Beyond the Labs - An update on ValueStream Ventures

To the friends of ValueStream Ventures,

It's been over five years since we started this journey together. A lot has changed since 2013. For one, we have dropped “Labs” from our name as our firm has evolved from startup accelerator to venture capital firm.

One thing that has not changed is our strategy of targeting FinTech, Enterprise Tech, and DataTech companies that solve substantial problems in the financial services ecosystem while demonstrating clear paths to growth and profitability—an investment strategy that has served our investors well. We will continue to leverage our deep insight into industry operating models and our relationships with leading financial institutions to efficiently and effectively diligence and support our portfolio companies.

Although we no longer operate our accelerator program, we remain very hands-on with our investment portfolio companies. Providing deep strategic support, particularly in enterprise customer development, remains a core component of the value we provide. Going forward, we are investing in Seed and Series A stage companies.

Over the last twelve months, we have made seven investments, witnessed promising growth from our 16 portfolio companies, and held a first close on VSV Fund II, from which we have already made four investments.

Please keep reading below for an update on our portfolio companies and a glimpse into some of the investment trends we are focused on today.

Greg, Josh, and Karl

ValueStream Portfolio Companies in 2017

2017 was another year of solid growth for our portfolio companies. Here are a few highlights:

  • Estimize achieved one of its best years of revenue growth to date
  • ChartIQ closed new deals for its core HTML5 charting technology with customers including FactSet, Yahoo Finance, and CNBC, and launched an exciting new product called Finsemble
  • Even Financial has dramatically increased revenue for its programmatic customer acquisition platform
  • Descartes Labs, a data refinery for geo-spatial imaging, closed a $30M Series B in August
  • LendingFront, a Lending as a Service platform for cashflow based loans, continues to onboard new enterprise clients including regional banks and leading payment vendors
  • FirstAI (formerly Syndicated Loan Direct), a platform for analyzing risk factors in complex loan documents, closed on a new $2M seed round to expand its client account coverage
  • LoanHero, a point of sale merchant financing platform, exited to LoanPoint

Over the course of 2017, we also added several new companies to the portfolio:

  • Trigger Finance, a company that gives users the ability to create complex financial event alerts, was acquired by Circle in 2017.
  • Verifly, an on-demand drone insurance company for commercial operators; over 20% of commercial drone pilots are registered with Verifly.
  • BondCliQ, a pre-trade price quoting platform for the Corporate Bond market, which partners with credit dealers to generate higher quality pre-trade pricing data for both buy side and sell side customers.
  • API Fortress, which provides a suite of API testing tools for non-technical managers.

Market Trends We're Watching in 2018

Long-time friends of ValueStream will recall our particular interest in proprietary data sources and data analysis technologies. We continue to see growth in the value of this data throughout the industry, and it remains a key theme for 2018.

Here are a few of the trends we’re actively monitoring for the 2018 investment year:

AI’s “Last Mile”

Machine learning, artificial intelligence, and natural language processing are now more readily available than ever to both startups and large financial institutions, thanks to the introduction of open-source libraries like TensorFlow. However, the capabilities of AI haven’t progressed as much as most observers believe. While it is an impressive and useful tool, AI has a ceiling when it comes to accuracy—a ceiling that is often too low to meet the standards and requirements of financial services. However, when AI and humans work together—with humans providing manual reviews and specialized model training—it is possible to deliver the accuracy the financial services industry demands. As a result, VSV is actively looking at companies that combine novel AI technology applications with last-mile services or industry specialization, as we believe this combination remains necessary to generate value for technology customers and investors alike.

On-Demand Financial Products

As traditional financial products reach the point of commoditization, innovation will increasingly center around the distribution of these products. For example, rather than attempting to reinvent the concept of a mortgage or insurance policy, many companies are reconsidering how, when, where, and for how long these products are delivered. Point-of-sale technologies, on-demand financial products, and automated approval processes will become increasingly important for successfully and cost-effectively delivering banking, investment, and insurance products. As such, VSV is very interested in new solutions for reaching customers in the moment and place of need. This strategy also avoids traditional mass marketing, thereby delivering greater, on-demand value and reducing customer acquisition costs. We will continue to pursue opportunities to allocate to these solutions.

Banks Go Digital

Following the lead of innovative financial services startups, large financial institutions and traditional banks are now putting greater focus on building their own digital channels, from online lending to mobile payment apps. As they encroach upon digital products and services previously dominated by startups, these firms are both driving up customer acquisition costs for all (as they introduce greater competition with deeper pockets) and making it even harder for small players to find and attract digital talent. This trend further supports VSV’s primary focus on enterprise and professional (B2B or B2B2C) solutions, not only because it will be increasingly difficult for companies to cut through the clutter of B2C, but also because large financial institutions new to digital are going to demonstrate even greater need and demand for B2B technology infrastructure and support.

Blockchain and Cryptoassets

No trend in enterprise financial services has received as much coverage of late as cryptoassets and blockchain technologies. While we are paying close attention to new companies and proofs of concept in this space, the key need for, or problem solved by, these technologies among institutional-grade customers is still taking shape. We are careful to remember that new technologies don’t necessarily become the enterprise solution of choice just because they are novel or exciting—sometimes existing technologies remain equally or better suited for the task. We will continue to monitor the broader blockchain landscape and wait for more substantial enterprise challenges to be articulated and addressed by this new technology.

We do, however, feel that sufficient demand has emerged for cryptoassets to warrant more sophisticated financial infrastructure. We are actively sourcing solutions that can play critical roles in “institutionalizing” crypto as a new asset class, such as institutional-quality data, research, portfolio management, trading systems, and risk management.

Have you met a startup that fits one of these themes? Please send them our way!

As always, the VSV team would like to thank you for your support and looks forward to continued collaboration. We remain available for any follow-up and look forward to speaking with you in the near future.

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