FULL TRANSCRIPT
slava (00:01.951)Hello and welcome back for another episode of Smart Humans. I'm excited for today's guest. We have Logan Allen joining us. He is managing partner and founder of Fin Capital. Thank you Logan for coming today.
logan_allin (00:15.918)Thanks a lot for having me, it's great to be here.
slava (00:18.427)Absolutely. So we always start with the same first question, which is, how did you get into alternative investments? How did it even all start for you?
logan_allin (00:26.478)Sure, well, I started my career actually in management consulting and while I was there, I was spending a lot of my time in the early aughts with large hedge funds, private equity firms and so forth, trying to help them with technology. So that could have been trading systems, market data, quantitative capabilities and so forth. And so actually got to know the alternative world through a similar seat to where I am now, which is a tech.
and the operational aspects of that. I ended my corporate career, as I call it, at Invesco, where we had pretty significant alternative holdings, although it was more of a long-only equity and mutual fund shop at the end of the day. And so, you know, really started in the technology aspects that ended up at a large asset manager, got to see it from the manufacturing side of the world, so to speak.
and then left Invesco to start my entrepreneurial journey, initially at SoFi. But then I was working pretty actively on companies like Zambado and Adapar, which were clearly very focused on the alternative space, again, taking that technology lens. And so that's where my journey started. And so if you were building technology or evaluating technology to be used,
by an alternative asset manager, you better understand the asset class on a pretty technical level. And so that was a great training ground, so to speak, for the way I think about the world now in terms of portfolio construction, managing risk, understanding duration, and so forth. And so that's how I got my start.
slava (02:13.807)And a lot of that sounds like it's been exposure to like company investing into stocks, things of that nature, whether it was public earlier and then into private. Have you had much experience with the other areas in alts, whether it's like crypto or art, NFTs, debt, real estate collectibles?
logan_allin (02:33.258)Yeah, so on the collectible side, early baseball card and magic gathering guy and so was collecting those and then when Bitcoin emerged in 2010, started buying Bitcoin very early on and around $10 a coin went to some of the very early Bitcoin conferences in San Jose.
slava (02:54.825)Wow.
logan_allin (03:00.478)And there were probably about a dozen of us at that point. I was very fortunate to be going at that point to the Bay Area, working on SoFi, and then attending GSB for the Sloan program there. And it was just all happening around that 2010 to 2012 timeframe. And so, started buying Bitcoin very early with a fundamental belief in the underlying technology. And certainly some
some inherent belief in the currency and gold aspects of that as well. So those were kind of two areas. Long only, certainly, I actually was a fairly early adopter of robo advisory initially with Schwab Intelligence Portfolios, actually, versus Betterman or Wealthfront or the like. I happen to be a Schwab customer from a legacy perspective. I was just like, I don't want to have to deal with this. And it was a set and forget it type approach with some tax efficiencies.
And then, you know, beyond that, not a lot in the real estate space outside of, you know, my personal holdings and, you know, some work I did around the startup world and looking at real estate opportunities, particularly as it relates to fractional ownership and so forth at SoFi. We were obviously heavy in the mortgage world and looking at ways to make that process easier. But yeah, on the professional side, it's really been.
know, strictly direct investments into private companies at all stages from pre seed through to pre IPO. Obviously, my day to day is in FinTech. But I have done some personal investments from an angel perspective. Our rule here at Fin as an RIA is very clear on that. It obviously has to be pre approved, but I can't have anything to do with FinTech. So my investments in on the angel side and my PA, I've really been around fitness. So I'm an investor in total.
entertainment, an investor along with my wife and a company called Catch Data, K-A-T-C-H, really interesting business in light of Netflix earnings announcement today. They're really focused on entertainment data, particularly as it relates to P&A budgets. And then third is in org tech with things like Calendly and things that we kind of take for granted today, but I always geeked out on because I'm kind of an organizational nerd.
logan_allin (05:27.939)Those are how I think about the world now, is it's FinTech out of our strategies at Fin, and then on the personal side, really just things that I find intellectually interesting.
slava (05:39.379)So we're gonna go back to organizational nerd in just a second, but you mentioned some magic gathering and sports cards, like what years are we talking about here? What kind of cards do you remember?
logan_allin (05:51.818)Yeah, so baseball cards were first. That was in the 80s. Kind of lost interest in that in the early 90s when I got into Magic and kind of games and General Warhammer and so forth. Was not a big video game player, interestingly. I really liked the team-based and or competitive card games and or board games. And I grew up playing board games and
had a very competitive family still do. My wife and I still.
slava (06:23.957)which board game would be your go-to competitive board game.
logan_allin (06:26.75)A lot of risk, a lot of Monopoly. And then these days, my wife and I play a ton of card games. Usually, when we're out having dinner or having drinks, we always bring a deck of cards everywhere. We play games like Sevens. There's a game called Golf that we really like. And then we also bring Monopoly Go. So I still play Monopoly, but in card form and highly recommend if anybody hasn't played Monopoly Go, check it out, it's awesome.
