You were an early believer in missionary investments in financial services. Tell me about your path to the early-stage VC world and this sector.
KU: I care about making money, but I also care about making an impact. We don’t really care about the top couple percent of the US; we care about the everyday American. When I started my career at GE Capital, I realized I liked investing in entrepreneurs and CEOs. I went briefly into investment banking and made an angel investment in and led Green Rock Entertainment, through which I won an award from EY and got involved in Entrepreneurial Winning Women. I sold that company to a private equity firm, and I’ve been doing venture ever since. I met my partner back in 2011, mainly because I was looking to invest in things that were meaningful.
What role does VC funding play in the overall entrepreneurial ecosystem, particularly in helping close the wealth gap?
KU: To be venture-backed, it has to make sense for your business: you have a specific opportunity, a market where you can be a real category leader but probably won’t be profitable for a while and need enough capital to scale. VC lets great entrepreneurs scale as quickly as possible, and it’s amazing to watch. It’s a vital part of the economy. Some of the biggest companies we’ve seen that can help everyday people are venture-backed companies. There are dozens of examples of companies that support underserved communities — such as providing loans to the Latino consumer or supporting financial literacy — that wouldn’t have gotten off the ground or would have grown a lot slower without VC funding.
What’s your advice to those looking for funding? How do you pick winners?
KU: It’s best to get a warm introduction to a VC. But many VCs have been taking cold introductions, especially from those in underrepresented groups. You can search for people online and find so much, including what to say in a pitch deck. A thoughtful, well-researched pitch goes a long way.
We look at the team, the product and the market. I want to know why people are doing things, and whether this person has an X factor. They need an idea involving something I want to see solved in the world. We may be in this together for a decade, with big ups and downs, so I need to really like this person, really want this to exist, and know we’re going to make a lot of money and help a lot of people.
How can VCs democratize opportunities?
KU: There needs to be more access earlier in the process. We encourage our portfolio companies to have more diverse hires. It’s a lot easier to be able to build a company after you have startup experience, having seen what went well and what didn’t. Most successful entrepreneurs are in their 40s or 50s, so if you can get people in their 20s and 30s into some of these rocket-ship companies, they can learn the process and meet the networks they need.
If we dismiss an idea and it comes from someone in an underrepresented group, we give constructive feedback about what they need to be venture-backed.
Something that will help is getting more Black and Latino VC funders. Only 9% of check writers are female, but once you have a female VC, you’re more inclined to have female portfolio companies. The same goes for Black and Latino VCs.
What did you see change in the first 18 months of the pandemic?
KU: We were fortunate in FinTech. During the first leg of the pandemic, out of about 60 portfolio companies, only two were very negatively affected. Most benefited because everyone was at home buying things online, and payment volume went up. We have a lot of insurance companies; because people felt so much uncertainty, they were flocking to life and health insurance. In March and April 2020, we were nervous, but by May 2020, we saw many of our companies at anywhere from 2 to 10 times their original expectations for 2020. I would not wish the pandemic on the world, but it brought technology — and especially FinTech — forward by 10 years in mere months.
From a VC perspective, what does the future of financial services look like?
KH: Hopefully, a lot more efficient, affordable and accessible. Legacy systems in banks are a hard problem; it’s one of the reasons fees are so high. Banks aren’t excited to go after a middle-income consumer — forget about a low- or moderate-income one. Their infrastructure makes it so expensive to serve each customer.
We have a company that does banking as a service. We’ve seen a lot of those lately, and it’s as transformative as when cloud computing came out and enabled all these other tech companies to be built. You’ll see big advancements both on the infrastructure side and the direct-to-consumer side, which will be a boon to everyday people who need access.
We’ve seen banks and all sorts of non-FinTechs buying FinTechs. For insurance companies that have trouble attracting tech talent, buying a tech company makes sense for them. There’s also a lot of room for stand-alone companies. So there’s going to be room for all sorts of exits and all sorts of players.