David Haber
15/12/2022
FinTech VC Examined – With David Haber, General Partner at Andreessen Horowitz (a16z)

In this episode, David Haber, GP at a16z, shares his perspectives on the fintech industry and a16z's investment strategy.

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transcript

Please note, the content here is for informational purposes only and should not be taken as legal, business, tax or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any a16z fund. Opinions expressed by David are solely his own and do not reflect the opinion of Andreessen Horowitz. For more details, please see a16z.com/disclosures.

Simon Brewer  

If I said a16z and you weren't extremely well-versed in the finance world, you might guess it's a grid reference on a map. But if you're a fast-growing technology company in the US seeking to partner with the right backers, then on your wish list is a16z. Founded by Marc Andreessen and Ben Horowitz, a16z, as it's called, is a venture capital firm which sits at the epicentre of financing tech entrepreneurs. And if a major pillar of change is the world of fintech, then my guest today has a front-row seat in the unfolding drama. So David Haber, General Partner overseeing fintech investment, welcome to the Money Maze Podcast.

David Haber  

Simon, thank you so much for having me. It's a pleasure to be here.

Simon Brewer  

Well, I'm hoping today that you as one of our younger guests and a proven entrepreneur, a VC specialist, will be a source of inspiration to both our young listeners and some of the older generation who still think they have opportunities ahead. But most importantly, we've got a lot of global allocators, some of whom will already know you, some of whom won't, and so this is hopefully going to be very interesting. But let's just jog back. You grew up in San Diego, although I know you're in New York setting the flag for the firm on the East Coast, and you studied biochemistry at Harvard. And you told me that originally you thought you'd be a doctor, but just frame your childhood for me. What was it like?

David Haber  

Yeah, I grew up in South San Diego in a town called Chula Vista about 10 minutes from Mexico. My father is actually from Tijuana, Mexico. My mom grew up in Los Angeles. So I grew up in this funny Mexican Jewish community in South San Diego, which I joke is the long-lost tribe, in some ways. My mom was a public school teacher. My dad worked in retail and business in Mexico actually, so I would cross the border quite frequently to spend time with him. And yeah, I grew up thinking I wanted to be a doctor. I had gone to public school my whole life and ended up going to Harvard and studying biochemistry where my interests I think changed. I had always been fairly entrepreneurial as a kid and had started a bunch of little businesses. My parents were basically like if you need gas money, you’ve got to figure out how to make it yourself, like the Steve Jobs quote which once you realise you can change the world around you, your mind sort of unlocks, and I got addicted to the world of entrepreneurship and technology. And even though I continued with biochemistry, I would say my interests definitely changed throughout my time at Harvard.

Simon Brewer  

I think you even started doing work whilst at university, and that's not work like I did as a waiter, that was actually working with this guy, Rory Riggs, who you end up working with. But tell, me how did that happen?

David Haber  

Kind of coincidentally, to be honest. I spent my sophomore summer working in Silicon Valley at an online education company called Batiq, which was its own interesting experience. I sat next door to the engineer who went on to be the founder of Airbnb. It was an interesting moment in Silicon Valley history where Y Combinator was just starting, Yelp was still a pretty small company. But I came back from that summer and met this girl who is now my wife. And she's like, 'You're a little crazy. You should meet this family friend of ours who does something in science and business.' I came down to New York a few weeks later and met a guy named Rory Riggs who I found out was this unbelievably successful serial, mostly biotech entrepreneur. He had started out as the Head of M&A at PaineWebber in the late '70s and early '80s at a time when PCR was developed. He had taken public I think, Amgen, Genentech, Genzyme, and then left and started a bunch of biotech businesses, a few of which he took public. He also started the largest billboard company in Japan, ran a railroad, and then started a very large private equity business called Royalty Pharma, which has become the largest buyers of pharmaceutical royalties in the world. We kind of hit it off and he's like, 'You should come work with me. I have this private equity business, I have this biotech startup, and I have this passion project that I spend like half my day on.' And my response to him is like, 'We can sell hot dogs in Central Park. I just want to hang out with you every day.' And it ended up being a really fascinating experience because it was the summer of 2008, the world was imploding, I didn't have any background in finance at the time, and he basically said, 'You have an unlimited book budget. Go read about modern portfolio theory and come back to me and tell me what sounds real and what sounds like BS.' And he would pull people off Wall Street to explain what was happening in detail, kind of in real-time, and really encouraged us to debate him, which as a 19 or 20-year-old kid sitting across the table from a guy who was already extremely successful at that point, it was a really formative experience in retrospect because it taught you the value of your ideas and not your pedigree. As I think back through the rest of my career, there's definitely a throughline in building confidence, in advocating for ideas that you have conviction in and I'm certain that's what led me to want to start my own company eventually.

Simon Brewer

You start with pharma royalties, then you go to something called Spark Capital in 2011. So just tell me what that was.