And then, frankly, in the 2000s, got into settlers. So played a lot of settlers, still do. The video game's not very good. I still much prefer the board game. The video game's just totally hackable. So we definitely prefer the board game. And I think game playing, so both on the board side, and then I was an athlete growing up. I played soccer and tennis. And then the other board game I'm more kind of well known for is chess.
So I was captain of the Duke chess team for four years. Finn actually sponsors the Duke chess team today to give them money to make sure they can go to tournaments, hire a coach and so forth. So it's still a big part of my life.
slava (07:38.355)So if you had to pick only one of these, and I'm sure you're gonna want all, but that was most valuable to who you are today. Is it the Magic the Gathering cards in games? Is it the Risk games? Or is it Sevens and the card games? Or is it chess?
logan_allin (07:57.526)It's definitely chess. So I played chess the longest and I spent the most time studying the game and the theory. And I think it can fundamentally change lives. And I was a part of a board that unfortunately we had to sell the IP in the middle of COVID called First Muth. Magnus Carlsen was the chairman and the idea was to put chess into third grade classrooms. The discipline that you get from studying and understanding chess and-
and the theory and the pattern recognition and so forth is so significant. The sportsmanship, knowing, learning how to lose, learning how to recover from that and understanding what you might've missed and building from that is so fundamental. And we still have a chessboard. I have two chessboards in this room here in every office at Finn. And it's been a big part of the team's life here and certainly something.
I play online, I don't play as competitively as I used to, but when I got to Duke in 99, they didn't have a chess team. And I thought that was kind of fundamentally a gap and built it with some friends and it's now one of the top programs in the country. So really proud of that history. And certainly now we're big sponsors of the team and we'll be into perpetuity.
slava (09:21.043)That's great. And from your personal account perspective, are you investing much into collectibles, art, or crypto?
logan_allin (09:31.318)You know, on the crypto side, have continued to buy layer ones that I think are game changing. So bought ETH very early, bought Solana very early. I have not gotten into the NFT world. That's not to say that I think NFTs, you know, don't have a future in our ecosystem. I just think they'll look very different than they are today. I think the utility of owning...
you know, effectively graphic digital art is, has been, you know, very much overblown. And, you know, I think that, you know, the board Apes Club and so forth, the wild novel is more fad than durable, but I do like the idea of fractionalizing ownership, tokenizing assets. I think there's a lot of opportunity there. So in the art world,
There are blockchain companies that are allowing artists to produce a piece of art day one and sell it for let's say $10,000 to be able to create traceability on chain of that piece of art so that in 10 years when it gets sold for hopefully $10 million, that artist retains some kind of residual right to share those profits as he or she should. And so I do think there's some huge opportunities in the art world, in the collectibles world for blockchain.
And in terms of my other interests, I no longer collect cards or the like. I don't have a lot of collectibles. I'm not a car guy. So unfortunately, that part of my life is probably lesser. Although I would say, I guess a former collectible is just really interesting chess sets. So I've got a number of chess sets from hundreds and hundreds of years ago that are just really amazing antiques. It's really cool. And you can still.
slava (11:13.855)Sure.
slava (11:21.203)Where do you pick where do you pick up some of that is that an auction? Where do you find some of that?
logan_allin (11:26.75)Mostly eBay, actually. And sometimes you'll see them in estate sales, where there's an old chessboard listed. You gotta do a little bit digging to make sure it's not just an old plastic set. But you'll find just an amazingly cool jade and or stone or marbled sets that look cool, but also you can actually play on and have an interesting experience with.
slava (11:28.936)Okay.
logan_allin (11:56.63)some history both in the game obviously and the pieces you're playing with which add to the sensory experience.
slava (12:02.899)So the last question about your personal investing, which is obviously you probably have a decent amount of exposure through your own fund and through your own investments into equities and pre IPO venture, et cetera. How do you think about diversification into other asset classes in alts in a structured way? Or is the answer you don't and you just opportunistically will invest into whatever, but really it's not too much of your portfolio.
logan_allin (12:27.362)Yeah, so on the alt side, I was obviously a team member at SoFi. I've got SoFi exposure. My wife was an executive at a firm. We have a firm exposure. And on the equity side, I tend to be pretty diversified away from FinTech. In my personal portfolios, I have an investment manager that handles that day to day for me. That allows me to keep arm's length just vis-a-vis our RIA status, which is super important.
but he and the team tend to be looking at healthcare, biotech, commodities, and then international. So I don't have a ton of TMT exposure on the personal asset side. And then as I mentioned, as it relates to traditional alternatives, I don't have LP positions on a personal basis. As a GP, just feels like I should be doing that work myself. We do at the firm though,
However, take LP positions out of our management company. And that's helpful to us in terms of creating partnerships. And so we actually have made five investments as a firm into other funds. And those were, in most cases, they had four out of the five cases actually, situations where I was an emerging manager in 2018 and nobody helped me out. I had a lot of sweat equity to build this firm. And...
