Lucas Timberlake, Partner at Fintech Ventures Fund, talks about investing in game-changing fintech and insurtech startups. Lucas explains why he looks for founders who are coachable and knowledgeable about the regulatory requirements for their business and shares an unconventional pitch story about one of his recent investments.
Lucas Timberlake, a Partner at Fintech Ventures Fund, talks about investing in game-changing fintech and insurtech startups. Lucas explains why he looks for founders who are coachable and knowledgeable about the regulatory requirements for their business and shares an unconventional pitch story about one of his recent investments.
In this episode, you’ll learn:
[2:53] Fintech Ventures Fund’s unique equity-plus-debt approach to supporting early-stage startups
[8:21] A unique ‘on-the-go’ pitch story where an entrepreneur pitched in the middle of a street
[11:28] Investors look for a well-thought-out idea, not just a well-baked pitch.
[16:40] Why it’s important to think through how to manage the regulatory process before meeting a fintech or insurtech investor
Non-profit that Lucas is passionate about: Children's Cancer Association
Lucas Timberlake is a Partner at Fintech Ventures Fund. Lucas’ experience in venture capital, private equity, and investment banking spans over a decade. He was instrumental in company acquisitions that created the largest parking management company in the U.S. while working with Antarctica Capital.
Fintech Ventures Fund is an Atlanta-based early-stage (pre-seed/seed) venture capital fund, focused exclusively on fintech and insurtech. Fintech Ventures can also structure customized credit facilities of up to $1,500,000 for its portfolio companies through a closely-held affiliate. Portfolio company founders have secured over $700 million in cumulative equity and debt financing from more than 30 institutional co-investors from the fund’s initial investment. Fintech’s portfolio includes Marble, Startsure, Artis, AVINEW, BattleFace, FUNDTHATFLIP, IOU Financial, Groundfloor, Steady, Vint, MAXREWARDS, PAXAFE, and LQD Business Finance.
Coming up next week in Episode 72, we welcome a special guest, Julieta Moradei, Partner at Hometeam Ventures, to talk about their vision "to cut housing costs by half" through investing in founders bringing breakthrough technology to the construction and housing industry.
Subscribe to our podcast and stay tuned for our next episode that will drop next Tuesday.
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Lucas Timberlake: We're on 59th street. The founder is finishing the pitch and the fire alarm goes off. So he finishes the pitch in the middle of 59th street. And without missing a beat, he convinces us at the end of the hour-long pitch to invest. To seal the deal, we ended up going for a jog in Riverside Park and kind of finishing everything out and realizing that we had some things in common and it made sense doing the deal.
Gopi Rangan: You are listening to The Sure Shot Entrepreneur, a podcast for founders with ambitious ideas. Venture capital investors and other early believers tell you relatable, insightful, and authentic stories to help you realize your vision.
Welcome to The Sure Shot Entrepreneur. I'm here with Lucas Timberlake. He's a partner at Fintech Ventures Fund. Fintech Ventures Fund is an early-stage venture capital firm focused on fintech and insurtech startups.
Let's find out from Lucas what kind of startups he invests in. What does he look for? And how does he get excited about certain ideas? Lucas, welcome to The Sure Shot Entrepreneur.
Lucas Timberlake: Thank you for having me.
Gopi Rangan: Tell us about yourself, starting with your career. How did you shape the journey and eventually became a venture capital investor?
Lucas Timberlake: I grew up in the Bay area in a town called Berkeley in California, moved to Manhattan during high school, ended up staying for college, and went to college a few blocks away from where I lived at Columbia.
During college, I was studying urban economics and political science and ended up working for Merrill Lynch on the municipal capital markets infrastructure desk. And so we were doing P3s and using municipal debt to basically finance these types of projects. Fast forward, after three years there, I joined a private equity firm that was buying packing companies and doing a roll-up.
I was headed down to Atlanta quite often because we had several companies there and met my current partner on the fund, Sergei Kouzmine. Interestingly enough, I think mainly due to personal interests that I have, he was originally from Russia, but immigrated here 30 years ago, and my parents both teach Russian literature and Slavic linguistics. And so we developed a friendship and I was looking for something working with earlier stage companies because we'd done a lot of that in the private equity world. We were working with payments companies and trying to bring them into these large packing companies.
