Weekly Briefing No. 146 | Silicon Valley is not coming to Wall Street.

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Welcome to The FR. Here’s what we’re gazing at this week:

  • Wall Street shouldn’t fear Big Tech

  • Can Banksy trigger a killer use case for blockchain?

  • Boston Dynamics; Robinhood; Figure; Sarah Friar

  • Klarna, Sana, G2 Crowd and Nubank

  • Atomic VC; China’s social credit system

  • Fintech in the next recession

  • Jimmie Lenz on private capital funds

  • Roubini on crypto

REFLECTION

Silicon Valley is not coming to Wall Street.

Looking back, we’re amazed that just a few short years ago, the CEOs of America’s largest banks were in fear mode, not because of fintech start-ups, but because of Big Tech. That generally accepted fear held that Google and others would sap Wall Street of its vigor, leaving behind Kodak moments and sad brontosaurus banks across Wall Street and Park Avenue. But today, we think banks have little to fear. That’s because in 2018, Big Tech’s combination of untrustworthiness and immaturity hit a tipping point. And just as we saw a decade ago during Wall Street’s unmasking, the core sins are that a) the leaders were caught playing irresponsibly with other people’s assets (in this case, data) and then b) tried to paper it over with lawyerly expressions of regret that failed to woo anyone with a cerebral cortex. Thankfully, both political parties are coming to believe that Big Tech no longer deserves to self-regulate (See here and below). Meanwhile, incumbents are (finally) making progress in their transformations. Sure, trust remains elusive, and the twin beasts of legacy systems and bureaucracy are still present. But whether it’s embracing open source, requiring employees to take coding courses, or bringing efficiency to the world of investment banking, incumbents are starting to get it. Conversely, for Big Tech, the pain that will accompany a new regulatory framework hasn’t even hit. But when it arrives, doomsday predictions like this one will recede, along with concerns over Silicon Valley giants attacking banks. They’ll be too busy.

Banksy and Satoshi should grab a beer sometime.

A raging man throwing flowers. Two children standing on a pile of rifles. A girl hugging a bomb like a teddy bear. We’re grateful to the artist Banksy for all of these searing works. However, Banksy, who, in his splendid anonymity, is the Satoshi of the art world, topped all of his previous work recently when he booby trapped the frame of a painting  (“Girl With Balloon”) and proceeded to shred it seconds after it was sold in front of a canapé crowd at Sotheby’s London. His reason was made clear in a subsequent Instagram post: “Prices on artworks have skyrocketed in a market that is largely unregulated, and collectors are increasingly treating artworks as commodities rather than works of cultural significance.” From such a statement, it seems clear that Banksy is expressing a frustration shared by many artists: an inability to have any control over a work after it is sold. But, of course, Banksy didn’t need to submit this painting to the highly centralized art world power structure. Instead, he could have explored blockchain solutions to retain some control and/or economic upside in “Girl” or sell just a fraction of the work. Along the way, the buyer could have ensured authenticity, provenance and copyright — and blockchain tech could have advanced one of its more interesting use cases. Instead, it looks like Banksy wound up enriching the very system he sought to offend.

NEWS ROUNDUP

There go all the parkour jobs: On Thursday, Boston Dynamics demonstrated just how far robot technology has come. And as far as we’re concerned, the recently released video should be watched by every economist and everyone thinking hard about where our economy (or the future of building hopping) is headed.

Robinhood goes self-clearing: “Most clearing systems run on mainframes, and don’t have UIs, but terminal interfaces that are many decades old.” That’s an  assessment from co-founder Vlad Tenev, who indicated that Robinhood has built its own clearing system from scratch. Under the leadership of Christine Hall, this move puts the firm in the land of the brokerage big dogs.

Figure’s first product launches: This week, Figure Technologies, a company whose CEO Mike Cagney was interviewed by The FR’s Gregg Schoenberg in July, announced the launch of its first product, a home equity loan that can be completed via a digital process in five minutes and funded in five days.

Friar becomes the boss: “We need more folks out there like Sarah to run companies and services of impact.” That gracious comment came from Square CEO Jack Dorsey in response to the announcement that Square CFO Sarah Friar is leaving to become the CEO of neighborhood social network Nextdoor. Friar, who is on the boards of both Walmart and Slack, helped navigate Square’s IPO during her long and distinguished tenure.