I saw some emerging managers spinning out of places like Andreessen and so forth, and they were starting their own funds. I was like, look, I'd love to contribute in some way to your journey. I think you're a smart investor and you add value to the portfolio and you're a former operator. So we are very much of the mind that the best VCs are former operators. We don't hire non-former operators on our team. And that comes from a place of underwriting edge.
but also credibility in sitting down across from entrepreneurs and knowing what it's been like to walk miles in their shoes or thousands of miles in my case. And then lastly, actually being able to add value. One of the reasons I started Fin is that I looked across the landscape, looked at our cap table at SoFi and the other cap tables I had helped manage and it was just like 90% of the plus of the VCs on this list.
logan_allin (14:50.094)effectively reach out to us every quarter for financials and that's about it, right? They don't do anything else for us. And so for me, that was sad and I wanted to create a fundamental operating playbook that was repeatable and actually move the needle with entrepreneurs. We also, to prove that, I said, okay, well, that's nice. You can say you're going to add value, you can put an operating playbook in place, you can actually hire people. We have dedicated resources on our platform team that all they do all day every day is help our portfolio. But you also have to measure that.
And so we've instituted a very simple version of the net promoter score on a quarterly basis where we ask our CEOs, would you recommend us to another entrepreneur as an investor, you know, zero through 10? And we've always been between a nine and a 10, last quarter we were at a 95 or 9.5. And that's huge, right? So for me, that's one of the biggest metrics that I look at is...
Are we adding value beyond capital and if we're not, we need to change something.
slava (15:50.863)Yeah, I love that you went there. That was going to be actually one of my questions about having that operator background and using that as an edge. So awesome that you covered that. Can we segue that into, um, which you kind of already did, but like, why create Fin Capital, right? 2018 is, you know, you had so much operator experience.
What was the opportunity that you saw? And obviously you're doing a good job now because you've gone to raise more capital and have great results. So can you just paint the picture before Fin Capital existed, how you're thinking about that chess move?
logan_allin (16:22.774)Yeah, great question. So I was running SoFi Ventures and built SoFi Ventures in 2017. I think it was publicly known, the SoFi management team turned over at the end of 2017. I stayed on to help the interim management team, interim CEO, interim CFO, write the ship a little bit, help find a new CEO. Obviously that became Anthony Nodo. And it was clear to me, once you get into venture, it's hard to go back to operating.
And I had been in venture for three, four years at that point with a mix of operating back at SoFi where I was doing some corporate development and M&A work, some IPO prep work, and then the venture work. And I just continued to be passionate about working with entrepreneurs and founders and helping them realize their vision. And what I started seeing was that SoFi is...
there's some great fintech specialists that I have a significant amount of respect for. But they were all focusing on consumer and SMB oriented models. And they were doing that predominantly in the US, but as those spaces or particular areas became saturated, they were expanding into the UK, Europe, and Latin America and elsewhere, right? Some were going into India and Southeast Asia. And I said, well, two things. One is there's this whole world of B2B fintech.
that I think is potentially the most attractive green fields for the next decade plus. Number one, number two, I don't have any investment edge in places like India, Southeast Asia and so forth. And so underwriting businesses and feeling comfortable investing OPM into those types of companies is really troubling to me. Number three, going back to the...
slava (18:13.358)Sorry, OPM is other people's money. All right, just making sure everybody on the same page.
logan_allin (18:15.454)Other people's money, exactly. Yeah. And so, and then the third piece was, I didn't see anybody who had a specific operating playbook for their companies, but particularly for the B2B trends that were emerging. So in 2015, we got Stripe, we had Plaid around that time. There was just so many businesses emerging, servicing other companies. There were really two types of B2B businesses.
that have emerged. One is a take-rate business, right? So they're taking some kind of revenue share of the volume running through their technology. That could be on payments, where they're getting a piece of interchange, or it could be on lending spreads or the like, be a marketplace business. There's lots of take-rate businesses out there. I think the challenges we've seen from take-rate businesses square are now blocked.
being a good example, Marketta being a good example, is that you've seen take-rate compression, you've seen the opportunity for competition to enter those markets, and you've seen real challenges and then introducing software beyond that core transaction capability. And so I didn't love those business models. I decided that those were business models within the B2B world that were gonna struggle.
And so we just said the second part of the B2B world is the most attractive, which is enterprise software that also has a take rate. We call that SaaS Plus. So it's got to be a SaaS Plus business model where they're very passionate about building software for an end consumer. That end consumer is going to be a bank, an asset manager, an insurer, and another other fintechs and then corporates. And then on the corporate side, that's retailers and big tech.