So I always had an interest in fintech, but actually didn't know what FinTech was and the industry was still hitting its critical mass at the time. After doing several years at the private equity firm, I took some time off and ended up joining him to start Fintech Ventures Fund. This was about five years ago. At the time we had a thesis, mainly due to his involvement in a community bank outside of, that banks weren't lending in certain markets and if you could spin-off technology and find debt capital or people to buy loans you're originating, there was a market opportunity in certain areas where banks couldn't lend because of regulatory reasons or their fixed costs were too high, or you name it, there are different reasons.
And so we started to focus on technology-enabled lending as there were a few examples like On Deck and Prosper and LendingClub that were coming up, but it was still a relatively new part of financial technology. We started off there, but eventually, things evolved. Four or five years later, now we're looking at lending, wealth tech, and InsurTech. Those are the three main areas that we're focusing on within this broad umbrella.
Gopi Rangan: I've got to ask you, why venture capital? What's exciting for you in venture capital?
Lucas Timberlake: With the experiences that I had working at an investment bank and in private equity, I got most excited working with payment startups that were trying to change an industry that in some cities, such as Atlanta was around 70% cash, to the opposite. And by the time we were done working with these parking companies that we had acquired on the PE side, we were able to achieve that change. And so interacting with those companies got me excited because the entrepreneurs were very passionate about what they're doing and they wouldn't give up. And that was something that I really respected.
Gopi Rangan: Venture capital is a unique industry. It attracts people from various different types of professions. It's great to see that your experience in investment banking and how you work with startups in the payment space, all of that prepared you for today, where you are -an active venture capital investor investing in startups.
How is Fintech Ventures different from other VC firms? I understand that you focus on FinTech, but even within FinTech, there are quite a few other VC firms. Is that a philosophy that you follow that's different from other VCs?
Lucas Timberlake: I'd say there are a few different items. One is that we're able to also lend to our portfolio companies from a separate vehicle. Many VC firms are obviously offering strictly equity. In over half of our portfolio, we've lent them in some format. Whether it's to make loans off the balance sheet or venture deadlines that are similar to what you get from Silicon Valley or Republic or you name it. So that's one area that we can lead with and that really helps companies that are in the lending space do what we call proof-of-concept loans, so then they can go out and raise larger credit facilities or get larger forward flow agreements.
The second would be really having broad experience in various areas and then having a partner that has actually been part of and operated several banks in the past. That's really helpful from understanding the regulatory landscape, but also how you sell products and technology into the space. That's been important more recently for several of our investments that have been technology solutions that are focused on community banks and credit unions. Most venture capital firms say they're active partners and we are, and we talk to the 15 companies at least once a week. And for us, we say we're here, but we depend on the founders to tell us specifically what they're looking for, and then we have this iterative relationship with them.
Gopi Rangan: Yeah, in financial services it's very helpful to have someone who can help with partnerships, and can help navigate the industry to find the right kind of commercial partner for a startup. That's incredibly valuable for entrepreneurs, especially at the early stages.
How early is too early for you and how late is too late for you?
Lucas Timberlake: When we first started off, we were doing more late seed series A. It's a great area to play, but where we found the most value, given our skillsets and where we could help entrepreneurs is in the pre-seed and seed area, where the majority of our investments have come.
We're really looking for a company that has a product, or at least a prototype of a product, and can really show us that when it comes to their go-to-market strategy. So we're really not investing pre-MVP. We're kind of investing on the cusp of, and at the MVP stages. Ideally, we prefer some revenues and traction and demonstration that there is a market for the product, but that's not essential. And the beauty of our model is that we can be flexible too, in terms of how we get involved and how much we invest. So we can invest anywhere from $250,000 to $500,000 in a pre-seed note, and then come back and participate in the seed. Or we can go directly to seed and invest more meaningful amounts or with companies like I said, where we've been at the pre-seed, we enjoy participating in both the pre-seed and seed, but we're not really serious A or B investors.
