The Fintech 5 is a series of blog posts consisting of questions and answers designed to help you get to know the people in the Fintech Sandbox community.
Frazer Anderson is a Principal at Boston-based, fintech-focused venture firm Vestigo Ventures. Vestigo targets initial investment in seed and series A companies. Frazer has a particular interest in how machine learning and SaaS are transforming financial services.
Frazer Anderson
Question #1: Frazer, what fintech problem has your attention right now?
Problems abound! I’m not focused on any one specifically — looking to find excellent founders who want to automate and build analytics on top of existing workflows. If there is one area I would look though it would be platform plays in private markets.
#2: What trends in fintech are you most excited about?
It’s all about AI-driven automation and infrastructure or the API-ification of financial services.
#3: What are some of the biggest learnings from your career journey in fintech and/or entrepreneurship?
Early-stage investing is 100% about the team. Everything else you do as part of diligence ultimately gets back to information about how perceptive, relentless, networked, etc. the team you’re investing in is.
#4: Which fintech companies are you keeping an eye on right now?
SaaSWorks is automating the customer data file and bringing superpowers to the office of the CFO.
#5: Hot take! What are your thoughts on AI in the fintech industry?
Visibility and accuracy are the biggest things holding back the adoption curve. The stakes in financial services are too high to have hallucinations for a lot of tasks and enterprises are going to require visibility into how decisions are made. That’s why there is still plenty of room to build good old-fashioned infrastructure or lean in to super high-value tech-enabled services.
Bonus Question! If you could have coffee with any entrepreneur, who would it be?
Warren Buffet.
* * *
If you are a fintech entrepreneur with an early-stage company and you could benefit from free access to data, cloud hosting, and a supportive community, please visit our website to learn more!
The Fintech 5 is a series of blog posts consisting of questions and answers designed to help you get to know the people in the Fintech Sandbox community.
Michael Haney heads product strategy for Galileo Financial Technologies. Galileo enables fintechs, banks, and both emerging and established brands to build differentiated financial solutions that deliver exceptional, customer-centric experiences.
Michael has spent his career at the intersection of technology and financial services, frequently driving digital transformation. Last fall, he was on the 2023 Boston Fintech Week stage as a participant in a panel called Laying the Foundation: Digital Infrastructure for Modern Banking.
Michael Haney
Question #1: What fintech problem has your attention right now?
The Federal Reserve Bank analysis revealed that most consumers in the Millennial cohort have a high degree of interest in faster payments for both account-to-account (A2A) and consumer-to-business (C2B) scenarios, at 61% and 71% respectively. Two separate studies by Barlow Research Associates and Citizens Bank show that about 52% of businesses also indicate a high degree of interest in faster payments and expect about 22% of their outbound payments to faster payments. As of the third quarter of 2023, 461 financial institutions participate in The Clearing House’s RTP platform, and 331 participate in the Federal Reserve’s FedNow service. Here at Galileo Financial Technologies, we are meeting this growing demand by enhancing our money movement capabilities to support faster payments. Galileo clients of all types, including financial institutions, digital challengers, and even non-financial brands, can leverage this new capability.
#2: What trends in fintech are you most excited about?
(1) The rise of faster payments and its enablement of pay-by-bank services.
(2) The improvement of conversational banking by incorporating generative AI technologies.
(3) Better fraud prevention and detection through broad industry participation in data consortiums.
(4) Increased bank adoption of purchase finance solutions, such as BNPL.
(5) Bank workload migration to the cloud, including core processing.
#3: What are some of the biggest learnings from your career journey in fintech and/or entrepreneurship?
(1) There is no success in this industry without a deep understanding and appreciation for risk management and regulatory compliance.
(2) Surround yourself with colleagues who are smarter than you, complement your skill set, and are at least as equally passionate about the opportunity.
(3) Rebuilding the same capabilities on a modern technology stack is insufficient to succeed; you must offer something new.
(4) There is no straight path to success, but don’t let that detour you from achieving your goals.
