Posts from hacking finance

In December I wrote about the Symphony Software Foundation as it was launching the NYC Open Source Fintech Meetup.

Yesterday the foundation announced a new name: FINOS.

FINOS is about supporting open source software efforts across the financial services industry.

Financial services has often lagged other industries in adopting open source software related development practices, but that situation is changing quickly. Quantitative trading firms like Jane Street have built entire businesses based on open source. And perhaps there is no better example of the degree to which open source is impacting financial services (and other industries of course) than bitcoin, ethereum, and other crypto projects.

FINOS Executive Director, Gabriele Columbro, described the FINOS mission as follows:

In the industries where open source has succeeded, independent entities such as foundations and trade organizations have played a critical role in fostering success. They have facilitated cooperation among players (often hard to do between fierce rivals) and encouraged dialogues necessary to solving common problems. This is precisely the role FINOS is playing in financial services.

Many of FINOS’ members are large global finance and tech companies such as Goldman Sachs, UBS, JP Morgan, GitHub, Thomson Reuters, and Red Hat. The accelerating adoption of open source in fintech is important not just for major financial institutions but also for emerging startups and younger companies looking to service incumbents or compete against them (or both). Examples among FINOS members include OpenFin and NodeSource.

Because financial services has always had an oversized impact on tech here in NYC, this is likely a huge boost to the NYC open source ecosystem too.

If you’re working in fintech I encourage you to get engaged with some of FINOS’ programs, either by just evaluating and checking out some of the work, or by getting actively involved by contributing code to a working group. If you’d like to hear more about FINOS and its work, you may want to attend their FinTech in Open Source Event Series this evening at 6:30pm where Gabriele Columbro will be interviewed by Spencer Mindlin of the Aite Group.

Finally, fintech is no different than any other “tech” sector in that we need more women, people of color, and other traditionally underrepresented communities at the table. The transparency and contribution models of open source projects can be a great on-ramp for anyone interested in a particular technology or problem domain. Together with K-12 CS education for all, open source can increase access to careers and opportunities historically all but closed to large segments of our society.

My partner Rebecca announced our most recent investment yesterday in a company called Stash.

Stash is a simple mobile app that you connect to your bank account and each week (or month) you stash some of your cash away (ie save) and the app invests it for you in a portfolio of funds that it puts together for you based on your investing interests.

Here is my current Stash portfolio:

As you can see, I “auto stash” $25/week and it gets invested in the first three funds.

I have also directly bought four additional funds. I get mobile notifications on my phone when new funds are offered (like “corporate cannabis”, that was an instant buy).

I can move around where I want my weekly auto-stash funds to get invested. I think I might do that today and direct more funds toward some of these other funds that I quite like.

If you want to get Stash on your phone and start saving and investing, you can do that here:   iOS   Android

Clearly Stash is not aimed at people like me. We have traditional brokerage accounts and portfolios that we manage there.

Stash is aimed at young adults and people who are having difficulty saving for their future (home, college, retirement, etc).

As Rebecca wrote in her post:

85% of users on Stash come in as either beginners or without any investing experience and now can open their investment account with as little as $5.

That is a great stat. Stash is helping to build a new generation and a new cohort of savers and investors. With the decline of pension plans and other “safety nets”, it is more important than ever that everyone learn to save and invest. And the only way to do it is one day, week, month at at time and using the power of compounding earnings to your advantage.

When we looked closely at our USV portfolio recently, we realized that most of our best investments are all about expanding access to knowledge, capital, and wellbeing. Stash fits directly in that theme by making saving and investing easy and affordable for everyone (in the US for now).

I found this wide ranging interview quite interesting.

Alex has been an entrepreneur and is now an investor.

He is operating at the intersection of traditional fintech and crypto, which is a place USV also often occupies.

Open source software is a critical part of the tech stack for many organizations, both large corporations and early-stage startups alike. For various reasons, the financial services industry, one of the dominant industries in NYC, has lagged other sectors in adopting and contributing to open source.

That is changing, pushed partly by the strategies and success of high-growth fintech startups, as well as a broader recognition of the benefits of an open source strategy. A number of financial services and fintech companies here in NYC play significant roles as contributors and maintainers for open source platforms, tools, and languages popular in the industry.