Right, so that's what we're focused on. Are you building a piece of software serving one of those end customers? And are you then also participating in the upside of that network effect? So for example, Pipe in our portfolio, they're providing software into recurring revenue businesses to provide terrific visibility into analytics, integrating into your SaaS recurring revenue payments.
logan_allin (20:34.686)a subscription provider, your payment software, your operating account, your GL, all those things, and then providing you an analytics view of your business that is incredibly interesting and compelling. And then beyond that, they're also allowing you to securitize those contracts to pull revenue forward as you need it to reinvest in the business. You know, a good public example is bill.com, right? So they're charging a monthly fee for you to be able to use their software to handle your AR, your AP, and your invoices.
but then they're also making a piece of the interchange and the payments volume on the backend, right? So those are the types of models that we think have the most durability, particularly across cycles like this one. And then secondly, have just been far more embraced by the public markets. And the public markets have not been kind to my alma mater, SoFi, nor any of these pure take-rate businesses, because they look at it and they see in most cases some kind of balance sheet and or credit risk.
They see pretty material capital intensity in the business from a customer acquisition perspective. And then third, they see margins that are in the teens or 20s. And that doesn't get financial investors really excited. So that's why we're really delving into the SaaS Plus orientation and doing it where we see maturity in markets. And that's the US, UK, Europe.
and now emerging Latin America, Israel and Canada.
slava (22:07.699)So the SAS Plus model is super interesting. And then you went there with the public markets reacting not so well in the last few months to maybe other models and multiple compression, et cetera, et cetera. And really, fintech, right in your breadbasket, it's kind of getting crushed. I think it's fair to use the word crushed.
logan_allin (22:26.946)Cool it.
slava (22:30.007)10 years ago, people were just on the cutting edge of, is FinTech even investable? And then 18 months ago, FinTech was getting one out of every $4, I think. And now all of a sudden things are very different. So you're the expert here. I would love for you to contextualize the market a little bit from a FinTech lens. What is happening? Where is it headed from your opinion?
logan_allin (22:54.09)Yeah, so, you know, fintech stocks in the public markets, whether it's consumer SMB or B2B, and either of those models are down significantly. We're looking at Q2 data now, but that number is probably 70 plus percent. And the businesses that have taken the largest hit have tended to be consumer and SMB first and foremost.
And we believe the ones that are going to snap back and have the most resilience when the market does start to recover, which, you know, I think our expectation is really second half of next year that IPO markets start to reopen and we get some recovery likely through some visibility into interest rate reduction and hopefully a lower inflationary environment. And, you know, our view is that
those B2B businesses in the public markets will snap back in a more resilient and rapid way. And I think on the private markets, FT Partners and PitchBook and the NBCA just came out with their data. You know, there's a bit of a lag in this in this funding data, obviously on the private side, just given when rounds close versus when they're announced. But Q2, give or take is around 30-40% decline in terms of volume.
And that's a pretty material change on pacing. Sequoia and Tiger were still the number one and number two players in terms of deployment in Q2. And from our perspective, we certainly lowered our pacing. And that was a function of having raised capital last year, deploying this year.
new investments and not forcing anything. I tell my team every day that we should be focused on catching falling dollars and not falling knives and the additional work that you have to do to evaluate that is pretty fundamental. And there's been a lot of rounds reopened. We've participated in one or two of those. There's been a lot of down rounds and restructurings. We haven't participated in any of those. We haven't gotten really excited about that.
slava (25:13.176)Sorry, I just want to jump in for a second. So there's been a lot of rounds reopened, meaning somebody raised money at a previous time at X price, time has gone by, they probably have grown at some level, but the price is still the same, they didn't actually have a markup. So it's kind of just the same price, even though it's a month or a year and a half later.
logan_allin (25:30.606)Correct. So in these cases, it's about a three to six month lag. And they said, you know, we've gone to the business, we like the business, we're trying to play offense. And we say, hey, look, you raised around in summer of last year, or call it Q4. And most of these deals we did were in Q1. And we said, look, you know, we love what you're doing. We'd like to put capital work, we think we can add value with our operating playbook. If you're willing to reopen the round and the investors are supportive of that.
of you going out and taking on venture debt or trying to put a safe note in place or the like, let's just do something super clean and we'll top you up on that round structure. And that's been a way of preempting without taking on candidly an increase in valuation. So those are flat rounds, but with very attractive assets. The second. Go ahead.
slava (26:20.671)I've heard, sorry, I've heard that flat is the new up from a lot of people. And would you think about it the same way? Because if you think about it as like a public markets drop of 70% in value, then really that valuation that you had previously should be 70% less. So getting flat is you just got a lot of up, right?
logan_allin (26:38.318)Correct. That's the way to think about it is that they're still growing into the valuation that was placed on them last year fundamentally. They don't deserve that valuation given the reduction in public comps. But we're willing to retain that valuation given the traction progress they've made and the ability to get onto the cap table, get the ownership that we would like to see and then help them accelerate in this environment and give them 24 months of runway.