David Haber  

Yeah, so I was spending my nights and weekends in New York City. I moved here in 2009, again, in the wake of the financial crisis, but already was very interested in the technology ecosystem. A lot of friends had gone on to start companies or had recently gone into venture. I had initially actually applied to Union Square Ventures, which was one of the more famous, it still is one of the more famous venture capital firms on the East Coast. I made it to the end of that process, a friend of mine ended up getting the job. But a guy named Andrew Parker had been there for about five years. He moved to Boston and joined another very successful venture capital firm, a fairly new one, called Spark Capital. And when they were looking for their first junior hire, he reached out and shepherded the process. And so I ended up joining Spark, moving back to Boston in June of 2011, again, essentially as the one non-partner at the firm. As I mentioned, they had already been pretty successful, mostly in consumer internet and ad tech investing. They had seeded Tumblr, they put a bunch of money into Twitter when there were 10 employees. We wrote the first cheque in Oculus when I was there, which we ended up selling to Facebook, ended up doing a little bit of that mostly in online marketplaces, a little bit in enterprise software, but really kind of went down the fintech rabbit hole, which ended up over the last, I guess, 10 years has become my area of focus. That was kind of where I really learned the craft of venture capital, I would say.

Simon Brewer  

And then to finish this section of your career, you start your own business, Bond Street, 2013. I was thinking, ‘Well, that's a fintech company. That's interesting.’ And then I read on and I read, 'We only raised $11.5 million in equity, but over $900 million in debt capital,' at which point, I have to say, I'm not sure what I felt other than slightly nauseous and amazed as a conservative hold investor. You need to just explain how that's possible and what you were doing.

David Haber  

Yeah. Well, to be clear, we were building a small business lending company. So our debt capital was effectively our inventory, if you will. So I loved my time at Spark. It was a time when entrepreneurs would fly to pitch you in person. It was eight of us sitting around a table every day and we'd vigorously debate the merits of any deal and how to calibrate for what a good investment looked like there, and ended up helping source and seed companies like Plaid and Orchard and others. I think my challenge was that I always, and in some ways still do, view myself more as an entrepreneur than as an investor. And so once I had something I was particularly passionate about, I knew at least then that I needed to leave and go build it. And a very good friend of mine named Peyton Sherwood had been running engineering at Venmo and they had just been acquired by Braintree and then PayPal. So I ended up pulling them out of PayPal to start Bond Street, as you mentioned in 2013, kind of with two insights. One was that a lot of the data that we thought we might use to understand the financial health of small businesses at that point was just becoming available online via API. Intuit had just launched the QuickBooks API, but also Xero and Stripe and Harvest and Braintree and Expensify. This whole ecosystem that was historically single-player mode was becoming platform businesses and making their data available to third-party developers. The IRS at that point in 2013 had just started accepting e-signature. You could get a tax transcript programmatically directly from the IRS. We knew we could write integrations into the credit bureaus to pull credit histories. And then importantly, we had just, again, seeded Plaid, which meant that you could get access to a business’s financial data in real-time API. And so the idea was simply could we provide a much better customer experience to the entrepreneur who otherwise would have to walk into a bank branch, print out a bunch of their financials, wait six to eight weeks to get a decision without any sort of visibility into their likelihood of approval, and instead, sync your various accounts and enable us in real time to make an underwriting decision and ultimately be able to approve you for a loan from $10,000 up to $1 million in a matter of hours or minutes. And so that was sort of the framing of how we thought about building the business. To do that, we ended up raising $1.5 million in seed equity. We hired an amazing guy named Jerry Weis from Citibank who at that point had been underwriting small business loans longer than I'd been alive. He was kind enough to join us in my apartment before we had payroll setup, which was kind of amazing in retrospect. And then we ended up pitching Jefferies, and Jefferies was a big buyer of alternative credit at that point. And they, in some ways, took a flyer on us. They ended up giving us initially $100 million of their balance sheet, again, in large part based on Jerry's track record and experience of underwriting small business loans. And we kind of used that transaction, we ended up raising another $10 million from Spark. We used both of those to scale the team and scale originations, underwrote good credit, ultimately, and so Jefferies ended up giving us $300 million more of their balance sheet. We signed on another ’40 Act mutual fund who gave us another 500 million in capacity. So we basically had a tremendous amount of debt capacity to originate into. I think the vision for the business had always been to become more than a lender, but in my mind, to become really what I described as the financial advocate for entrepreneurs. And so we began productising a lot of the technology that we built to assess risk into a top-of-the-funnel software product that we were calling Beacon that essentially would allow us to begin a relationship with a way to help as opposed to a transaction. And so the idea was come to our site, sync your various business financial accounts, we'll give you a sense for how healthy your business is and how it's doing, and you could use our tools to set budgets, manage cashflow. And strategically, the idea was how do we widen the top of the funnel and then nurture that user base eventually into becoming a transactional customer. We ended up selling the business to Goldman Sachs in 2017 and joining the firm then.

Simon Brewer  

And was that a transaction that you did on the front foot or the back foot?