Gopi Rangan: That's very helpful. Thanks for that description. Let's take an example of one of your recent investments. How did you meet the entrepreneur? Can you talk about the first meeting? What got you excited in that meeting? Or when did you feel like, oh, this is really interesting?
Lucas Timberlake: Yeah. I actually have a pretty interesting story on one of our most recent pre-seed investments.
And I think it also shows how you can interact with VCs and other people in their network and get a deal done. We recently invested in a company that allows you to fractionally invest in wine. And we were introduced to the founder at least five months ago through another venture capital firm because it was too early for them but they liked the idea.
So it came through a strong introduction. But after speaking to the founder, I could tell he was onto something but didn't yet have deals that he had done for this platform. So he's basically taking wine and securitizing it, essentially. I had put it aside not due to lack of interest. He was very proactive about following up in terms of keeping me abreast of the progress. What he also did that I really respected was get in touch with two founders that we had in a similar space. He had a shared alumni connection with one of them in the undergrad school that they had gone to. And he had got him in front of him both for meetings, and they were so impressed that they back channeled to me. That's always helpful to have founders that we obviously have spent a lot of time developing relationships within our portfolio come back to us and either give us introductions or feedbacks on companies that we're looking at.
Fast forward several months later when he has gotten some more traction, he comes. And we're on 59th street. He's finishing the pitch and the fire alarm goes off and it becomes too loud at one point to basically finish as we're walking out. So he finishes a pitch in the middle of 59th street, a busy area in New York. Without missing a beat, he convinces us at the end of the hour-long pitch to invest. To seal the deal, we ended up going for a jog in Riverside Park and kind of finishing everything out and realizing that we had some things in common and it made sense doing the deal.
Gopi Rangan: I've heard of unconventional pitch stories, but this one is very interesting. The entrepreneur pitched to you in the middle of a street.
Lucas Timberlake: Yeah. And then finish it on a jog. Although there is one that, um, I forget the name of the VC in New York and I've yet to have been, but they actually do a pitch-and-run series. And then there's also someone I think in LA that has an insurtech meetup that has also done "on the fly" [no pun intended] while people are running. So it's more common than you might think, but, just an interesting anecdote that comes to mind in terms of a recent deal we've done.
Gopi Rangan: What do you ask these entrepreneurs, especially in the first meeting? What information are you looking for?
Lucas Timberlake: Typically, we do ask to see a deck, but we don't spend the first 30 minutes going through the deck. In fact, I like to keep it pretty ad hoc and honestly, the questions change going forward because you're really trying to see, obviously, if you're able to develop a rapport and long-term relationships with the founders because it will be at least a ten-year investment that you're making, especially at the pre-seed and seed levels. So it really changes, but I'm most interested in the story and ask them to walk me through how they got started, how they met their co-founders, then also the unique advantages when it comes to the market.
And one thing I ask, even at the pre-seed and seed level, that in my view is especially important for fintech and insurtech companies is about the projected unit economics of the product. And a lot of times founders will say, "Well, I don't know because we're pre-launch." I counter with that now at this point, there's enough information out there in terms of S1s or even anecdotal quasi-public information that you should be able to figure out what your CAC might be at least to a certain range. And you probably are going to know what your loss rates will be at scale given incumbents. For instance, in insurance, maybe there'll be a certain degree of variability in that, but you should be able to estimate your unit economics initially, and then what they would be at scale, and be able to present those eloquently.
And a lot of times I've found founders in lending and starting MGAs, they don't yet have a grasp of that. And that's very important to us because in those types of businesses, you want to be profitable on a per-unit basis because in lending and insurance you have to be profitable at some point in time or else your business is not going to succeed. Obviously, you're raising venture capital to fund your losses on a G&A basis, but we like to see a true path to profitability on a unit economic basis.
Going forward, we like to move pretty quickly if we can to customer feedback and try to find someone in our network that would independently assess the company, but someone in our network would actually be a potential customer of the company not someone that's just an industry expert that could say yes or no, or here's what I think. We try to make it a mutually beneficial relationship as well.