To better connect people in NYC working with open source software in financial services, my friend and AVC community member Rob Underwood of TTM Advisors has teamed up with the Symphony Software Foundation to create the NY Open Source FinTech Meetup. Its inaugural meetup is January 8th at 6:30pm at Rise NY. Aaron Williamson of the Symphony Software Foundation will be moderating a panel discussion with John Stecher of Barclays and Mazy Dar of OpenFin on the 2018 outlook for open source projects in the finance industry.

If you’re working at the intersection of financial services and open source you should check it out.

One of the most impressive startup executions I have witnessed in the past ten years is what the team at Funding Circle has pulled off. They have gone from a team of friends with an idea to the largest non bank lender in the western world.

In this interview at the Slush Conference, CEO Samir Desai explains how they pulled that off.

The news broke late last week that hackers have taken almost 150mm records from Equifax. These records include name, address, social security number, birthdate, and in some cases driver license information.

This is an identity thief’s treasure trove.

So what should we do about it?

I read Ron Lieber’s suggestions in the New York Times yesterday and did all of that for our family this morning.

That includes putting a freeze on our records at the big four credit agencies:

– Equifax

– Experian

– TransUnion

– Innovis

And putting a fraud alert on file for the next 90 days at the big three:

– Equifax

– Experian

– TransUnion

That took the better part of an hour as you need to do each of these things for each social security number you want to “protect.”

I also went ahead and pulled credit reports for our social security numbers to see if any new credit had been taken out in our names. Hackers may have had this information for quite a while.

None of this feels particularly protective to be honest. We’ve made it harder for someone to take out loans in our names, but I don’t think we’ve made it impossible.

Lenders and others are going to have to get more diligent about detecting and protecting themselves (and us) from identity theft in the wake of this and many other data breaches.

Name, address, social security number, and birthdate should not be considered sufficient information to prove identity and access credit or confidential information any more. This has likely been true for some time, but this breach certainly is the nail in the coffin for that approach (and possibly the credit bureau business model).

It’s time for new approaches to security, identity, and the protection of our financial information. Thankfully, there are a lot of them out there, mostly in startup land.

I’ve written a bit here about crypto tokens. How they can be a monetization model for new protocols. How they could be a new monetization model for online media. How they can be a business model for an online “commons.” And why USV invested in a hedge fund that will invest solely in these tokens.

I believe that these crypto-tokens are an important innovation in the world of technology. They allow for the financing and monetization of technology projects that rely on a network of contributors (of software engineers:open source, of contributors:online communities, of computers:p2p systems, etc) to deliver value to the market.

To date, we have mostly seen tokens used as financing vehicles. The last time I looked, over $300mm has been raised in “Initial Coin Offerings” (ICOs) to finance projects like the ones I referenced above. That number continues to rise as more tokens are sold to raise funds to develop these new businesses.

But the longer term implications of tokens have more to do with monetization than financing. And I think its a very elegant and powerful idea that the same “currency” can be used to both finance and monetize a network.

So with that preamble, I am excited that the first ever Token Summit will take place in NYC on May 24th and 25th. This event is being organized by AVC regular William Mougayar and Nick Tomaino, who runs The Control, which I blogged about a few months ago.

William blogged about Token Summit today and says this about the event:

We have identified the following themes that will be debated in a variety of formats, including on-stage interviews and panels.

Token-based Business Models

How do tokens contribute to a business model? When do they make sense? How does an entrepreneur monetize? Where is the real value?

Token Protocols and Platforms

What are the emerging token-based assets? Where/How are we going to trade them? What are the implications for fund managers?

Distribution Mechanics

Lessons and best practices for pre, during and post initial cryptocurrency and token sales, including governance.

Valuation Strategies

How do investors and users value tokens? How does a token transition from a speculative to utilitarian function?

Legal Implications

Legal, regulatory and ethical practices for token creations.

I plan to attend this event and I encourage everyone working in or around this space to attend. It will be an interesting and lively discussion.

If you want to attend the event, you can register here.