David Haber  

Somewhere in between, candidly. In I think late 2015-2016, LendingClub had gone public, which wasn't a perfect comp, but LendingClub had gone public as a consumer lending marketplace. At one point, it was valued at $12 billion. That business declined something like 80 or 90% as a public company to a $1.5 billion. You had other companies like OnDeck, Funding Circle in the UK, GreenSky and others. Really, this whole category of online lending was going through a pretty challenging kind of public market environment. And so as a small private company, you'd often have these conversations with venture capitalists, including my now partner, Alex Rampell, who's been here at Andreessen for a long time. And the feedback was, ‘We think you're building the best team. You have the best business and product, but if the public comp is trading at $300 million and they've raised $300 million in equity, where's the upside?' And so that was the challenge. And I kind of understood, having been a VC, that we couldn't just try to go raise capital because there was a chance of frankly running the business into a wall. And I had done a decent job networking into the ecosystem of natural acquirers. And so we effectively ran a parallel process, spun up conversations with big public companies like American Express and PayPal and Square and certainly Goldman while talking to venture capital firms, and ultimately, Goldman was interested in the business and the team at a time when they were beginning to sort of build what became Marcus, which was Goldman's kind of first foray into the consumer banking business. And so about 30 of us ended up joining the firm at that time, and Peyton inherited something like 70 engineers to manage a big chunk of the Marcus engineering team. I had a more amorphous strategy, an M&A role. But it was a really interesting experience because it was the first time in my career that I had worked at a big company. I had gone from a business that was all of something like 40 people to a company that was 40,000 overnight, and very much not the CEO of Goldman Sachs to be clear. And so navigating that larger corporate environment was its own very interesting experience.

Simon Brewer  

I checked my numbers before we had this call and I think I'm right in saying Marcus, their deposit taking arm, has over $100 billion in deposits today. But unlike Morgan Stanley that really got into that retail with management market, Goldman has had I think a more difficult journey. Maybe it's just strategically or just because they didn't choose to buy Smith Barney or E*TRADE or things Morgan Stanley did. But you're getting the impression that there's a rethink going on about owning a deposit base as an investment bank. And of course, now we've got yield and a positive yield curve. How do you think they're processing it?

David Haber  

So I think it's important to kind of understand Goldman holistically, because I think it informs Marcus and transaction banking and some of the other businesses that they've spun up in recent years. And look, this is my vantage point. I'm sure others at Goldman may have a different opinion. But if you believe, to some degree, in this Robinhood future of the trading business, something like 40% of Goldman's revenues is still the securities division. Well, no longer its own division but basically, the global markets business, the trading business. A big chunk of that is intermediation revenue, essentially, bid-ask spreads between being a market maker. If you believe that that is a challenged business, and to some degree in, I would argue, secular decline, the complement to intermediation revenue is financing revenue. And the challenge that Goldman has is that it doesn't have trillions of dollars and essentially free deposit capital like JP Morgan. If you have 40% of your revenue in the secular challenged environment and you don't yet have a giant deposit base and a lower cost of capital than some of your peers, that necessitates starting a bunch of other businesses. That really, at least from my vantage point, pushed the firm into kind of leaning into the bank holding company status that it inherited from that post-financial crisis, as well as spinning up new businesses like transaction banking, which effectively is a corporate cash management business, the firm's acquisition of United Capital on a push into the middle segment of private wealth management. We bought a custody business that helps sort of, again, grow the balance sheet of the firm and certainly, the market’s business which we can get into. I think strategically, the thing that it's done most effectively, at least in the direct-to-consumer capacity, was aggregate deposits. It was one of the first movers in offering a high-yield savings account that grew from something like $8 billion in deposits when they originally acquired the platform from GE, to now, as you mentioned, over $100 billion, which again, is a really valuable thing where you're effectively reducing the cost of capital for other parts of the business. My lens, candidly, and I was pretty vocal about this so this wouldn't be a surprise to a lot of people from the firm who may be listening, was that building a direct-to-consumer business was always going to be challenging. Goldman certainly had a brand, certainly had deeper pockets, but it's not that they had a unique strategic advantage in acquiring consumers directly. It's not like Goldman has $100 million Amazon Prime customers, flip a switch and light up a giant business. If you take a step back and you say, ‘Okay, what were Goldman's kind of unique superpowers?’ They had relatively modern infrastructure, because they'd never been in the consumer banking space. So a lot of the technology infrastructure was built in the last three to five years. They have $1 trillion of balance sheet and bank licenses around the world and all the regulatory compliance bells and whistles of being a global institution, and then some of the really unique relationships with the biggest companies in the world and the long tail. And so at least from my vantage point, what I always believed was Goldman's big opportunity, and it's interesting given some of the reorganisation that's happened now, is that Goldman really should externalise the firm's capabilities as sort of enabling infrastructure for clients to build on, essentially become a platform and abstract away the brain damage of the complexity of some of their biggest clients in offering financial products to their end customers. So the firm executed against the strategy with Apple famously with the Apple Card. They've done this with GM. My view is how do you do this not just in partnership, but as a true platform business like a Stripe or AWS style platform, full stack with balance sheet and globally, such that if an Airbnb wanted to launch a business travel card, you could do that in 10 countries in the world with several billion dollars of balance sheet. So my time at Goldman actually was I spent a year inside of the markets business, but the last few years working for this amazing woman named Stephanie Cohen, who at that point, became the Chief Strategy Officer reporting to the CEO, David Solomon. So she's now running this new platform division, which I think is going to be able to execute against the strategy that I was just articulating. So I'm really excited. She's exceptional and it'll be really fascinating to watch how the firm evolves.

Simon Brewer  

That's a really good explanation, but we turn to a16z. Lots of choices when you were ready to move, but what was so persuasive about the interviewing process?

