1Mby1M Virtual Accelerator Investor Forum: With Doug Atkin of Communitas Capital Partners (Part 2)

Sramana Mitra: B2B need less money, I think.

Doug Atkin: It all depends. If you’re building a business like an analytics package which you’re selling to the big banks, you need a decent amount of money to build something of industrial quality. A lot of these things take a bit more money.

Sramana Mitra: The comment I would make is that customer acquisition in B2C is hard to do in a lean way, which is what has drawn so much capital to the B2C side of the business.

In B2B, you can put together a minimum viable product and start getting people to pay for it. This model starts to monetize faster. Building the product is easier with the cutesy stuff.

Doug Atkin: Right. Then with direct-to-consumer financial services apps, it has gotten way out of control. They’re piling massive amounts of money to acquire customers and losing money on every customer. 

Sramana Mitra: Losing money on every customer and making money is the bottomline. How does that work? Massive work.

Doug Atkin: You just hope the music doesn’t stop and a big strategic buys you, or you go public before the stock crashes. 

Sramana Mitra: You said in your introduction that you’re part of eight FinTech unicorns. Could you talk about which ones they are? What have you learned through that pool of investment?

Doug Atkin: I’ll talk about a few. A couple have been in the peer-to-peer lending space. Going back to pattern recognition, in the equities market when technology came in and made things more efficient, it put clients on an equal playing field with banks.

The same dynamics were at play with consumer loans or college loans. It’s not that we were smart; we just saw the same pattern occurring. Between the three of us, we have been investors in many business models in the space.

Sramana Mitra: Let me ask you one question about the peer-to-peer lending market. That market is generally sound, business model-wise. If you control your cost of customer acquisition, it has a sound business model. If you manage your cost structure, you should be able to build a sustainable, profitable, and fairly scalable business.

Doug Atkin: This is all about when you get into it. When you get into a neo-bank at a $50 million valuation, that’s fantastic.

Sramana Mitra: I don’t know if that’s fantastic; valuations getting ahead of the business is not necessarily fantastic.

Doug Atkin: I’m just saying that if you’re an early investor and you can get out before the music stops, it’s pretty fantastic. In peer-to-peer lending, the same thing occurred. What happened in the peer-to-peer lending space with Lending Club and Prosper is, they began with peer-to-peer.

Hedge funds write the instruments that were on the platform and began to take down the majority of the trade. Wall Street woke up and said, “You’re not an exchange. You’re a loan originator. That’s a very competitive business with very different multiples.” Lending Club is trading at 30% of when it went public. 

Sramana Mitra: Going forward from an investment thesis point of view, what patterns do you see emerging?

I’ll start you off with something that we just had last week as our guest. We had an investor from India. There’s a very distinct trend that has started in India with the advent of Jio. It’s this phone that Reliance is giving out for very cheap. Reliance’s investment thesis is that the data and the advertising opportunity that is going to be created out of this is how they will monetize.

FinTech is very big on the radar of all the investors who are trying to make money off the Jio ecosystem. The first wave of Indian internet is the hundred million more affluent consumers. The second wave is 400 million consumers. There are investors who are really looking to tap into that opportunity. FinTech is very high on their agenda. That is just one pattern that is developing in India.

FinTech is a global secular trend. We are seeing it from many different markets. Latin America is seeing it. Africa is seeing it. From where you sit, what FinTech trends are you seeing?

Doug Atkin: First of all, we’ll invest anywhere. We haven’t invested in India but we invest in Israel where so much interesting technologies are being built. We invest in London, which is a fintech center. We try to stay away from Silicon Valley just because it’s absolutely insane.

One of our main thesis is alternative data. I ran the first data-driven research company for hedge funds. We’ve invested in a company that gets pinpoint geolocation data from a massive amount of cellphones or app sources around the world. The biggest users are in the asset management space. You can expand that into real estate. We love alternative data. 

Sramana Mitra: We have a company that I’m thinking about in our program that speaks directly to what you just said.

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Doug Atkin of Communitas Capital Partners
1 2 3