24 months is really the focal point from a runway cash position perspective. And that could be reopening around, putting a safe note in place with a reasonable cap and a discount, adding some venture debt, which you should view as your last dollar, and then fourth, just being really thoughtful about your burn dynamic relative to your revenue and relative to your stage. I was seeing Series A company last year burning a million and a half to two million a month. And it's kind of like,
hey, you know, 500k to 750 should be kind of your sweet spot at that stage. And you know, series B, series C companies, it steps up from there, but just being really thoughtful about your burn profile, about your hiring plans and so forth. And so that third category, I mentioned, I think is the most attractive category, which is in their operating plan, the first half of this year is when they decided to raise and that's just bad timing.
And so it's a great company, terrific opportunity from an upside, so a lot of room to run, and they just missed time to market. And that's really unfortunate for them and the existing shareholders, but it's a way for us to play off it. So one example of that that's public now is SumUp, where they were talking about a 22 billion euro valuation last year, and that became public information in TechCrunch.
And they merited it last year because Square was trading at 22 times revenue, right? And SumUp's profile from a growth and a margin perspective are far stronger. But we ended up doing around it seven and a half. So it's a really interesting opportunity. And I think for investors, this is a buyer's or investor's market at this point. Founders are having to be more price takers at this stage.
logan_allin (29:04.654)but I think it's very healthy. And I've tried to explain it to a lot of our founders and new investments we've made, like, look, this is no reflection of my view of your business and the opportunity for upside for all of us here. But I think it's better that you take a look at public comps and private comps, take this type of valuation and the dilution will still be attractive to you at this point, but you'll be able to.
very quickly grow into it. And then your next subsequent round, whether that's an IPO or another round of financing, can be even more meaningful because you will have been thoughtful about your growth, about your valuation and so forth. And then on the growth and late stage side, everybody that we're invested in or looking at investing into is very much trying to pull forward profitability. Trying to look at, okay, I was growing 60 to 80%.
Now growth at 30 to 40 percent is fine so long as I can have either EBITDA today or light at the end of the tunnel as relates to being EBITDA positive.
slava (30:09.092)So you said for sum up it was going to be 22x but then it ended up about 7.5x and you said that some things have dropped about 70%. I mean all of this sounds like plus minus valuations are let's call it one third of what they were you know let's call it a year ago. Is that fair?
logan_allin (30:26.374)Yeah, I think that's right. There's a couple of things there. One is focusing on trailing revenue, not giving as much forward credit on management estimates. So I think that's a big part of that equation, right, is things were getting priced off of current year or next year's revenue, that is no longer. So that's obviously compressing multiples on a trailing basis. And...
For us, it is underwriting to the thesis, first and foremost. We take a very macro top-down thesis orientation to how we evaluate these companies. We need to see a thesis that truly has green fields. It's not kind of retreading or creating a significant amount more competition in the market. E.g., we need to see venture project with a return profile in the business. And then secondly, again, is that value add. So.
For us, we are backed by a lot of banks, asset managers, insurers, wealth managers, and other fintechs who we can work with our companies on commercial and business development deals. And then we have a head of corporate development who full-time looks at raising capital for our companies on the equity and the debt side, helps them with inbound, outbound M&A, and then supports IPO readiness. And so that is a big bar for us. The other bar that we do integrate into our model.
DDE standpoint is ESG. So we bake ESG metrics into our upfront evaluation of that business and then the ongoing monitoring. We're a UNPRI signatory. We're not ESG or I'll call it social impact investors prima facie. You don't need to see a double bottom line in that business. We're still indexing towards returns. But our view is that they're making progress on those ESG metrics. They're going to be better, more long-term, durable businesses.
slava (32:20.031)So as your team is doing diligence and evaluating companies, can you share with me, let's call it three trends that you're trying to look for or invest into? Today's market is obviously different than 2018 when you started. So if you could share with the audience, what are three interesting trends right now in your space?
logan_allin (32:42.158)Sure. I would say a couple things. One is picks and shovels in Web3 and blockchain. So in that world, we think about it as effectively replicating the traditional asset management and bank worlds in the digital world. So that includes custody, back office, middle office, and front office. And so if you think about that from a blockchain perspective, we've announced investments in Prime Trust, in Circle.
in Talos, it was all touched different aspects of that traditional asset management banking world that they have the capabilities, tech stack, and domain expertise to be able to solve for crypto and digital assets, whether those are stable coins, currencies, or tokens. And then the second trend that we're excited about is a little less exciting from a...
from a space standpoint, I call it boring fintech, but this is the CFO tech stack. So we all have CFOs at the end of the day, and they've been woefully under invested in as it relates to their technology stacks. Like there's not been a lot of innovation since QuickBooks. And so I think, you know, you're seeing a lot of opportunity there, whether that's in the kind of team pay Brex ramp world, which is procure to pay.