David Haber  

Sure. So one was I've known again, I mentioned Alex Rampell, who leads the fintech business here at Andreessen, probably since 2013-2014. Our former COO at Bond Street was a guy named Eddie Serrill who's an amazing operator. He used to work for Alex at his last company TrialPay. So I always heard of Alex and then I mentioned I pitched to Alex as an entrepreneur in something like 2015. He passed, we stayed friends. But we always had a similar, I would say, vision and deal taste. So he ended up doing a later round at Plaid. When I was at Goldman, I had helped the firm invest in Carta alongside Andreessen, so we've kind of known each other as both entrepreneurs and investors in the fintech ecosystem for a long time. He had actually pinged me in March of '21, kind of out of the blue. I had actually left Goldman at that point to do something else. And he's like, 'How's Goldman?' I'm like, 'Wouldn't know. I haven't been there for six months.' He said, 'What are you talking about?' I shared the good and the bad of what I was up to, and he's like, 'Okay, I need to put you in front of Marc.' And I'd never met Marc Andreessen before so I'm like, 'Twist my arm.' And Marc is incredibly compelling. I mean, Marc drew this interesting analogy, maybe he knew his audience, between Allen & Company and Goldman Sachs in the 1920s and how they were basically the same size firm, and how Allen & Company decided to stay a boutique and Goldman became this global institution. He's like, 'That's basically what I want to do to venture capital.' He's like, 'People think we're running a fund, we're actually building a company. So if you want to help us make great investments but also help build the firm, we're really interested.' That really resonated, because what I had been saying to myself is I've always been, in many ways, more interested in helping build a firm than run a fund. And it's basically a reflection that I feel best somewhere between being an investor and an entrepreneur. And so I get a lot of energy running around the world, hopefully making good investments, and working with entrepreneurs. But I find that I also need somewhere to sort of channel a creative builder, entrepreneur energy. And the more time that I spent with Marc and with Ben and with Alex and a bunch of the other partners, the more I realised that actually, the firm's ambition is really big and there's quite a lot of appetite to build new capabilities. And so this would be a really interesting platform and opportunity both to help plant the flag here in New York, which was new for Andreessen. Despite the firm size, historically, it was not just US-centric, but incredibly West Coast-centric. So when I joined, I was technically the first general partner that the firm had hired outside of the Bay Area. We now have four other general partners in New York City, we have one in Miami, one in Seattle, we're opening an LA office. And so the firm has moved to the cloud and I think increased their real estate footprint by 5x. But it was really that. It was to kind of both play investor and again, in my mind, entrepreneur. And so in many ways, we can chat more about this, my experience now at Andreessen feels in some ways like a mashup of all of my prior experiences in one. The investing feels very familiar. The pattern recognition and the experience of sitting around the table, debating the merits of investing at Spark, I feel really fortunate to have had in a sort of non-COVID, non-Zoom environment. The builder entrepreneurial experience definitely is now getting channelled into the firm, and in some ways, in my mind, Andreessen is like what Goldman Sachs might have been like 50 years ago. It's still a tight-knit partnership with some big ambitions. The firm is quite large for a venture capital firm but I think we're still quite early in the firm's evolution and history. And so it's been a really amazing experience and I feel very fortunate to be here.

Simon Brewer  

Just give us the numbers broadly for listeners of size, assets, etc.

David Haber  

Yeah. So today, the firm has somewhere between 400 and 500 employees, all US-based today, although we've been making investments internationally, which we can chat about. So I'm one of the general partners in the core early-stage venture capital fund, which has consumer, enterprise and fintech. That team also manages a seed fund. I think it speaks to the core ethos and ambition for how Marc and Ben thought about the firm that they wanted to build. They had been consumers of the world's best venture capital firms as entrepreneurs. And I think in their observation, if you would walk into a venture capital firm on a Wednesday, there wasn't a lot going on, not a lot of activity. And it was also at a time when venture capital firms would often seek to replace the founders with professional CEOs. Their point of view is like, 'Screw that. We're going to build a firm that is incredibly entrepreneur-centric, and one that can help take a technical founder, in many cases, a first-time founder, maybe he's never even had a job or managed a team before, and give them all of these resources that that individual may need to scale from being a first-time founder ideally to being a public company CEO.' The operating platform is an incredibly important part of the firm's success and we have very large teams focused on finance, HR, go to market, marketing. And it's this whole sort of war machine that we make available to our entrepreneurs to again, try to tilt the board in their favour. And it's worked incredibly effectively. Every time I see we do these reverse pitches, I'm always struck and wish that this existed for me when I was running Bond Street and sort of grasping in the dark and making tons of mistakes. So it's really, really impressive.

Simon Brewer  

And if you find yourself in an elevator with somebody who you knew as a smart tech entrepreneur but he didn't know your firm, what are the two or three sentences when he says, 'Well, what does your firm do?'

David Haber  

Yeah. I think we back entrepreneurs who want to change the world. And I know that sounds trite or cliche, but I think the firm's track record has proven that we've tried to do that every step of the way. Part of the culture of the firm is that it is run by entrepreneurs. Most of the general partners have built and scaled pretty large companies, many even more successfully than me, certainly. But I think it creates a relentlessness in some ways to constantly sort of rethink what the firm is, how we're delivering value to our customers, who are the entrepreneurs that we serve. And so I think the, in some ways, aggression that we think about the business and willingness to tear stuff down and rebuild is unique. Again, it's this notion in my mind to building a company more than running a fund. It's an effort to try to build enduring value. And in my mind, that value needs to come from a source of compounding competitive advantage. Effectively, a moat, like an entrepreneur would think about building a moat. And in my experience, most fund managers spend very little time thinking about the latter. The objective function of most funds is how do I generate the most carry with the fewest people in the shortest amount of time possible, not how do I build a source of competitive advantage or enterprise value, let's say, at the management company level. There's a lot of ways to be successful, obviously, and it's no knock on other firms, but it's a very different lens in my mind for how we sort of view the business that we're trying to build.