(5) Start with a customer pain point or unexploited niche, then grow new offerings quickly and tangentially.
#4: Which fintech companies are you keeping an eye on right now?
Credit, used responsibly, has the power to enhance our lives greatly. However, traditional credit scoring limits individuals from accessing loans and increasingly impacts the ability to rent homes or gain employment. New credit scoring methods improve inclusivity and help create a more complete picture of existing clients already in the lending system. Emerging players for alternative credit scoring include Nova Credit, Zest AI, Altro and Pagaya.
#5: Hot take! What are your thoughts on AI in the industry?
Artificial Intelligence, or AI, is an umbrella term for several technologies that can work together or independently to increase automation, improve user engagement, or uncover insights. The three forms of AI penetrating the financial services industry the most are Robotic Process Automation (RPA), Machine Learning (ML), and Natural Language Processing (NLP). The application of these technologies is almost limitless, ranging from intelligent digital assistants and alternative credit scoring to personalized marketing offers. Financial institutions will improve productivity, increase efficiency, and shift work to more value-added tasks. These technologies continue to improve over time; for example, neural networks enhance ML, and generative AI enhances NLP. We have only begun to leverage the power of AI, and it will shape our industry for years to come. However, safeguards are required to ensure fairness, maintain resiliency, and improve confidence in the output of these solutions.
Bonus Question!
What’s the best career or life advice you’ve received?
Prioritize your health. Without it, you cannot achieve your professional ambitions, support your family, or enjoy your personal endeavors. Do what it takes to keep your energy levels high, your mood elevated, and your enthusiasm sustained.
***
If you are a fintech entrepreneur with an early-stage company and you could benefit from free access to data, cloud hosting, and a supportive community, please visit our website to learn more!
The Fintech 5 is a series of blog posts consisting of questions and answers designed to help you get to know the people behind Fintech Sandbox and our Data Access Residency better.
Mass Fintech Hub is a public-private partnership comprising a network of fintech leaders, financial experts, academics, public sector leaders and venture capitalists who empower Massachusetts fintech startups to achieve success. It is an initiative under the Fintech Sandbox umbrella. Elizabeth Thomas joined as Program Director in 2022. Before this she worked in economic development with a focus helping fintech and tech companies scale internationally.
Question #1: What is your role with Fintech Sandbox?
Mass Fintech Hub Program Director.
#2: What fintech problem/solution are you focused on or most interested in?
My fintech passion is fintech as a solution for improving consumer financial health. I am thrilled when I learn about a solution tackling common problems such as financial literacy, consumer debt reduction, and credit building from a completely new angle.
In January, I will lead a virtual workshop introducing fintech as a vehicle for improved financial health as part of the Massachusetts Office of Economic Empowerment’s Worth & Wealth Seminars. You can learn more about the workshop here.
#3: What trends in fintech are you most excited about?
I am excited about the increasing fintech adoption and acceleration across industries. What was once a niche vertical is becoming a horizontal category. To quote Fintech Sandbox founder Sarah Biller, “Every company is becoming a fintech company”.
In the last few years, we saw new entrants into fintech from tech giants like Amazon and Google. Now we are seeing embedded finance solutions increasing across industries and platforms. More fintech opportunities will continue to reduce friction, time, and costs and increase benefits for the consumer.
#4: If you could change one thing about the fintech ecosystem, what would it be and why?
Our work at the Mass Fintech Hub is focused on accelerating the Massachusetts fintech ecosystem. We are working to unlock capital for new startups, increase corporate-startup collaboration, increase talent in the ecosystem, and enhance the visibility of the great things already going on in our ecosystem.
If I were to pick one thing to change, it would be to continue to increase opportunities for connections across the ecosystem in support of these goals. In November we released an Ecosystem Reassessment report in partnership with Mass Tech Collaborative authored by KPMG that surveyed the ecosystem to help us find ways to do just that. You can join our growing community and learn how to get involved here.