Gopi Rangan: I see that you look for specific information, especially how well developed the thesis is, focusing on unit economics and all of those things. Some entrepreneurs tend to have a fully baked story. They've talked through all these scenarios and some others are in the early stages of forming their ideas. They may have thought about some of those possibilities, but they may not have detailed answers for everything. How well-baked do you like to see these ideas? Maybe you can give an example of how one company showed up...what did they have at the first meeting and the second meeting?
Lucas Timberlake: Yeah, that's a great question. I like my stakes on the rare side. But when it comes to pre-seed investing, I think that's tough because you're comparing them maybe to their peers at the pre-seed stage, but you're also comparing them to series A and B companies and beyond on a relative scale as well in terms of where they are because they're going to have to maze multiple rounds in order to be successful. We're looking for a co-founder with at least some form of tech or having identified a technology they can white-label to go to market relatively quickly.
On the insurance side too, we typically don't invest unless they've secured reinsurance capacity. One company that we invested in recently at the pre-seed level, we had first met at InsureTech Connect in 2019, but they didn't yet have reinsurance capacity lined up as an MGA. We only invested in the last three months, and they had gotten the capacity after a year and a half in January of this year, which is by no means slow. It's actually kind of a relatively normal timeframe, but the fact that they were able to show that they could do this and go live and now needed money to spend on marketing and building out the tech, that's kind of what got us excited. It's called Startsure. It's in the small business insurance space.
So I'd say, especially with insurance and lending companies, it's a little less cut and dry in terms of when you invest and the stages as well because it does take several years of blood, sweat and tears to get these types of companies off the ground. Whereas if you're developing a software company, you can build and ship products pretty quickly. But when you're trying to go out and get the re-insurance capacity and get the lending capital to make your first loans, that can be quite an arduous and long process. We want to make sure that the founders are able to make it through that as well.
Gopi Rangan: This is very interesting. What advice would you give entrepreneurs? As you're looking for information in these first one or two meetings, how can they prepare well so that you can have a productive meeting with the entrepreneur?
What advice would you give them?
Lucas Timberlake: Doing the homework is part of it. A lot of times people will try to pitch companies where we would have a direct conflict or in industries that we don't focus on. We have a very narrow focus on fintech and insurtech, and so we're not going to do a marketing company or something like that.
So, that's one thing that, believe it or not, still happens from entrepreneurs that seem like they're doing pretty well, at least from what I can tell, it's just not knowing the venture capitalists that you're preparing for. The second thing is really knowing the competition, the regulatory landscape, and why specifically your product will work. For lending, there are typically laws that vary state by state. Some people have come with companies that the loans that they would be making would be deemed usurious by the state regulatory bodies because the interest rates they would be charging are too high. And so if you show up with that, I think that also shows that you have not done your homework. That can also be a discrediting factor from the get-go. The same goes for insurance and knowing the licensing requirements, et cetera, of selling your product. We've seen people as well that are doing things that are not necessarily above the line. And that also can discredit people from wanting to take the risk because a pre-seed and seed investment is already risky enough as it is.
The second piece is really on how you take feedback from a venture capital investor. We're not always going to be right. But it's really about how you interact with us and we interact with you in terms of feedback. We don't want you to take every idea that we have and try to run with it because that can become a distraction. It's really about synthesizing that information, developing necessary pushback, and then examining the theses as well just like any scientists would do. That's important. It's good to have constructive dialogues in that regard as well. And so there are other questions that kind of vary by meeting to meeting, where I will test the entrepreneur and their approach to receiving feedback by asking a question that gets them to think, or that might cause a reaction as well, unless the entrepreneur is kind of centered and confident in their idea.
Gopi Rangan: Two very valuable pieces of advice. One is how do you manage the regulatory process? And the second is, are you coachable? Those are the things that you are looking for. And if entrepreneurs arrive prepared to have that discussion with you to show how they're going to manage regulatory processes. Are they aware of all the licenses that are needed? Do they have conversations already ongoing with all the third-party entities that need to agree with the products to be launched? That's something that helps you understand the business much more easily. And the second part is: can you take feedback and can you work with it? And can you be useful to them to help them improve the way they build their business? That's what you're looking for.