Simon Brewer  

One of the things that struck me as I went through some of the materials was the comment, 'We are stage agnostic.' And I suppose for a lot of people, they look at the VC through the lens of early stage. How do you define stage agnostic?

David Haber

I think it's simply that we invest in individuals from the idea stage all the way into your now public companies. So it's kind of the full spectrum of a company's evolution

Simon Brewer  

Let's talk about one of these. In our exchange before the interview, Carry1st was one of the names that came up so people can get a sense of this. What happens?

David Haber  

One of my favourite lines, but I generally believe this is that opportunities live between fields of expertise. And I find myself really enjoying exploring the intersections. It's one of the reasons why I've always loved fintech, because I've always viewed it in many ways more as a horizontal than as a vertical. Here at Andreessen, I find myself spending a lot of time at the intersections of fintech and other categories, be it areas like healthcare or vertical software or marketplaces or gaming in this case, actually, with Carry1st. In some ways, this was a very unusual investment, and sort of an N-of-1 company. First of all, it was the firm's first investment in Africa. The business is based in South Africa. It was founded by an amazing entrepreneur named Cordel, who grew up in Sierra Leone, moved to the United States during their civil war, ended up going to Stanford, working for the founder of Carlyle and launching Carlyle's first private equity fund in Africa, and then quit his private equity job to build this gaming business four or five years ago. And he's just done an amazing job being a capital allocator and building the company. And so what the company does is essentially a games publisher on the surface. So they license intellectual property and games from studios around the world. They own the full monetisation of those games on the continent in Africa. And to do that, they had to build a fairly sophisticated payments platform that integrates into 90 to 100 different payment methods across the continent. Many of the different countries have different mobile money wallets and payment methods. And effectively, what they've been doing is channelling this user base from the gaming business into their own mobile money and commerce platform that they call Pay1st. But they've been executing essentially a similar strategy to what Sea has done in Southeast Asia in Africa. And so Sea started out as Garena, which was their equivalent of a games publisher. They famously licensed League of Legends, which was one of the most popular MMO games in the world. They channelled that user base and the cash flow to build their own payments business called SeaMoney, and then they launched this very large marketplace business called Shopee that has grown exceptionally quickly in Southeast Asia, but also in Brazil, which has a very large gaming ecosystem. You really needed both lenses to see the opportunity. But it also in my mind speaks to the culture of the firm and why it's been so fun for me to invest in fintech, which again, I view more as a horizontal than a vertical, and really kind of seek to partner with my partners across the firm who have such deep domain areas of expertise in gaming, in his case, in healthcare, in software and marketplaces, and yeah, it's been a pleasure working both with Jon and with Cordel and Lucy and the team at Carry1st.

Simon Brewer  

What would you anticipate to be the journey for a company like that for the next five years? Because that is going to lead me on to the public-private asset debate.

David Haber  

I think there's a bunch of really interesting macro trends that are in their favour. One, just mobile penetration in Africa is already pretty high and growing. The gaming space within the continent is growing incredibly quickly. And they are kind of the one company that is in market and able to benefit from this with real institutional backing. So I actually think they're incredibly well-positioned to succeed in the continent. They have big ambitions certainly to significantly grow revenue again next year. And yeah, there's a lot of different avenues for them to expand, both building their own new games, licensing some of the best intellectual property around the world, deepening the commerce and payments business that they have. They are recruiting exceptional people and I think the rest will take care of itself.

Simon Brewer  

Now, you wrote in a recent paper, private asset markets have grown 10 times. They now represent over $6 trillion globally. We had actually Joan Solotar from Blackstone on the show earlier in the year just talking about their growth. Now, it's easy to extrapolate that continuation at one level, but cheap money has spawned lots of unproductive investments, and some of those of course are being discovered. So there's a cyclical argument of what happens when you get super cheap money, but there's the secular argument that this is a much bigger shift and there might be democratisation of private assets. Where do you sit in this pretty significant shift in capital markets?