#5: Hot take! What are your thoughts on AI in the industry? Are we about to see a major transformation beyond chatbots? Is fintech the key to unlocking AI at scale for financial services?
At Fintech Sandbox we interview up to 6 fintech startups a week for the Data Access Residency program. In the last year, the number of startups we have seen with AI tools increasing efficiency, supporting decision-making and customer interaction in financial services has increased exponentially. We have a ways to go, but we are certainly on the brink of an exciting change in the industry.
Bonus Question! What’s the most interesting thing you’ve read recently?
I’m currently reading the Four Agreements, based on ancient Toltec wisdom and philosophy. My sister had recommended it and in an exciting coincidence, I subsequently came across it in a little free library stand around the corner from my house. Was it fate? I find it intriguing to learn how different cultures deal with common philosophical questions about how to live a happy and fulfilled life. And I love the metaphor introduced in the book of every person existing in their own dream that they have the power to change through simple actions.
# # #
If you are a fintech entrepreneur with an early-stage company and you could benefit from free access to data, cloud hosting, and a supportive community, please visit our website to learn more!
In an ongoing series of blog posts, we’d like to introduce you to some of the sponsors, partners, advocates, and entrepreneurs who make up the unique Fintech Sandbox community, and without whom our small team could not provide fintech startups with access to critical data and resources, entirely for free.
Next up is Abdul Abdirahman, a Principal with F-Prime Capital and an erstwhile Advocate for Fintech Sandbox. If you were at Boston Fintech Week in October, you may have seen Abdul demo and launch the newly revised F-Prime Fintech Index during a plenary session. His talk was entitled State of Fintech: F-Prime Capital Fintech Index Highlights.
Briefly, the F-Prime Fintech Index tracks the stock market performance of ~50 emerging and publicly traded financial technology companies, and allows for comparisons between individual companies as well as fintech subsectors such as payments, banking wealth management, insurance, and proptech.
Abdul Abdirahman
Question 1. Abdul, can you tell us about the intent behind the Fintech Index?
The F-Prime Fintech Index was launched as a way to track disruptive, publicly-traded fintech companies. The F-Prime Fintech Index serves as a benchmark for the development of this rapidly maturing sector and closely tracks the leading disruptors.
Q 2. Why is F-Prime Capital, a venture capital firm which invests in private companies at the earliest stages, tracking the performance of publicly traded fintech stocks?
At F-Prime Capital, we are thematic investors who spend a lot of time in the fintech space. We have been investing in this growing sector for more than a decade and, alongside our sister funds at Eight Roads, we have been fortunate to back some large and category-defining disruptors including Alibaba, Toast, Quovo/Plaid, Fireblocks, Flywire, and many more. As investors, we closely monitor public markets to inform our thinking across different fintech sub-categories and understand what potential exits might look like. This process often involves pulling revenue multiples, financial metrics, and other non-financial data. These data points — and the insights we compile in our newsletter and State of Fintech reports — can be useful to entrepreneurs, operators, and fellow investors who want a real-time window on the market.
Last year we went a step further and added vertical-specific benchmarks. These benchmarks go a level deeper than top-line metrics (such as revenue, growth rate, and multiples) and capture vital metrics that require digging into public and private reports. For example, if you are building in the payment space, wouldn’t it be great to see how take rates are trending, and which companies are garnering the highest take rates? The F-Prime Fintech Index now lets you do that — and much more.
Q 3. What should we know about the new Fintech Index functionality?
The new functionality on the Fintech Index includes:
Company and sector comparison by revenue, growth, margin, multiple, and more,
Adaptive visual multiples and benchmarks
Head-to-head company comparisons
Adaptive sector- and vertical-specific benchmarks
Time series of historical metrics by sector and revenue growth
To learn more about how to use the new-look F-Prime Fintech Index, check out this brief video overview. Additionally, the October 2023 edition of our Fintech Prime Time newsletter demonstrates how we’re using these new tools in our own industry analysis.