CFO expense management tools and so forth, whether that's in next generation ERP and accounting at P&A capabilities, there's a huge amount of innovation happening there. And it's a universal need, right? There's CFOs in every single business. There's treasury and finance functions in every business. We invested in Travada recently that was announced and that's really in the treasury and corporate management side of the equation and yield efficiency.
partnering with the banks in particular. And then I would say, you know, the third area that we've been spending a lot of time in, I would broadly call enabling tech and infrastructure. These are all the horizontal opportunities. Some of these look like traditional enterprise software because they are, but their biggest customer bases happen to be in the industries that we're investing in, which we can have underwriting edge around.
logan_allin (35:03.358)So one great example in our portfolio is Natomi. Natomi is the leading provider in our minds in customer success automation, Omnichannel. So email, chatbot, text message, social, IVR assisted, et cetera. And they're working with everybody from Brex to Southwest and Disney, right? So like really broad, expansive set of relationships.
but all trying to solve for this digital customer experience. The banks and others have always been focused on the onboarding of customers digitally and getting that right as opposed to sending you a PDFs or having you come into a branch. Well, that's cool, but that's 1% of the customer's life. What about the other 99%, right? And so we really liked that opportunity. And there's things like customer success automation serving customers digitally. There's cloud migration in this category. There's big data analytics and then there's RegTap.
RegTech could be cyber fraud or KYCML type capabilities and so forth. And so that broad category as the industry continues to evolve, I think will be one of the biggest categories. My favorite stat in the space is that the banks this year will spend about one and a half trillion dollars on technology. They're number one in the world in spend. That's a Gartner data point. And that's bigger than any government, any other industry.
And yet less than 10% of the bank's data is in the cloud. And that's not just public clouds, that's potentially private clouds as well, right? So they're first in spend and dead last in cloud adoption, even less than the DMV. And that's super, super pathetic. And it gives us a huge opportunity because the only way to cross that chasm is through enterprise SaaS. So that comes back to...
slava (36:46.256)Wow.
logan_allin (36:57.174)know why we're so excited about this space, why we think it's durable long-term from a trend perspective, and you know why our companies and we have over 100 companies now and we think you know all of them are approaching this these problem sets from different vantage points.
slava (37:16.379)Great. I want to bring something back that you said a little while ago, organizational nerd. How does that manifest for you as running Fin Capital and how does it help?
logan_allin (37:27.166)Yeah, so I would say that I was an early adopter of Calendly. I was an early adopter of a program called Boomerang, which is my favorite email add-on. And Boomerang, for me, is a huge organizational capability because it integrates into the calendar. You can share calendar availability and integrates into your email. So if you send an email and somebody doesn't respond, Boomerang's back to you.
and that makes sure that I have inbox zero at largely all times. I find Boomerang to be a stronger capability, by the way, than Superhumans. Not to knock out Superhuman, but it is a cool email app. I trialed it and I was like, ah, it's not really giving me everything I need. And that was really the Boomerang capability and other things. The best standalone email app I've seen is Spark, just Spark Mail.
They now finally have both a PC and Mac OS and iPhone app. And that's the cleanest email app I've ever seen. It's owned by Riedel. If the CEO of Riedel is reading this, or listening to this, I should say, please contact me. I would love to buy your company. It's the coolest email app I've ever seen. And so all of those, I just love those types of things. There's a team sharing.
Note-sharing app called Hugo, which I'll plug. I think that's really cool It allows you it integrates in your calendar and allows you to take notes by calendar invite Which keeps you super organized. We ended up building our own platform called lighthouse Which we integrated into affinity And lighthouse.ai is our effectively our OS it helps us source you know analyze and assess and monitor our portfolio
And candidly, there just wasn't much out there for VCs in the way of really strong end-to-end technology. And so we ended up building it ourselves, which has been the answer, by the way, for Sequoia, Kotu, and a lot of our other compatriots in the space. And there's definitely an opportunity there, I think, for founders who are interested in trying to solve some of those problems. Today, I do have an EA who's doing, who's great and works with me mainly on the calendaring and the travel side.
logan_allin (39:46.338)But in terms of organizing my to-do list and structuring my day, now with 26 people, a billion plus under management, and 100 companies, and all kinds of functions around our firm, we have three private funds and a public strategy. It makes sure that you're very focused and you're absolutely ruthless with your calendar.
slava (40:13.107)That's great. Thank you for sharing that. I mean, people want to know how you get so much accomplished. So that is definitely helpful. One of the things you mentioned a little while back, which I don't want to lose on is that you essentially are predicting that the second half of 23 is when things are going to start coming back. Inflation coming down, potentially rates coming down. I want to, you know, expand on that in a second, but you did say there's going to be the SaaS Plus model.
you know, is going to do better for the B2B companies. Can you give me a couple of examples of two or three companies in the public markets? Who are those companies that we can watch out for and maybe invest into them?
logan_allin (40:49.898)Yeah, I think build.com is one that everybody should be keeping an eye out on. I like that model. I love the management team. I've known Renee for a long time. And I think they have made some very smart acquisitions, a la Divi and invoice to go. And those are really, really interesting businesses that are natural adjacencies and allow them to add software and take rate to their business model.