David Haber  

Certainly, I'm sure rates will slow the shift in some ways into alternatives. But I think we're in the early innings of a bigger secular trend which is institutional investors have definitely shifted into alternative investments, be they private equity, venture, real estate, credit, commodities, etc. And in many ways, retail has been left behind. And you're seeing this, I mean, Joan is a great example of this. Blackstone has built, I don't know what the current numbers are, $200 billion to $300 billion wealth management business out of their almost $1 trillion dollars of assets, really in the last like five or six years is my understanding. So I think you're seeing a lot of the big alternative asset managers look to retail and look to insurance, certainly in case and others as sort of sources of permanent capital. But I think that's a good thing. I mean, it doesn't come without risk and I think as retail begins to sort of invest more in alternatives, the need for liquidity is going to increase. And that was the basis of my article, which was around what I was calling the future of private market exchanges. And the thesis was simply that you needed to come for the tool and would stay for the exchange. And it was more of an observation that there's a lot of companies that have been built trying to sort of provide more access to alternatives but they often start as the exchange itself. And I think the challenge with that strategy is, you have the natural issues of a cold start problem and bootstrapping supply and demand in the marketplace, but the more challenging aspect is you have a negative selection. The best managers aren't necessarily going to want to list the best products in an exchange that doesn't have liquidity. However, the best managers may want to use the best software to run their businesses. And unlike public markets, you don't have a forcing function to create standardisation of reporting data, which is really in my mind, what drives liquidity. One way to back into that is basically building what I was calling the investor relations stack, build tools either to help companies report to their investors or investor GPs report to their LPs. We are investors, for example, in a company called Carta, which has done this quite effectively with the cap table, built significant distribution among the startup ecosystem. They hit a critical mass where they were able to get the VCs as customers and the VCs were then incentivised to distribute the product to more startups. And suddenly, they had sort of this two-sided software-driven network and they began launching a capital markets business in between that they called CartaX. My hope or bet, and we made a few investments in this product category, is that you'll see a bunch of companies try to create efficiency in the private markets through better workflow software or investor relations tools. But if they can build a network, there's a really big opportunity in my mind to build better liquidity, again, cross-asset classes within private markets, which I think is going to be really important if and when more retail capital flows into the space.

Simon Brewer  

Now, one of the beneficiaries of this cheap money and enthusiasm about the new world order has of course been crypto. We're watching the FTX unfold. And I guess, how do you reflect on this and the likely changes that follow?

David Haber  

It's hard to predict, candidly. I don't spend as much of my time in the crypto space. We have almost 100-person crypto team and a very large crypto business. I'm sure they would have a more articulate prediction for kind of what happens next. I mean, it looks like this was a pretty big tragedy and a huge fraud and so I'm sure there's going be a lot more scrutiny and regulation placed on the space probably for good reason. I think a lot of again, speaking to some degree on their behalf, a lot of the focus and DCs over the past several years has been investing in very decentralised protocols. And I think a lot of the issues that we've seen over recent months have all been with centralised actors, whether it was Three Arrows Capital, whether it was FTX, whether it was Celsius. These were individuals which follow a lot of the history of financial markets and booms and busts like greed, leverage, death. That's really what it seemed like, whereas a lot of the truly purely decentralised protocols have not had issues, or at least haven't had issues in the same way because there was transparency. And it's not that there isn't leverage somewhere in the system, it's just that the ability to sort of unwind that is public and programmatic. My belief is that the firm would say, yeah, it's more justification for decentralised protocols in that area of crypto as well as highly regulated US-domiciled good actors like Coinbase for very large investors who keep customer funds one to one, don't lend out customer assets in the way that obviously FTX was doing. So, again, I'm sure that others would have a more articulate point of view on what's been going on but that's at least my quick observation.

Simon Brewer  

Thank you. Now, if you are an entrepreneur and you're thinking about funding, I know you've again written some papers on key lessons in funding structure and tools for founders, how do people think about funding a business today? Because things have changed dramatically from bank debt and equity capital. What's the menu?

David Haber  

In some ways, this macro environment, I think can be healthy. Capital is not as cheap as it was. I think that is, in some ways, a good thing and a filter on people really who need to ask themselves, are you actually passionate about your idea? And if you're willing to quit and leave and start a business in today's environment, you're probably pretty committed. It's also making it easy for existing companies that have capital to hire strong talent who historically were getting paid quite a bit from some of the big public tech companies. It's both a blessing and a challenge both for the investor and for the entrepreneur candidly. It depends on the type of business you're building. The types of businesses that we funded at Bond Street historically never raised venture capital. They were great cashflow businesses run by amazing entrepreneurs. There's a lot of ways to be successful and they were largely debt financing their growth through their own profits and through customers. Venture capital as an industry has continued to grow and I think it plays a really important function, often in building core technologies that require significant upfront investment. And so I think in that capacity, venture capital is still here and available. We have plenty of capital, we want to back, again, as I mentioned, entrepreneurs who want to change the world and so that's still readily available. It may mean that valuations are a little bit lower than they have been in the past but again, I think that's probably a healthy thing. It's hard to make a macro prediction, but I think this is probably a healthy thing for the environment.

Simon Brewer  

One of the things that seems to be liable to change is the whole global payment system, which still seems clunky. And I think you've done some work on this. What would you expect to unfold looking at?

David Haber

Some of my other colleagues have candidly gone deeper in the payments ecosystem. Alex had started a company called TrialPay which he sold to Visa. My partner Seema has gone quite deep in the space. There's a lot there to unpack, whether it's cross-border payments. I think where we're seeing a lot of opportunity is building additional logic and programming into payments. We actually invested in a company in the UK called Sequence. One was a guy named Eamon who had started a company called on Onfido in the KYC space in the UK, and Riya, who had started a business called Feedr, and they've been seeing quite a bit of demand for their product, which is focused on billing. And so their observation is that SaaS companies and quite a bit of fintech companies don't have a great solution today for highly customised programmatic billing solutions. And so they both embed logic into the payment’s flow to be able to make that easier to do in a way that a lot of larger payments companies and billing companies like Chargebee or Zuora are just very difficult to integrate with. And so again, that's just a small subset of this broader payments landscape but I think it speaks to the convergence of both the ability to move money, but also the ability to add logic and serve really the developer ecosystem. And I think you're seeing that across quite a number of markets and geographies.