Our portfolio company CircleUp has been building a marketplace for startup investing, by accredited and institutional investors, in consumer goods companies (natural foods, personal care, beverage, home goods and apparel). In four years of operation, over $300mm has been raised on CircleUp by entrepreneurs to scale their consumer goods startups.

But underneath all of this has been a sophisticated data science effort designed to track the entire consumer goods sector (all companies, not just the ones on CircleUp) and determine which companies succeed and why. Yesterday CircleUp took the covers off this data science effort, called Helio, and explained what they are up to with it.

Here are some bits from that blog post:

there’s endless data on consumer product and retail companies. And, much of it is public. A quick Google search of the product in your pantry tells you how many SKUs the brand has, price points for each SKU, where they are sold, product reviews, and a great deal more. In an A16Z podcast in 2016, Marc Andreessen commented that machine learning wouldn’t be helpful for tech VC because there isn’t enough data (40:04 mark). We agree. But in the consumer industry, the opposite is true. Data is broadly available. Business models are uniform. That’s the perfect recipe for machine learning. That makes Helio possible.

Let’s take a look at a few examples:

• Supergoop! is a sunscreen brand available nationally throughout Sephora, that Helio surfaced due to its quickly growing brand, great distribution and estimated revenue growth. We presented Supergoop! to institutional investors, and shortly after, they raised $3.25 million.
• REBBL is a line of coconut-milk based beverages made with super herbs known to reduce stress. Aside from being one of the fastest growing products in its category, REBBL donates 2.5% of net sales to initiatives helping eradicate human trafficking. Helio spotted REBBL early and qualified it for investors, showing its compelling brand, team and distribution metrics. Today, REBBL’s lead investors include Powerplant Ventures, led by the ZICO coconut water founder, and Boulder Investment Group Reprise.
• nutpods plays in the crowded plant-based, dairy alternative category. Helio spotted nutpods for its remarkable product reviews, strong early growth and overall brand, despite it having less than $50,000 in annual sales at the time. After, nutpods got investments from Stray Dog Capital and Melissa Hartwig, founder and CEO of Whole 30, and today is rated #1 on Amazon in its category.
• Tio Gazpacho is a quickly growing brand in the relatively new category of bottled soups, or more broadly, drinkable meals. Tio Gazpacho was founded in Florida, a place without a robust VC community, but Helio still spotted it, and surfaced it to General Mills, which now is its lead investor.

Helio is currently monitoring over a million brands across natural foods, personal care, beverage, home goods and apparel, and can help find who might be the next Krave Jerky, Seventh Generation or Too Faced. We are talking to likely candidates right now, and not just in the categories above, in all categories we see as promising growth areas in the consumer market.

CircleUp has always taken the view that the entrepreneurs with the best ideas, products and team should win…not the one with the best personal connections. Helio brings us a big step closer towards that ambition.

We are excited to see what happens when entrepreneurs with big ideas meet a capital market that has data science at the core. If you want to participate in that market, visit CircleUp.

Late last year, USV invested in Numerai, a hedge fund that uses data scientists all around the world to “crowdsource” stock price predictions. I blogged a bit about Numerai then.

If that business model wasn’t cutting edge enough for you, the Numerai team has now gone a step further and issued a crypto-token called Numeraire to incent these data scientists to work together to build the best models instead of just competing with each other.

When I read the Numerai blog post about Numeraire yesterday, I tweeted this out:

“The most valuable hedge fund in the 21st century will be the first to bring network effects to capital allocation” https://t.co/F5QHnPAtjH

— Fred Wilson (@fredwilson) February 21, 2017

This is all pretty out there stuff in a world, hedge funds, that has more or less done things a certain way for the last thirty years. I’m not saying hedge funds haven’t innovated, they certainly have, but I don’t think anyone has attempted to change the behavioral economics that underpin hedge funds in quite the same way that Numerai has. It is, if nothing else, a fascinating experiment that will tell us a lot about crypto-tokens, machine learning, and behavioral science.

I must admit that some of this is over my head. I’ve read the Numerai blog post as well as the Forbes and Wired posts several times now and I am not sure if I could explain all of this perfectly at a dinner party. But I am super excited that USV has invested in this audacious experiment and I look forward to seeing how it all pans out.