Q. 4. What are the most interesting insights you’ve recently gleaned from the Index?
There are three fintech disruptors with market caps of $50B+, and they have very different revenue profiles. As a result, they garner very different multiples to get to the $50B+ valuation. Vertical SaaS company Shopify has revenues of $6.7B and an LTM revenue multiple of ~14x, whereas payment companies PayPal and Mercado Libre have LTM revenues of $29B and $13B respectively, along with LTM revenue multiples of 2.4x and 6x. Investors love a good SaaS + payments business, and Shopify delivers, 29% and 71%, respectively.
Q 5. Do you have any predictions for the state of fintech in 2024?
The overall climate for fintech in 2023 was “regulation on, risk off” with heightened scrutiny, rule-making, and enforcement by regulators. We will continue to see increased regulatory scrutiny in 2024. However, we also think the fintech correction in private markets will stabilize in the new year. Our full State of Fintech report will be launched soon — sign up for our fintech newsletter to gain access when we release it in February.
Bonus Q 1. Why did you choose to launch the revised Fintech Index during Boston Fintech Week?
As a Boston-based firm with a strong partnership with the Fintech Sandbox, we were happy to launch the new-look F-Prime Fintech Index at Boston Fintech Week. Boston has a great fintech community of founders, operators, investors, and other folks in the financial services ecosystem, and we know the Index has many fans among them. We received a lot of positive feedback on the changes, and always welcome suggestions from our Boston Fintech community.
Bonus Q 2. What impact do you think GenAI will have on wealth management?
Within fintech, one of our key investment areas is wealth and asset management. We think there are many opportunities for GenAI to have an impact in this arena, especially when it comes to how financial advisors work with their clients. In short, we believe GenAI will act more like a co-pilot than a driver for fully autonomous finance in the wealth management sector — at least in the short-to-medium term. If you’re interested, a recent edition of our fintech newsletter delved into this topic.
# # #
If you are a fintech entrepreneur with an early-stage company and you could benefit from free access to data, cloud hosting, and a supportive community, please visit our website to learn more!
The Fintech 5 is a series of blog posts consisting of questions and answers designed to help you get to know the people behind Fintech Sandbox and our Data Access Residency better.
Kathryn Van Nuys is the Head of Startup Business Development for North America at Amazon Web Services (AWS) and an Advisory Board member at Fintech Sandbox. She began her career with more established financial services firms before working at several capital markets focused fintech startups. She joined AWS in 2018.
AWS has several programs designed to help entrepreneurs bring their ideas to market and makes these programs, which include credits for their cloud hosting platform, available to startups selected for our Data Access Residency free of charge.
Question #1: Why has AWS chosen to support Fintech Sandbox in this way?
We have been working with the Fintech Sandbox for many years and it’s been a great relationship. A core part of our strategy is to work with partners including VCs, accelerators, and incubators to ensure startups get the guidance, support, and infrastructure they need to build disruptive businesses. AWS provides programs like Activate, which helps them get off the ground with business and technical expertise, and credits to test and start building solutions with little to no upfront costs. We also work with startups as they leverage the AWS Partner Network and Marketplace, which helps them market their products and services to potential customers and generate business leads. Fintech Sandbox has a similar customer obsessed approach in their support of Fintech entrepreneurs as they provide access to data which is critical to the building and testing of their products.
Question #2: Hot take! What are your thoughts on AI in the financial services industry?
Today, 91% of financial services institutions are using artificial intelligence (AI) to drive business transformation and change, and 80% of fintechs are leveraging machine learning (ML) in particular. AI is already pervasive and generative AI will take it to a different level which can change the game for financial services. We are still in the very early innings and so far we are seeing generative AI being used to make chatbots like Cleo more sophisticated and easy to use, to automate individualized financial analysis and investment recommendations, and to expand access to services, such wealth management and business bookkeeping.