Simon Brewer  

Not all VC is equal and clearly, allocators might think of a Sequoia or they might think of you guys and there’s a big universe. Is there a sense in which there's a sort of a self-fulfilling prophecy that the big and best firms tend to get the first look at the really interesting deals?

David Haber

I think that has historically been to some degree empirically true. It's not something that anybody takes for granted and you think you have to earn that through your reputation and hard work, and that's very quickly lost if you don't do the right thing and serve your entrepreneurs well. But I would say yes. I mean, there's in my mind a reason why some of the best venture capital firms have been successful for so long and have had persistent success and it's simply that entrepreneurs often want to work with the best investors who've had the most history and traction in taking companies public. And there's a little bit of a sort of network effect that is built into that. Obviously, past success it's not indicative of future returns. But I think that's been true and it's why I can't take any credit for it.

Simon Brewer  

You guys invest around the world. I guess that a number of us who sit on investment committees are always surprised that the US investment culture is much more accepting of VC and sometimes, VC isn't even on the agenda at institutions. I know that's not an absolute, that's a generalisation. Why do think that is?

David Haber  

That the allocators sort of view VCs as like a smaller asset class?

Simon Brewer  

It could be as simple as America is a country of greater risk taking and that's been enshrined in all sorts of things.

David Haber

I don't know. It's hard for me to comment on sort of like the culture asset allocation in other markets. I will say, I'm quite passionate about helping push out the perimeter of the firm, and it is largely driven by talent and just the culture of entrepreneurship that I'm seeing around the world. Again, as I mentioned, New York was a relatively new thing for Andreessen and I recall when I helped Spark open up their office in 2012, if you would look historically, the largest exit in New York City at the time was DoubleClick. I think it was sold for like $3 billion. We were seed investors in Tumblr. We'd sold that for $1 billion dollars to Yahoo. Everybody in the whole ecosystem was incredibly excited, which was an amazing outcome. But if you look just retroactively, the historical data might not have suggested that a leading venture capital firm should open an office in New York City. And yet, if you fast forward over the subsequent 10 years, I'm making up the number, there's probably $100 billion in market cap that were created just here in New York City, whether it was Datadog or Etsy or MongoDB or Flatiron or Peloton, and some of these have obviously had challenges in recent months. But the investment decisions that were made that drove those outcomes were made in 2012 to 2013. And so it's sort of how I view what's been happening around the world. If you just look historically at IPO value creation, the vast majority of that has been created in the United States. I think something like 25% has come from Europe, China has played a reasonably large role. Parts of Latin America are still far earlier. But you now have, in particular fintech, it’s become such a global phenomenon. You have scaled public companies like Adyen and TransferWise, and not yet public companies like Revolut and Trade Republic and Monzo in Europe, who are now spawning a new generation of entrepreneur that is leaving and starting new businesses. And these are people who now have a decade of experience building and scaling some of the world's best fintech companies in a way that didn't exist necessarily 10 years ago. And yet their ambition is marked in some ways by the success of those other companies. And so I think that elevates the opportunity in those markets and why I think we're spending time there. And my guess is, some of the asset allocators will continue to focus on investing in some of these other markets.

Simon Brewer

But in fact, talking about talent, a friend of the show, Martin Armstrong who is Chairman of the leading search firm Armstrong International asks, 'When you're hiring investment professionals, how do you evaluate their risk-taking ability?'

David Haber  

It's a good question. I think it depends. I mean, early-stage venture capital is in many ways a people business. It's just as much about understanding markets and products and TAM, as it is about evaluating people and assessing: Is this person uniquely qualified to execute against their vision? Are they obsessive or hungry or passionate enough to get there? And so in addition to sort of raw intellect or analytical rigor, one of the bigger differentiators, mostly speaking about early-stage venture capital investing is really a sense of EQ. Do you have unique abilities to read the entrepreneur, ingratiate yourself with the entrepreneur. Unlike other investment asset classes like public markets, you can't just push a button and get into a stock. You have to convince the entrepreneur to take your money and the best entrepreneurs, they have any number of choices for who to take investments from and so it's really an access business and in some ways, a sales job as well as an early-stage investor.

Simon Brewer

Well, I’ve got three final questions. I was going to mention when we were talking about crypto that I was lucky enough to interview Michael Lewis earlier in the year who was, of course, terrific, and we have this conversation about where his next book could be. Now the papers are saying that Michael will be on that.

David Haber  

We may make a movie.

Simon Brewer  

I guess advice for youth. We have an important cohort of students and other young people thinking about these opportunities. Some of them are pure financial, but there's what's going on, it's spawning lots of new stuff, and you've been super entrepreneurial. So share your advice.