And that focus has led them to, I think, being undervalued in public markets. They've had a couple of pops here recently as has, you know, most of the fintech market in the last couple of days. But I still think dramatically undervalued. I think Shopify is a great example here as well. Right. So they're selling software and services and the backend capabilities and so forth into merchants. And then obviously, they're taking a piece of take rate in partnership with Stripe. And there'll be other capabilities, e.g.
insurance and so forth that they can layer into that merchant opportunity. So we really view that as software first, take rate second. And I think there's a lot of room to run and upside and shop by as well. And then I would say of the other players in the market, those are really the two that I could have some level of conviction on.
The challenge now with most of the public fintech names, like Square, like Blend and so forth, is they've all come under a pretty significant pressure in margin compression, take rate compression and so forth. And that is, I think, really problematic from a recovery perspective. They have a higher degree of inflation sensitivity, higher degree of interest rate sensitivity versus Shopify and Bill that are more insulated.
Certainly Shopify will ultimately touch end consumers and consumers with inflationary concerns may have some rotation in their baskets and obviously rationing down their spend. Although that hasn't proven out in the credit picture right. We're at around 900 billion in credit outstanding now back above pre-pandemic levels. So while consumer confidence is down, credit is up. And so that's a good signal for those merchants.
logan_allin (43:13.026)just needs to be shopped by. So those would be the two that I would say, if you're gonna look heavily at investing in fintech in the public markets, we're gonna snap back, I think, the fastest. And we would be excited to invest in the public markets. We don't have a public fund, but certainly those would be interesting.
slava (43:35.111)And what broadly is your perspective on the market and where it's headed? So can you paint a little bit more of what you think about where things are headed in the next 18 months?
logan_allin (43:45.23)Sure. So we're going to be putting out our Q3 Navigator and releasing it publicly in September. So a bit of a preview on that. But, you know, we think that obviously inflation got out of control. Part of that was PPP. Part of that was geopolitical in nature with obviously oil prices spiking as a result of the Ukrainian-Russia issues.
The fact that our country has ratcheted our own oil production back down, that has put an upward pressure on prices. And our biggest fear, I think, is you continue to raise rates, growth stalls, and you have inflation, you get into a stagflationary environment in Q4. I think that's our biggest concern. I think Powell has ratcheted up.
very quickly, but it was too little too late. So this really should have started in Q4 of last year with visibility into the inflationary picture and they hadn't really accounted for geopolitical tail risk. So the Russia-Ukraine issues have created a knock-on effect and that's been really problematic for core inflation. I think that Powell increases, most people are saying,
three to three and a half percent on interest rates. And then we start to get some pullback on interest rates. And as soon as they create some signal around that, obviously that's gonna improve everybody's DCF analysis in the public markets. That's gonna have an upward effect on public prices. And hopefully that will come with lesser issues on the inflation side, a stronger consumer competence index.
And my hope is strong credit and balance sheet profiles, both at the banks and at the individual consumer level, we don't see runoff or credit losses or big spikes in those issues as well. So the perfect, the ideal timeframe would be first half, second half of next year, more likely when IPO windows reopen, you start to get more liquidity back in the system and that gets recycled into more private market investing, more LP.
logan_allin (46:05.114)liquidity and obviously more LP checks hopefully for the GPs that merit them. And what I'm emphasizing to our team is we've got a couple exits as a firm, that's great, but in order to really merit raising more capital next year, both for ourselves and the rest of the ecosystem, you need to be able to produce liquidity and realizations. I gave a quote, I said something at a conference the other day that just kind of came to me, which is...
Nero Rubini said in 2008, you can't eat an iPhone. Well, you can't eat unrealized paper games. You just can't, right? And so I think for LPs, they should be demanding those realizations because you can't really prove that your strategy is working. You can produce consistent alpha unless, quite frankly, you can produce real realizations. And that's a function of how the M&A...
and LBO and IPO markets are reacting to the types of businesses you're investing in. For us, we've really centered our strategy around greenfield opportunities, certainly, but also what's going to drive the best outcomes for our founders, our investors, and our team from the legacy and impact standpoint. That's why we've just completely focused on this one part of the Venn diagram within FinTech.
slava (47:27.079)Great, so we're almost done here. We like to finish with a couple of fun questions, which is one, what do you like to listen to? What do you like to watch? What do you like to read? Like, how do people listening to you now get as smart as you and know as much as you? Like, what are some of those examples?
logan_allin (47:43.402)Yeah, so ironically, I don't listen to a lot of podcasts. I just don't. For me, my brain is so active that if I'm listening to podcasts, I start thinking about 20 different things or ripping off of the podcast. So I tend to read largely Wall Street Journal and FT every single weekend, and both the paper version and a Kindle version. I read a lot of...
