliest stages of their journey and matching them with the resources and mentorship required to build businesses that can be backed by venture capital. 

What do you especially look for in early-stage fintech founders and startups? What kinds of characteristics are particularly required for building category-defining companies in this industry?

Our belief in an ecosystems approach informs our thesis and business structure, a virtuous circle: invest, build, explore.There are multiple end markets within financial services that are measured by the hundreds of billions and trillions of dollars, which is unique from almost any other sector. Given the size of these markets, we are focused on identifying that founder-market fit. There is no one-size-fits all when it comes to identifying successful founders, in terms of age, education, or work experience. We look for founders who have deep subject matter expertise in the industry, are resilient, and are able to sell the vision to employees, investors, and customers.

How important is it to you to have financial services experience before you start a company in the space? 

I don’t think it is a prerequisite to have direct financial services experience before starting a company in the space. Oftentimes the best founders are those that are in adjacent fields, where they are knowledgeable enough about specific pain points, but not encumbered by the legacy way in which things are done. That being said, we would want to see specific experience in what you are bringing to the company and how you are building out the balance of your senior management team with complementary skillsets required to execute on the stated vision. For example, if you are starting a personal financial management company and don’t come from a financial services background, we would want to see how your unique background will allow you to solve the problem you see in the industry and how your team will be able to provide SME from the financial services side.

How have you helped fintech founders in your portfolio find product market fit? What are some common mistakes here? 

As part of The Female Innovators Lab in partnership with Barclays we look to lean in with our portfolio companies on everything from operations, hiring, product, to marketing; all of which will be focused on helping founders build their business. An advantage of being a sector focused fund is the fact that many of our LPs are from the financial service industry, whether that’s large global banks or insurance companies; they are oftentimes some of our first calls in helping founders gain early adoption and learn the ropes of navigating these large and complex organizations. With 10+ years of helping over 120 portfolio companies, we have helped founders navigate product market fit in complimentary end markets, resulting in direct relationships with key decision makers at potential clients. 

In terms of common mistakes, it is important to know your sales cycle as a founder. If you are a B2B company selling into large banks or insurance companies, their procurement and due diligence process can and often does take months, with frequent requests for free “beta periods” by business group sponsors. It is important, when possible, to have a mix of concurrent pipeline prospects that may have different close periods to ensure you don’t spend all of your time and energy on landing that anchor client in the event that they can’t close for reasons beyond your control. In the B2C space it’s not having a true understanding of CAC versus LTV. Founders will get excited over some initial customer traction and falsely equate a cost of download to a customer that they retain into their fully projected LTV. There are some idiosyncratic behaviors amongst early adopters so it’s important to not over index one way or the other.

What fintech trends or predictions are you watching most closely right now?

Financial service companies represent ~20 percent GDP but as recently as four to five years ago were receiving less than five percent of venture funding. There are some really exciting trends that I have been watching in the fintech sector, especially around alternative assets, B2B infrastructure, and payments.

In 2020 we saw the continued growth of the Alternative Asset marketplace with one of our portfolio companies Rally Road, who had 120+ IPOs last year across collectible cars, memorabilia, etc… and recently raised a $30 million Series B. We had another portfolio company, Pipe, create a new asset class itself by unbundling for recurring revenue from SaaS businesses and creating a two-sided marketplace for investors to bid for those revenue contracts upfront.

In terms of B2B companies, infrastructure takes a long time to build and commercialize, and so it has been exciting to see the ways that new companies, such as our portfolio company Nivelo, are coming in to disrupt trillion-dollar-plus industries such as ACH payments. 

Last but not least, payments is one of the largest businesses globally with over $1.0 trillion in global revenue per year. With companies like Stripe recently raising another round at just under $100 billion, Marqeta filing an S1 to go public at a $10-$15 billion valuation, and incumbents like Square, FIS, Fiserv, and Global Payments all with $50-$100 billion market caps in public markets, I am excited to see what the next wave of payments companies look like focusing on markets such as B2B payments and cross-border.

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