David Haber  

I would say a few things. I mean, I think one is, especially early on in your career, it's really important to find people that you can learn from and where the slope of your learning is incredibly high. I think that's far, far, far more important. It's easy for me to say this now and I used to feel like it was like a trite statement. It's far more important than any economics, especially at the beginning of your career, finding somebody you really can learn from and ideally can become a mentor. I was very fortunate, as I mentioned, like Rory, who, again, in retrospect, had a really formative experience, and I think a huge impact on the trajectory of my career. The second thing, and this was actually told to me by Bob Lessin. He was at Morgan Stanley for a long time. He was one of the youngest partners at Morgan Stanley. He was the vice chairman of Jefferies. He passed away, unfortunately. But he said, 'The most successful people I know have gotten into large macro trends early.' And as I had thought about that, it's true. If I look at folks like Rory, Rory had gone into the biotech space in the late '70s and early ‘80s, right after PCR was developed. You saw many of the most successful private equity guys get into private equity in the '70s and '80s, as the M&A boom was rising, and maybe hedge funds in the '90s, and tech in the early 2000s. And so his comment to me was like, ‘What is the big macro trend of your generation?’ Because there was a moment, certainly going to Harvard where I didn't know what investment banking was when I got to Harvard and it just was completely foreign to me. And yet, there was a big pull, and you felt guilty for not participating in campus recruiting with a bunch of these institutions. And I was like, ‘Look at your career. You've had such an amazing career as an investment banker for 30 years and you've had this tremendous success.’ He's like, ‘Yeah, but when I joined Morgan Stanley and whatever it was in the early ‘80s, there was like 12 people in M&A.’ He's like, 'It was a startup.' He's like, 'Nobody called it that, but it was a startup. And it was an incredibly entrepreneurial place where I could raise my hand and go build Morgan Stanley International,’ or Rory was building a private equity business, or these were just different institutions at the time. And so his push to me back then was, again, what is the big macro trend of your generation? It's probably the same piece of advice that I would give younger listeners because it's probably not the same as it was for me. It's whatever is sort of far out and on to come.

Simon Brewer  

So David, I'm going to let you go. We always have just a couple of pithy comments. You've had lots of pithy comments so I'm going to just focus on two. I really liked your expression that opportunities live between fields of expertise, and also that one tends to have a view of venture capital as being transactional and it seems to me that what you folks are trying to do is, and I'm quoting you, develop enduring value and compounding that advantage so it becomes much more sustainable. And I'm actually going to add a third which is for young people thinking, just scratching their heads and saying, ‘What's the big macro trend that may be unfolding over the next few years and how might I engage in that?' So you've been very generous with your time. Thank you so much, David, and we really appreciate it.

David Haber

Thank you so much for having me, Simon. This was really a lot of fun.

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In this episode, David Haber, GP at a16z, shares his perspectives on the fintech industry and a16z's investment strategy.

Founded by Marc Andreessen and Ben Horowitz, Andreessen Horowitz (also known as a16z) is a revered venture capital firm which sits at the epicentre of financing entrepreneurial businesses.


In this conversation, David Haber, General Partner overseeing fintech investing, begins by discussing his background, including graduating from Harvard, selling his business (Bond Street) to Goldman Sachs in 2017, before joining a16z to establish their first East Coast presence.


David is able to offer a unique perspective as both an entrepreneur and venture capitalist. He describes how a16z is growing, its desire to build enduring value by compounding returns and building on competitive advantages.


He then explains how they engage with firms of varying size to help them on their journeys and provides an illustration to help frame the conversation. He discusses the private asset explosion, the potential adjustments following this tougher period, risk-taking, hiring, crypto and more!

David Haber

David Haber is a General Partner at Andreessen Horowitz where he focuses on technology investments in financial services. David was previously a senior executive in Firmwide Strategy at Goldman Sachs where he helped lead partnerships, new ventures and M&A. Before joining the firm, David was the Founder and CEO of Bond Street, which aimed to transform small business lending through technology, data and design. Bond Street was acquired by Goldman Sachs in October 2017 as part of the firm’s digital finance business. Previously, David was a venture investor at Spark Capital and a founding associate of Locus Analytics, a start-up asset management firm. David graduated from Harvard University with a degree in Biochemical Sciences.

Themes & Collaborations

Set up in 2009 by Marc Andreessen and Ben Horowitz, Andreessen Horowitz (a16z) has established itself as a leader in tech venture capital. They invest from seed to late stage, in sectors including bio/healthcare, consumer, crypto, enterprise, fintech and gaming. They have $35 billion in AUM across multiple funds. View their portfolio here

David Haber is a General Partner at a16z, focusing on technology investments in financial services. He set up his own fintech firm, Bond Street, which was acquired by Goldman Sachs in 2017 (contributing to the development of Marcus, Goldman Sachs’s online consumer banking platform). David originally graduated from Harvard with a degree in Biomedical Sciences.

In the episode, he discusses the opportunities at the intersection of fintech and other sectors. He references a16z’s investments into Carry 1st and Sea to illustrate the crossover between the online gaming industry and payment technology. 

David cites the likes of Adyen, Wise, Revolut and Monzo as key examples of European fintech success. Yet Europe has so far failed to create a tech titan to rival the likes of Google or Apple, as explained by Sir Xavier Rolet in his Money Maze Podcast interview. 

This episode is the final one of our VC Miniseries. In episode one we covered biotech with Dame Kate Bingham, followed by consumer products with Roberto Italia, and then sport, wellness and media with baseball legend turned VC investor, Alex Rodriguez (‘A-Rod’). 

Books Covered
No books covered in this episode but follow the link below to discover more.
Disclaimer

The content here is for informational purposes only and should not be taken as legal, business, tax or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any a16z fund. Opinions expressed by David are solely his own and do not reflect the opinion of Andreessen Horowitz. For more details, please see a16z.com/disclosures.

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