At AWS, we are betting big on generative AI because we believe in its potential to usher in the era of ‘self-driving money’, when every consumer with a smartphone can have access to an affordable, trusted financial advisor that will help them improve their financial health. In a future where access to finance is set to be cheaper, greener, and decentralized, arming fintechs with these powerful tools and new technologies unlocks new opportunities for them to delight customers.
We also see a big opportunity in code development. This is not unique to financial services, but we are certainly seeing a lot of Fintechs and financial institutions use Amazon CodeWhisperer to boost developer productivity, code quality, and accelerate workload production.
Question 3: How does AWS facilitate the development of fintech startups that are leveraging AI?
More fintechs around the world trust AWS to build their solutions—AWS runs more secure workloads for financial services than any other cloud provider and offers unmatched reach. Building on AWS enables fintech startups to be data-driven and AI-ready from inception, helping them innovate quicker and get to market faster. With 70+ state-of-the-art services for big data analytics, artificial intelligence and machine learning fine-tuned over two decades of experience, AWS has the broadest and deepest solution set to help fintechs make better decisions faster and provide outstanding, personalized services to their customers.
Our account support team, from go-to-market to solutions architecture, is completely verticalized to meet the specific needs of fintechs—with seasoned financial services experts that really understand what it takes to be successful in a such a heavily regulated industry. We also have a team of machine learning and artificial intelligence experts ready to support startup customers think through their use cases and learn best practices. We have also developed programs such as the Global Fintech Accelerator which is aimed at turbocharging growth for fintech startups leveraging AI and machine learning. We consistently hear from customers that our support and specialized knowledge is incredibly helpful as they grow their business and is a real differentiator.
Question 4: How has your experience working at fintech startups informed what you do now at AWS?
Having the experience of working at both large financial institutions as well as fintech startups provides me with a deeper understanding of our customers and the pain points they are looking to solve. At AWS, we understand that success takes more than just having a great idea – it also requires the right tools, expert advice, and supportive partnerships. That’s why we have built a team with deep industry experience who use customer feedback to build programs and resources to support customers.
Question #5: What are some of the biggest learnings from your career journey?
In my career, I’ve found that continuous learning, adaptability, and effective communication are crucial if you want to grow and evolve your career. As we’ve seen with generative AI more recently and before that Web3, staying curious will help keep your skills relevant and demonstrates an innovation mindset.
Bonus Question: What’s the most interesting thing you’ve read recently?
I’ve been trying to learn as much as I can about artificial intelligence and recently read Chip Wars. If you’re interested in understanding more about the history of microchip technology, definitely check it out.
Question #1: What is your role with Fintech Sandbox?
I’m Executive Director, or nonprofit speak for CEO. I’ve been leading the company for the last 3 years, joining in September 2020. My day-to-day focuses on a wide range of overall company strategy, program operations, and relationship management across the company as well as for each of the programs under the Fintech Sandbox umbrella – our flagship Data Access Residency, Boston Fintech Week, and Mass Fintech Hub.
Fun Fact: While Fintech Sandbox is headquartered in Boston, I’m actually based in the New York City area. Boston has definitely become a second home at this point!
#2: What trends in fintech are you most excited about?
Through Fintech Sandbox’s Data Access Residency, we have seen a big uptick in startups requesting private company data and solutions focused on that space, which I’m very happy to see. The applications range from verifying small business data, M&A deal sourcing and discoverability, unique private market funding and investment models, and more. As we see changes in the startup and VC landscape over the past year or so, this trend seems to be a direct reflection on the concerns and challenges of the private markets for both entrepreneurs and investors.
#3: What are some of the biggest learnings from your career journey in fintech and/or entrepreneurship?
On the fintech front, there are many – and incredibly important – problems that fintech still needs to solve! While we hear a lot of talk about fintech slowing down, I don’t see how it can. There are still too many core global challenges within our financial systems and across the multitude of ways that people engage with money (saving, lending, investing, etc.), and only powerful, innovative technologies will solve them.