I want to talk about the regulatory aspect a little bit because that's a complicated thing. In financial services where you focus, can you give an example of a startup that pitched to you and what did they do to prepare for the regulatory process?
Lucas Timberlake: I actually have an example of an insurtech startup that we invested in. The company's called Marble. When I was first talking to the founder, they were toying with an idea that they were still iterating on, where are they wanting to be able to offer rewards for certain interactions with your own insurance policies for consumers. The number one question that I asked is: how is this legal? Instead of getting into this nitty-gritty of it, he had a two-page memo that a law firm had prepared that basically outlined why in their opinion and his opinion that the company would be able to give rewards to consumers. And it wasn't something that was a 20-page document that basically would bog down any investor and make their eyes roll. He had something simple prepared that he could point to and on file to address this question. That was a level of preparation at the seed level that you don't typically see, and it's the same with a data room in terms of your analysis on your products and financial model, et cetera. If you're able to have a summary of a regulatory opinion from a lawyer, and that is helpful to come and assuage investors' fears. It's not a hundred percent necessary, but it was definitely something that had set them apart because it showed that he had been thinking about this and had actually gone out and done the homework to make sure that this was okay. We've seen that too on the lending side where you have people get opinions from state regulators that the loans that they're offering in the manner that they're offering are not usurious or that they avoid certain licensing requirements as a lender as well.
If you structure it correctly or find the right lawyer, it doesn't have to be arduous. Doing the homework in that regard shows that you're serious about your company. And also it is helpful and does set you apart from your peers.
Gopi Rangan: You're investing in fintech, where there are some creative solutions that possibly flirt with the boundaries of regulations. Thanks for sharing the example of Marble. Marble is a good example of how a new startup can build an innovative solution. I would imagine that you say no more often than yes after these meetings. What's your most common reason to say no, I don't want to invest?
Lucas Timberlake: A lot of what we do as VCs is pattern recognition. And that doesn't mean, like I said, that we're right all the time, but it's really having seen prior companies fail to do the exact same thing. And then this existing company we're evaluated, not necessarily having answers in terms of how to solve for that. A lot of times the prior patterns really come down to distribution and scalability. If you don't believe that the company has a better way of solving for that or a unique channel partnership, for instance, that others have not had access to, that's really the reason that keeps us from investing, especially at the pre-seed where there isn't much information to be able to help us inform our decisions. So we do have to rely on understanding what's worked in the past and not worked for other presses.
Gopi Rangan: I wish we could invest in more companies than we do. I tend to meet many more entrepreneurs that are phenomenal business folks, but I cannot invest in so many of them and I end up saying no to even great entrepreneurs. I always reflect on: what is the pattern here? Why am I saying no sometimes? Is there something that's a common thread across all of these companies even when I say no, and when they have a good company? it makes me reflect on how I want to refine my investment acumen. This is very helpful. We're talking about not only success stories, where you make an investment. We're also talking about when you say no, why you say no,
I want to switch to the next part of our conversation and ask you about your community involvement. Is there a nonprofit organization you are passionate about? Which one?
Lucas Timberlake: Interestingly enough outside of my fintech involvement, I like to invest in biotech stocks. Through that, there is someone that does a lot of the diligence on these companies. And he is part of an organization called the Children's Cancer Association. I try to donate and become involved with that. And that was really through seeing how much of an impact he had made through his personal trading network, essentially, but bringing it upon others in order to make a positive impact.
Gopi Rangan: Lucas, thank you so much for sharing real-life examples of startups that you invested in and including some reasons for why you say no. And you shared some of the most difficult things in the FinTech world when startups are looking at building solutions that are creative and yet they still have to follow regulatory guidelines.
This is a very interesting conversation, very useful for entrepreneurs to know what you're looking for. Thank you so much for sharing candidate stories.
Lucas Timberlake: Thank you for having me.
Gopi Rangan: Thank you for listening to The Sure Shot Entrepreneur. I hope you enjoyed listening to real life stories about early believers supporting ambitious entrepreneurs.
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