Dawn Capital, a venture capital firm, recently announced it has led the funding of $10 million in derivatives analytics start-up, OpenGamma. In a mini Q&A with Josh Bell, General Partner at Dawn Capital, he shares his views on what a venture capital firm is looking for in in the fintech space in 2019, the overarching trends and how it determines which start-ups to focus on.
Q. First can you tell us a little bit about Dawn, your ethos and areas of focus this year generally? What are some of the other types of firm you fund in the fintech/capital markets space?
A. Dawn is Europe’s largest VC fund dedicated to investing in B2B FinTech and Software businesses. We invest in companies from Series A onwards looking for outstanding founders across Europe who are creating scalable, technology-enabled, B2B companies in high-growth markets. With a specialist focus in B2B, Dawn invests at an early stage and helps its portfolio companies work through their growing pains, to execute faster, and ultimately to shorten the journey to scale. Our investments in the FinTech space have spanned through lending and payments technology providers such as iZettle and Divido through to data governance and analytics platforms such as Collibra and Quantexa.
Q. You recently raised funding for OpenGamma. Using this as example, what are the trends you see in the industry that are both influencing your own funding strategies but also offer insight into how the markets are evolving?
A. OpenGamma exhibits all the qualities we look for in our most promising investments – companies with deep technological and product moats that solve difficult and valuable problems for their customers. OpenGamma’s sophisticated analytics platform and unique coverage and relationships with CCPs builds on the deep domain knowledge Peter and his team have in OTC and ETD margin methodologies. They really understand the problems their customers face in operating in today’s derivatives market. They are working with the world’s top-tier global banks and institutional fund managers and, from our conversations, it was clear these firms are highly enthusiastic about working with OpenGamma.
Across fintech and capital markets more specifically, we see increasing collaboration between the largest financial players and younger technology-enabled partners. OpenGamma is an obvious example of the reward such collaboration can bring with the support they have in the industry from existing shareholders such as CME Group, JPX, and ex-Sungard CEO and industry veteran Cris Condé.
Q. What makes you decide to work with one firm or another? There are so many start ups in the fintech and regtech space? Are there key things you look for in a start up in this space? If so, what are they?
A. Each year at Dawn we will review a few thousand businesses across Europe, trying to filter down to those we believe have the highest potential to become a market-leading or category-defining company. Investing, as we often do in new products and markets, comes with challenges – so ultimately our decision to invest comes down to our strength of conviction in the market, in the product, in timing, and in management. We assess every company on its own merits and with the benefit of a decade’s experience working exclusively with scale-up B2B software and fintech companies.
For example, in iZettle, we saw an excellent management team with a vision to support a huge, but grossly underserved, market of 30m SME merchants in Europe with €10bn of transactional fees available for capture in its current markets. The business was exhibiting market leading customer acquisition metrics and unit economics – churn was minimal as value-added services provided strong lock-in with customers. Their time to market was perfect and before the $2.2bn sale to PayPal last year they had built the leading SME-focused mobile payments company in Europe and LatAm.
Q. What are some of other trends you see influencing the fintech and regtech space in the coming years? Are you looking at crypto currencies for instance?
A. Even in the last two of three years, the majority of capital investment in early stage fintech companies been in companies aiming to improving the distribution of financial services products through digital channels. But there is still a raft of legacy infrastructure which financial services rely on the deliver products and services which needs updating or replacing. We believe there is a huge opportunity for B2B software companies to work with the world’s largest financial institutions and build the next-generation of infrastructure and software services. Whether it is in core-banking software, payments infrastructure or data and analytics platforms, the market is flush with exciting new entrants.