On the entrepreneurship front, never underestimate the value of the basics. Being able to simply and succinctly explain what the company or product actually does is essential and square one. Your next door neighbor or your grandma should be able to follow along and understand what your business does after your brief explanation. I’ve heard very complex derivatives solutions explained clearly in less than 2 minutes, and I’ve also gotten confused listening to a 30-minute explanation of a very simple PFM. It’s challenging to move the conversation forward if we haven’t moved past those basic pieces yet. Also, don’t forget to introduce yourselves and your team too! Remember: people invest in people, so tell a story and create that connection.
#4: Hot take! What are your thoughts on AI in the industry? Are we about to see a major transformation beyond chatbots? Is fintech the key to unlocking AI at scale for financial services? Overrated or underestimated? We want to hear your thoughts!
It’s funny to me because it feels like we’ve been talking about and seeing AI for the past decade or so. But, now that OpenAI and ChatGPT have gone mainstream and more Generative AI models are being built, these conversations about AI as a new emerging technology have resurged. Maybe now it’s finally being considered as a truly transformative technology.
There are unlimited potential solutions that AI infrastructure could enable, and I am excited by those possibilities especially for more inclusive decision making. But actual adoption and implementation will still be slow, as all firms are still figuring out the potential risks and regulations for AI. My concern on the topic of AI is always ethics and very intentional awareness when utilizing it. AI has the power to remove many human biases from key financial decisions and build transparency, but it also has the power to increase bias exponentially and be a black box. Plus, there are a number of other major questions that still remain with AI – IP, privacy, and much more.
#5: What’s the most interesting thing you’ve read recently?
Does listening count? Between planes, trains, and cars, I tend to do more audiobooks these days.
I recently finished a book called Tomorrow and Tomorrow and Tomorrow about the evolving friendship of two video game designers as they fall in love with games as kids to starting their own gaming empire to the normal challenges of becoming adults. Looking at my own career, I especially found it to be an interesting perspective on entrepreneurship and the difficult choices that teams have to make to reach success, as well as the challenging dynamics women face as their careers advance. Recommend!
The Fintech 5 is a series of blog posts consisting of questions and answers designed to help you get to know the people behind Fintech Sandbox and our Data Access Residency better.
Adam Broun is a member of the Advisory Board of Fintech Sandbox as well as Chairman of Secondmind, a startup using machine learning to improve the process of designing automobiles.
Previously, he was CEO of Kensho Technologies, an AI company that continues to build solutions to uncover insights in unstructured data that enable critical workflows and empower businesses to make decisions with conviction. Kensho was an early participant in our Data Access Residency. S&P Global acquired Kensho in 2018 for $550 million. Prior to that he was CIO, Front Office and global head of IT Strategy at Credit Suisse, and a partner in Deloitte Consulting’s financial services practice.
The use of AI in financial services isn’t new. AI startups have been coming to Fintech Sandbox for access to training data from our very beginning. But recently, generative AI has been garnering significant attention. Generative AI is a specific subset of AI and machine learning capabilities distinguished by its ability to create new data, images, text, or other types of content. Given his experience, we thought Adam would be a good person to ask a few questions.
Question #1: Adam, Kensho was one of the very first startups accepted into the Fintech Sandbox Data Access Residency when we were starting out in 2015. What did Kensho gain from participation in the program?
When Kensho joined the Boston Fintech Sandbox it was still in a very early stage. But we were able to work with several data vendors to accelerate acquisition and evaluation of data that helped us launch the first version of the platform quickly and gave us some of the connections to be able to negotiate more strategic deals as the company evolved.
#2: Why have you chosen to remain involved with Fintech Sandbox?
I never stopped being involved with the Fintech Sandbox. I love being involved in the Boston and broader fintech ecosystem partly for my own curiosity but mostly because it’s an opportunity to help emerging companies transform the financial services industry.
#3: In your opinion, which is the most compelling use case for generative AI in financial services?
