A Boston VC’s big dig for early-stage payment and fintech innovators

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A new venture capital firm hopes will differentiate it from other fintech investors by taking a more hands-on approach.

Called Vestigo Ventures, the Cambridge-based firm has closed its initial $58.9 million fund. Its goal is to get in on companies early enough to be an active coach rather than a broad advisor.

Vestigo has made early investments in eight fintech startups, including Student Loan Genius, which creates automated payment rails for education loans; and Digital Assets Data, which manages data and processing for crypto assets. Another startup in Vestigo’s portolio, Mirador, provides artificial intelligence-drive financial services and payment cards for small businesses.

“There is a large gap in venture capital investments in the U.S.,” said Mark Casady, co-founder of Vestigo Ventures, contending the focus of most fintech and payments venture capital goes toward later stage companies and misses the opportunity to support entrepreneurs.

Vestigo’s founding team has ample experience in fintech startups. Dave Blundin, Vestigo’s general partner, was a co-founder of the wealth management company Vestmark; Vestigo's co-founder Ian Sheridan developed financial middleware for DST Systems; and managing director Mike Nugent created Bison, a data acquisition and analytics company.

“We saw a segment for investing in ventures that respond well to oversight,” Casady said. “If you invest in a later stage company, you’re there as an investor and board member and nothing more. At the early stage, you are helping the management team do as much as possible."

By providing hands-on guidance, Vestigo hopes to gain a position in the rapidly changing fintech industry. Even with the high flow of investment into fintech over the past few years, the payments, retail and financial services industries are poised for even more change via digitization, AI and decentralized applications, according to Casady.

“You need early stage capital to create a flourishing community of entrepreneurs,” he said, adding financial services and payments will change as much as music and newspapers did from the forces of digitization. “If we take our background of data, AI and new technology, there’s a lot there than can be applied to financial services.”

The mix of early-stage investment versus late-stage investments is complicated, depending on the type of startup. "Fintech" is a broad term, covering a range of companies from payment startups to wealth management platforms to automated underwriting.

The overall market for investments is booming. Fintech investment in the U.S. surpassed $8 billion in the second quarter with more than $12 billion in the first half, according to KPMG. VC investment in blockchain was particularly strong, totaling $858 million in the U.S., more than 2017’s full-year total of $631 million, suggesting investment in companies that are earlier in their lifecycle.

Vestigo is not alone in its strategy; early stage fintech companies are drawing healthy investment, according to KPMG, noting several of the top deals in the first half were seed funding or early stage. The payments category is an exception, however, with most recent funding toing toward later stage companies.

Additionally, mature companies get larger deals.

“More money goes to the mature fintechs than the new fintechs which makes logical sense – after a company starts proving its value, they attract bigger investments to keep going,” said Talie Baker, a senior analyst at Aite Group.

As Vestigo hopes to carve out a niche among VCs, other VCs can challenge Vestigo's competitive pitch. Most early stage VCs are not vertically focused because they tend to place more bets/make more investments and then take a portfolio approach in terms of investing in different industries and technologies, said Janet Bannister, a general partner at Real Ventures, a Toronto-based venture capital firm which has invested in payroll technology among other fintech startups.

“That being said, most VCs have different partners focused on different verticals and so even though a VC could have a broad/multi-industry approach, they can bring very deep expertise in different verticals via specialized partners,” Bannister said.

Bannister is well-known in Canada as the founder of Kijiji, an eBay-owned classified ad service and at Real Ventures has invested in several merchant technology companies.

“There is often an advantage for early stage fintech companies to getting funding from more generalized VC firms as more generalized funds can often bring a broader skill set and broader perspective,” Bannister said.

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