Originally posted on FinLedger
By Ellen Chang
Fintech will shift from products to audiences, and mortgage, core banking and insurance will expedite digitization.
As a managing partner at Flourish Ventures, a $500 million global venture fund that was launched in 2019 by eBay founder Pierre Omidyar, Emmalyn Shaw is an experienced tech investor.
Flourish Ventures plans to invest in companies that leverage technology to advance financial health and economic resilience. As a co-manager, she leads the U.S. investment efforts. Her portfolio companies include Brigit, Chime, Clerkie, Cushion.ai, EarnUp, Kin, Propel, SeedFi and Steady.
Shaw has 20 years of technology investing experience and previously was a partner at Omidyar Network where she co-managed the financial inclusion team. Prior to that she was a venture partner at Oak Investment Partners where she invested $150 million of capital in companies such as Bleacher Report, Huffington Post, Thrillist and Demand Media. Shaw also led software and internet investments, including Tellme Networks, Neoteris, and MySpace at VantagePoint Partners and the Barksdale Group.
FL: Tell us about your background and how it led to you founding a VC.
Shaw: I’ve been working in tech for the past 25 years. I kicked off my career in fintech while still in college at Berkeley working full-time as a product manager for a portfolio analytics company founded by CAL Math Phds. After undergrad, I joined the tech investment banking team at Morgan Stanley in the 90s.
One of the deals I worked on at Morgan was the Netscape/AOL merger. I had the chance to work with Jim Barksdale and Peter Currie, the former CEO and CFO of Netscape. Following the merger, they launched a $200 million early stage venture fund and my first day in venture started on Jan. 1, 2000.
For my first 16 years in venture, I worked with early and growth stage funds and learned from some of the best investors. I had the good fortune to back exceptional and innovative founders and realize exciting returns.
In 2016, I sought to find a platform that allowed me to combine my passion for innovative technology and entrepreneurship with the desire to create social impact. It was my desire to back companies that were truly mission-driven, highly innovative and positioned to drive impressive commercial returns that led me to be a co-founder of Flourish.
“Embedded finance will continue to surge in 2021. We will see a hyper bundling of financial services within specialized verticals such as Square or Shopify. Fintech will shift from products to audiences.
FL: What does your VC fund focus on and why? Why should investors be interested in fintechs?
Shaw: Flourish Ventures invests in early stage fintech companies whose technology advance financial health and economic resilience – 90% of our capital is targeted towards investing in global fintech companies that are positioned to yield venture returns and whose technology, either directly through direct-to-consumer or indirectly via infrastructure, improve financial health.
We invest in the U.S., Africa, India, Latin American and other parts of southeast Asia. In the U.S., we focus on investments that target the 70% of Americans who struggle with financial health and the 40% of Americans who would have difficulty covering a $400 emergency expense.
Right now 10% of our capital is dedicated to funding via grant dollars to thought leaders in research, policy and regulation such as Financial Health Network, former US regulator Jo Ann Barefoot’s Alliance for Innovative Regulation and FinRegLab.
Our global portfolio includes nine challenger banks, starting with our early investment in Chime, as well as debt management solutions, insurtech, personal finance, innovative lending companies across both consumer and small and medium enterprise, regtech and embedded finance platforms like Grab Financial as well as enabling infrastructure.
Even though underserved consumers spend more than $185 billion per year on financial services, there still remains an abundance of unaddressed pain points. Flourish backs innovative financial technology focused on advancing financial health for the low to medium income populations.
FL: What lies ahead for fintechs in 2021? What can investors expect to see? How will this benefit businesses and their customers?
Shaw: The growth of neobanks like Chime will force traditional banks to adopt new approaches in order to remain competitive:
a. eliminate overdraft fees (Americans have paid up to $34 billion in overdraft fees to banks)
b. embrace alternative data for underwriting including payroll, transaction data and others
c. eliminate minimum balance and other costly transaction fees
d. prioritize financial health of their customers and launch budgeting, savings and credit building solutions to improve retention and LTV
Embedded finance will continue to surge in 2021. We will see a hyper bundling of financial services within specialized verticals such as Square(Cash App, stock trading, crypto, lending) or Shopify (Shop Pay, Shopify Capital). Fintech will shift from products to audiences.
Leading tech companies will continue to leverage their unfair advantage — the flywheel of distribution, trust, software and data — to launch massively successful fintech businesses in their verticals. Consumers will benefit from such innovations through greater transparency and better pricing due to improved underwriting through meaningful alternative data access such as cashflow and on-time payment /transaction history.
Old school financial verticals such as mortgage, core banking and insurance will expedite digitization and move to the cloud. Broader digitization of basic activities such as virtualizing notaries, removing wet signatures, mortgage origination and digital workflow will replace manual processes, especially in sectors such as insurance.
FL: How do you decide which entrepreneurs to fund? What are some qualifications for them?
Shaw: We are focused on backing entrepreneurs whose innovations are helping people across the globe capture economic opportunity and achieve financial health. We value seasoned entrepreneurs who have had experience building financial products and services for the low and moderate income sectors and small medium enterprises. They have a deep understanding of the unique challenges of these populations and a stated desire to improve the lives and business operations of such target markets. We also strongly believe that it’s more important than ever to ensure diversity and inclusivity are represented in our portfolio.
FL: Please discuss the current environment for females working in fintech and what it takes to succeed as a woman in VC as venture funding falls to 2017 levels for female founders.
Shaw: As a woman of color in venture, I believe it’s important to ensure that the people who are making the investments and sitting on boards, as well as starting and leading companies, reflect the world we live in.
While fintech remains underrepresented by females, I’m encouraged by amazing female leadership, with women like Jo Ann Barefoot of Alliance for Innovative Regulation and Barefoot Innovation Group, Ellevest co-founder and CEO Sallie Krawcheck, and Kathryn Petralia, co-founder and CEO of Kabbage.
That representation is an essential part of tackling persistent financial health disparities. As an industry, we have to invest in ensuring equal access to opportunity for people who are traditionally underrepresented or unrepresented and do what we can to support them. That support can look like everything from dedicated mentorship to a cultural acceptance of more flexible work arrangements and funding.
The more women we bring into the fold, to engage more meaningfully in financial services and industry leadership, the better positioned fintech will be for its next phase. It is a phase I hope is one where impact and returns grow together.
FL: What advice would you give female entrepreneurs, especially those of color?
Shaw: My advice is to find a mentor who can provide advice, offer a network, help brainstorm and problem solve. Most importantly, I’d urge female entrepreneurs to become someone else’s mentor when the time is right so that we as women can continue to learn from and lift up one another.