I think there are lots of compelling use cases for generative AI in financial services. Some obvious ones include internal productivity measures like code generation and code review as well as customer facing applications like chat bots. But the more interesting applications probably come when generative AI is used for more specific applications such as helping analysts ask and answer questions about the world. This was always part of Kensho’s original mission, but the emergence of Large Language Model (LLM) technologies has supercharged the ability for startups and institutions to realize that vision and create “digital assistants” that can help financial analysts make sense of the world around them ask and answer intelligent questions and make decisions faster and with more certainty than before.
#4: Are small and midsized financial services firms going to be able to build proprietary generative AI capabilities in-house or will they be better off partnering with AI startups?
It’s interesting because the technology to create generative AI capabilities is incredibly accessible. Almost anyone with a basic coding background and a little bit of time and curiosity can leverage the existing tools to create some amazing solutions. But the complexity arises from the availability of high-quality training data specific to the use case, ensuring that the answers provided are true and not hallucinated, integrating the technology into the workflow of those who will benefit from it, and guarding against unintended vulnerabilities or side effects which arise from the inherent complexity of these tools and the unpredictability of their behavior.
#5: Given the need for financial institutions to be able to explain their decisions, can generative AI be used to “make” credit decisions or fulfill regulatory requirements related to, say, KYC/AML? Or is its opacity an insurmountable hurdle?
In situations like KYC/AML or credit decisions, generative AI is probably not the right technology to sit at the core of those processes. Partly that’s because of explainability, as you say, but it’s also about predictability: given the same facts you want the technology to produce the same results every time. Generative AI by its nature includes a degree of randomness that’s highly undesirable in these cases. But there may well be a role for generative AI on either side of those processes, for example to help explain or create a narrative around a decision given a set of facts that can help a salesperson or customer service agent as they interact with a customer. Or you could imagine a generative AI application assisting a customer directly in assembling the information required for an onboarding or credit decisioning process.
#6: What are the biggest risks arising from the use of generative AI in financial services? What do you worry about?
I think there are a few risks that institutions need to be paying attention to. Perhaps the most obvious is the tendency for large language models to hallucinate, i.e., be confident but wrong about statements they’re making, which is clearly unacceptable if a business decision is going to be based on them. LLMs being used in this type of application are not only going to have to be trained on extremely high-quality data, but they will also have to be adapted to provide traceability of every assertion they make back to trusted source data and that’s going to require some heavy-duty integration from the user interface back to large trusted data sources. A second area of risk arises from the provenance of data being used to train the models. Institutions need to be extraordinarily careful that the data they use is (1) permissible to be used in training and (2) not confidential to the extent that if a model can be prompted to regurgitate that data it does not compromise any privacy or confidentiality concerns.
#7: How do we make sure historical biases are kept out of the data used to train large language models and away from the processes and algorithms used in generating AI responses?
I don’t believe you can! Given the enormous amount of training data required for these models, you’re ingesting a huge amount of historical information which is inherently going to reflect whatever biases, conscious or unconscious, were prevalent at the time. That can show up in quantitative training data such as credit decisioning or in the type of language used in textual reports or other documents. I think the best you can do is be very thoughtful about where the technology is going to be used and do your best to apply corrections to the training data or fine tune the outputs to correct for those biases going forward.
#8: Criminals will make use of generative AI as well. What are the implications for FSIs?
Anytime new technology is deployed, it creates new attack vectors for bad actors. Generative AI creates all kinds of opportunities like this including creating bots that can impersonate customers to fool institutions, or pretend to be institutions to fool customers, at scale and very cheaply. Given that audio and video can be generated as well as text, it’s not hard to imagine how extremely sophisticated attacks could be constructed. Another area for institutions to be concerned about are adversarial attacks on their generative models. Here for example is a recent paper that shows how adding carefully selected strings to a prompt can cause a publicly available LLM to reply with information that it’s been explicitly told not to. It’s not hard to see that this could be extended so that potentially with the right adversarial prompt a bank’s LLM would respond with inappropriate personal information. Institutions are going to have to be extraordinarily vigilant about these new attack vectors and probably create additional layers of surveillance before they can allow these sorts of technologies in customer-facing applications.