CIA and mystery novels. That's kind of my brain kind of turning off a little bit. And I read those before bed every night. And then in the mornings, I go to the gym six days a week in the mornings. I can't work out at night, I can only work out in the mornings. And there I'm typically listening to CMEC. And so a healthy dose of, you know, kind of public markets, macro, and then, you know, just some fun things that are creating creativity.
On the FinTech side of the world, I read all of the, my sub stack is pretty full of things like Linus, I think he's super sharp, Spectre Monitor, let's see what else, I'm gonna look at my inbox here and cheat a little bit. What have I read recently? Yeah, basically all of the FinTech rags, I read all the time.
Some of it interesting, some of it not. But for me, it's just like, I wanna make sure that I'm contributing back to the ecosystem and certainly commenting on LinkedIn, providing my perspective and so forth. So I'm really gonna read anything that's coming out related to FinTech to get other people's perspectives because for us, we're spending a lot of time on thesis development.
We're doing that mainly though through our own experience and talking to customers. And those customers are the ones I mentioned earlier and we spent a lot of our time doing that. We talked to academics. So for example, I've been involved with the Duke FinTech master's program. What is academia seeing that we might not be seeing? What are the incubators and accelerators seeing, right? I do a lot of that type of work that's just very hands-on and direct versus,
logan_allin (50:03.458)reading in a book, I like being out in the field.
slava (50:06.551)And then thank you for sharing that. What is one investment, and you kind of already shared a little bit for a second half of next year, but we always ask this question, which is what is one investment that you would recommend that three years from now, when we have you back on the show, and we'll try to get you on next year anyway, but three years from now when we have you on the show, we'll get to say this worked or it didn't work. What's a real investment into a real alt or a real company into a real situation, product, collectible, whatever you want, anything.
logan_allin (50:34.51)Totally. Well, it's a public one, which is Circle, right? So we just participated in a series app of Circle publicly announced with BlackRock Fidelity and Marshall Waste. There are only four of us in the round. And we did a lot of work on this investment in the second half of last year. We really struggled. Are stablecoins going to be a thing? I think we got very comfortable there and highly convicted that stablecoins have the opportunity.
be the future of commerce. Nobody's gonna buy pizza with Bitcoin anymore, right? So you need a stable coin to transact in an e-commerce or offline setting. You need stable coins for remittances, consumer peer-to-peer. But I also believe stable coin can play a role in replacing Swift and execute on what Ripple had ultimately envisioned. And then lastly, they have a place in asset management and yield, right, in the future.
So our view is that stable coins are here to stay and they're gonna be probably one of the most exciting and transformative, if not the most transformative aspects of the digital asset space. And then secondly, the thing we had to believe is Circle is gonna be the winner. And that took a lot of work, right? I inherently viewed algo coins as problematic, black box, if you will, in nature, and you just never get comfortable that
those were going to retain their shape and be able to maintain pike to the dollar. And sure enough, after we invested three, four months later, at Peru-Prescient where TeraLuna obviously falls apart, Tether has obviously had outflows. Tether has like a dozen people on the team and is not really an institutional grade stablecoin in our minds.
kind of the work we had done upfront, we had some concerns about the longterm viability of that business. So we said, yeah, USDC is gonna be the future, really like Jeremy and the team and what they built, the culture they built. And frankly, the posture that they've taken to regulators, which is we wanna be thought leaders, we wanna be regulated, and we wanna ask for permission versus forgiveness. And I just think that's the optimal position to be in if the digital asset world is going to
logan_allin (53:00.354)move into the TradFi world and be a part of our core GDP and a part of our core economy. That's the type of approach that needs to take place. So that's the kind of bet. It's public, so it can be purchased. It's currently in a DSPAC process, trades under C&D. And I think it's a really super solid opportunity. And my hope is three years later, what you would have to believe in terms of the things I outlined.
be proud.
slava (53:31.415)Awesome, all great answers and thank you for sharing all that. This has been a really incredible conversation. You took us all the way from 2010 with Bitcoin. You at a young age getting into chess. You love playing cards even with your wife. You built out the chess team at Duke, which is obviously now crushing it, which is awesome. You had your unique point of view on B2B, which you have the SaaS Plus model. You're an organizational nerd and was able to bring that to your portfolio and to build out your organization even better.
I love that you put yourself on the spot and said that, you know, the economy is challenged right now, but you do think it's going to turn around in the second half of 23. You're telling your folks to find falling dollars, not falling knives. And you gave us your three trends, which is, you know, picks and shovels at web three, the CFO tech stack and enabling technology prices are down to one third than they were from before. So pull that profitability forward and you put your money where your mouth is with bill.com Shopify and circle. So thank you so much, Logan. That was great.
logan_allin (54:26.05)Thanks a lot, great to be here. You too.
slava (54:27.731)Have a good one.
