Weekly Briefing No. 168 | Big Banks Making Small Deals, Anthemis Dishes on Insuretech, and More

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Welcome to The FR. Looking Forward, Ever Upward.

In this edition:

  • Why Are Big Banks Suddenly Interested in Small Deals?

  • The Robot Real Estate Broker

  • Examining Insuretech Investments

  • Buffett’s Bank Stocks Prediction

  • Diversity in Fintech

Why Are Big Banks Suddenly Interested in Small Deals?

We really enjoyed an interesting read from The Wall Street Journal this week on why investment banks are more aggressively pursuing mid-market deals. Any investment banker worth his or her salt typically wants to be involved with advising on the large, global mega deals that dominate news cycles. So why then are so many investment banks, in the Journal’s words, “tripping over themselves” to win business advising companies in smaller deals and setting up offices “in cities like Dallas and Atlanta?”

Well, the mid-level is where much of the M&A activity is happening. According to the Journal, there were just 135 deals in the U.S. last year valued at over $2 billion, versus a whopping 2,200 under that amount. Also, deals in the middle market tend to be less complex, they close faster, and the fees are spread among fewer banks who are involved.

These mid-tier deals have typically been dominated by regional firms; and while every so often big banks get the idea to invest resources in this market, it usually doesn’t last, and they go back to mostly chasing mega deals. It will be interesting to see if this trend continues for good this time around.

The Robot Real Estate Broker

Technology over the last decade has automated many areas that used to require a human agent. Think robo-advisors or automated small loan platforms, just to name a couple of examples. Well, AI and algorithms are now casting their eye towards the real estate industry, and specifically the rental broker.

A new Bay Area tech start-up called Keyo says its AI technology can help landlords better determine the risk of a tenant defaulting, as well as find qualified tenants more quickly and cheaply than a traditional human broker.

According to The Real Deal, the start-up’s investors include Village Global — which is backed by Bill Gates, Mark Zuckerberg, Jeff Bezos, Eric Schmidt, and Michael Bloomberg. And former Twitter CEO Dick Costolo and Bebo founder Michael Birch are also direct investors.

From fintech to insurtech to wealthtech to regtech, we’ve seen innovation drastically change how services are delivered in many industries. We believe real estate is the next sector that will see a wave of tech disruption and changes.

Anthemis Dishes on Insurtech

We liked this so-called “Anthemis takeover” of the 11:FS podcast (by Anthemis personnel including Ruth Foxe Blader, Matthew Jones, and Sophie Winwood) to discuss how the well regarded London-based VC looks at insurtech investments. The overarching point: Insurance companies are “special animals.” Thus, it usually takes a special blend of deep tech expertise and a knowledge of the industry for a start-up to create a solution that has any real shot of scaling in partnership with a carrier. Our favorite specific point: It’s “a great place to start” when an insurtech has the buy-in of a carrier’s innovation department. However,  Anthemis puts greater emphasis on a start-up’s traction from the business side when evaluating investment opportunities.

Buffet Bullish on Big Banks

Bank stocks are one of the safer investments you can make, at least according to noted bank stockholder Warren Buffet. Buffet has long been known as a fan of investing in banks; his holding company, Berkshire Hathaway, has long held a large position in Bank of America, and last year snapped up a significant amount of shares in JPMorgan Chase. (Of course, some of his bank boosterism in the past left him with a bit of egg on his face.)

But, by and large, bank stocks have served the Oracle of Omaha well. In a recent Yahoo Finance interview, he doubled down on that position, saying “They’re a business I understand, and I like the price at which they're selling relative to their future prospects. I think ten years from now, that they’ll be worth more money. And I feel there’s a very high probability I’m right.”

In ten years, if both we and Warren are still around, we’ll know if he was right.

Diversity in Fintech

Both the financial services industry and Silicon Valley have, separately, been accused of a lack of diversity in their respective workforces. But fintech, as a conglomeration of both industries, has a unique opportunity to make great strides in this area. In a Finra summit on diversity, one speaker made the interesting point that because many fintechs are still in their early stages, conversations about diversity should happen “much more than they would have happened at any large financial institution.” While strides are being made, there’s still some work to be done; one study from 2017, for example, found that only two percent of venture capital went to fintech companies founded by women.

Quote of the Week

“You don't make money when you buy stocks. And you don't make money when you sell stocks. You make money by waiting.”

— Mohnish Pabrai