Over the next few months, we’d like to introduce you to some of the sponsors, partners, advocates, and entrepreneurs who make up the unique Fintech Sandbox community, and without whom our small team could not provide fintech startups with access to critical data and resources, entirely for free.
First up is Sarah Lamont, a Data Advocate who helps us evaluate startups that have applied for admission to our Data Access Residency. Her day job is as an investor at Fintech Sandbox sponsor F-Prime Capital.
While most startups apply to Fintech Sandbox before speaking to venture capital firms, raising a seed or Series A is usually high on their list of things to do, so we thought we’d ask Sarah to provide some guidance that might be particularly helpful to first-time entrepreneurs who have not had to raise venture capital before.
Sarah, thanks for talking to us today. First off, can you tell us why you volunteer your time as a Data Advocate?
Financial data is expensive! i.e., cost-prohibitive for startups who are caught in the catch-22 of ‘need money for data, need data to build my product, need product to raise money’. So I volunteer time as a Data Advocate to help funnel early-stage companies into the Sandbox and get their product off the ground, and because it gives me the chance to meet entrepreneurs when they’re still in build-mode, outside of the fundraising context.
Can I ask a venture firm to sign an NDA before I send them my pitch deck?
It’s highly recommended to not do this (and doing so is a bit of a yellow flag). Investors may be reviewing hundreds or even thousands of pitch decks per year, and signing an NDA for each would be putting undue stress on their legal teams. Consider lighter weight options for staying in control of who sees your pitch deck e.g., email/password requirements or link expirations.
Who should pitch the company when meeting with a VC? Just the CEO? The whole founding team? Important team members who are non-founders?
There’s no hard and fast rule, but the first meeting should be 1-2 (co-)founders. Investors will want to meet the rest of senior leadership (e.g., product, marketing) at some point during the diligence process, but those meetings can be scheduled separately after a first few conversations.
Say we’re a B2B startup and several firms are already using our software. At what point in the process should I let a potential investor talk to my clients?
You want to be respectful of your customers’ time and ask for minimal favors, but also recognize that voice of the customer is one of the more important data points for early-stage investors. You should save the customer introductions until investors have given you the signal that they’re nearing the end of their diligence process and trending positively towards a term sheet.
How do you place a value on a startup that’s pre-revenue?
It’s a bit more art than science (and becomes more science than art in later stages). Most go the route of considering qualitative factors – like founding team, opportunity size, existence of early pilots – while also weighing quantitative considerations like expected exit value and return on investment.
Is there a danger you can over-inflate your seed stage valuation?
Yes. An over-inflated seed stage valuation puts you in a more difficult spot to raise funds at later stages, as investors will hesitate on price unless you have significant traction to justify the valuation.
When should I ask an investor for introductions to CEOs of their portfolio companies so I can do my own due diligence?
This is a great step to take during the diligence process. You should take this step when you’re nearing a term sheet, or when investors are asking for introductions to some of your most valuable customers (which, as mentioned previously, should also ideally be towards the end of the process).
If we pitched a venture fund that really liked us but decided to pass for whatever reason, should we ask them to introduce us to other VCs? Or will other VCs be less interested because the first VC passed?
Introductions to other VCs is one of the quicker-wins you can get out of VCs, and in most cases you can and should ask for them. If the pass is due to stage or sector, they can help you identify VCs whose fund mandate is more aligned to your company and get you a warm introduction.
Are there any other tips you’d like to pass to first-time founders on pitching a venture capital firm?
Investors will have varying preferences on whether they want to walk through a deck or keep it more conversational, Q&A style. Get a feel for that upfront and adjust the pitch accordingly.
As for landing a meeting, don’t feel compelled to meet every VC through a warm introduction. Cold outreach works – but do make sure the message is tailored to that investor or fund specifically. It doesn’t send a good signal when you send a seed-stage fintech deck to a growth-stage healthcare investor.