The beauty of the reverse pitch.

Sponsored by MassChallenge FinTech

What problems do major financial incumbents want help in solving? It’s an important question that has vexed fintech start-ups for some time. Our friends at MassChallenge, a global non-profit start-up accelerator, have helped to answer that question with their deployment of a reverse pitch model. According to FinTech Program Director Devon Sherman, “With a reverse pitch model, our biggest focus is on creating meaningful, milestone-drive partnerships between fintech start-ups and established organizations.” Want to learn more? If so, check out the eligibility guidelines and apply before it’s too late.

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TRANSACTIONS

Klarna, Sana, G2 Crowd and Nubank close rounds.

This week, payments solutions provider Klarna took a chic step forward when it raised $20 million from fast fashion giant H&M as part of the latter’s ongoing battle with Zara. Also, SME-focused healthcare benefits provider Sana announced a seed round courtesy of Greenlight Re Innovations, business software review site G2 Crowd announced a $55-million Series C, and employee financial wellness provider PayActiv raised a $20-million Series B. Finally, São Paulo-based fintech dynamo Nubank took another leap forward this week when it inked a strategic deal with Tencent that infuses the company with an additional $90 million of fresh capital.

TROVE

Wishing Instant Karma for Atomic VC.

“If you want to save Peru, go save Peru. It’s quite possible to do anything, but not if you put it on the leaders and the parking meters.” That’s a quote from John Lennon, who would have turned 78 last week, that’s helped us think about where the innovation world is headed. A similar approach is being taken by Atomic VC, which believes that governments are often ill-equipped to solve global challenges. In the Medium post below, founder Jack Abraham lays out how his firm’s second fund will go about solving big problems in sectors like healthcare and housing.

DoomCon 19’.

We have a theory as to why more attention isn’t being paid to the dystopian reality that will soon overtake the most populous nation on earth (which we covered two weeks ago). Quite simply, it’s because BlackMirrorTech isn’t recognized as a standalone sector replete with its own investor community and buzzy conference circuit. As a result, the alarming combination of behavioral dicates, technology, governmental might and fintech-fueled insights converging on China is getting somewhat lost in the headlines. Fortunately, NPR’s The Indicator dedicated a series to China’s social credit system during this past week.

What will happen to fintech start-ups in the next recession?

Does the market volatility we saw this week presage a recession? We have no idea. But here’s what we do know: a) Another recession is inevitable because economic cycles remain as certain as death, taxes and The Simpsons; and b) It’s standard operating procedure for a fintech CEO to say something like, “Actually, [insert company] will do great when a recession hits because our [insert product or service] will become more valuable to [insert customer category] in tough times. That’s certainly true for some start-ups, but not for most of them. In fact, the CEO who says something like the following statement would get double plaudits from us: “A recession is going to be very hard on us. But we’ll do everything necessary to survive. If we do, we’ll come out stronger on the other side.”

A new approach to modeling cash flows of private capital funds.

“Because the investments are not traded on a public venue, there is little data generated beyond the data received by existing investors. Additionally, there are a limited number of commercial offerings which provide data for a fee.” That’s an excerpt of a new white paper discussing the challenges of forecasting private capital cash flows. The paper, written by our friend and contributor Jimmie Lenz and colleagues Dominic Pazzula and Jonathan Leonardelli, discusses a new approach that was based on studying nearly 4,000 funds of different types and vintages.

Nouriel Roubini slams crypto.

This week, the celebrated NYU economist unloaded a can of skepticism on all things crypto and blockchain-related before the US Senate Committee on Banking, Housing and Community Affairs. Although we don’t agree with him in full, we nonetheless found his testimony informative and enjoyable. One of his more notable passages: “The financial services industry has been undergoing a revolution. But the driving force is not overhyped blockchain applications such as Bitcoin. It is a revolution built on artificial intelligence, big data, and the Internet of Things.”

QUOTE OF THE WEEK

“History says, don’t hope on this side of the grave. But then, once in a lifetime the longed-for tidal wave of justice can rise up, and hope and history rhyme.”

~ Seamus Heaney