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Speaker 1: This is Bloomberg Business Week from Bloomberg Radio. I'm Jason Kelly.

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Speaker 1: Welcome to the Bloomberg Business Week Extra. It's our weekly podcast,

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Speaker 1: bringing you an in depth interview you won't hear anywhere else.

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Speaker 1: This week, I had the chance to sit down with

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Speaker 1: Hans Morris. He's the managing partner of NICA Partners. He's

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Speaker 1: had a wide ranging career across the world of finance.

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Speaker 1: Started on Wall Street. He was the president of Visa

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Speaker 1: hung out a shingle really when fintech wasn't even a thing.

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Speaker 1: Here's that conversation. So Hans Morris, managing partner of NICA Partners,

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Speaker 1: let's talk about the news. Your third fund completed, your

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Speaker 1: biggest so far. Why now and a pretty substantial sugga money. Yeah. Well,

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Speaker 1: I think to me it's a continuation of what we

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Speaker 1: started five years ago, and so we started smaller. It

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Speaker 1: was it's hardy to raise my fund. But we had

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Speaker 1: a very specific idea, which was we're just gonna focus

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Speaker 1: on fintech, and I think the space we occupy is

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Speaker 1: we're at helping entrepreneurs figure out the financial system, which

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Speaker 1: is quite daunted. You have a great idea, but how

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Speaker 1: much capital will take, what regulatory process? How do you

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Speaker 1: plug into that system? So we found that UM entrepreneurs

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Speaker 1: value that and and and I think that also other

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Speaker 1: other venture firms value it. So so many cases we

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Speaker 1: have some great firms bring us in help and because

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Speaker 1: I think we can, we can help a company be

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Speaker 1: more successful. And since then, obviously fintech has gone from

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Speaker 1: a tiny little portion of the venture community to a

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Speaker 1: big portion right now. And we can talk more about this,

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Speaker 1: but I think you know when I started, I actually

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Speaker 1: wrote a blog post in two thousand and fourteen, and

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Speaker 1: there were a few hundred fintech companies and if you

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Speaker 1: went back even ten years earlier, probably a dozen right

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Speaker 1: that got VC funding. And now we just did this

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Speaker 1: rough calculation because I don't know if you could really count,

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Speaker 1: we estimate about fifteen thousand fintech firms have gotten funding

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Speaker 1: around the world. What was the catalyst to give it

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Speaker 1: that sort of acceleration, Well, A big part of I

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Speaker 1: think is technology changed, and what what's important? What were

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Speaker 1: the big drivers? I think that the UM certainly the

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Speaker 1: fact that you could say, all right, your phone is

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Speaker 1: now the supercomputers in your pocket. You don't have to

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Speaker 1: have that inside the bank was a very big change

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Speaker 1: that took place. And similarly, the the advent of the

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Speaker 1: cloud in aws suddenly dramatically cut down the infrastructure requirements.

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Speaker 1: It wouldn't cost tens of millions of dollars of investment

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Speaker 1: to get to scale. You could you could do it

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Speaker 1: by the drink. I think the financial crisis have big

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Speaker 1: impact really all the incumbent companies, every bank and insurance company.

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Speaker 1: They had to cut out all their you know, ideal

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Speaker 1: labs and innovation groups. All that got eliminated, and all

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Speaker 1: the focus was on what was really a major global

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Speaker 1: reregulation cycle. So analogus what happened after the ninet thirties,

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Speaker 1: and this happens you know, in waves, I think, and

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Speaker 1: so they were just dealing with that. I meanwhile, you

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Speaker 1: had these big changes in technology and then a key

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Speaker 1: thing and I think this is something that isn't as

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Speaker 1: well understood, and I think it's still an open question.

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Speaker 1: So I'm not sure, I fell I can't predict the

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Speaker 1: answer on this, but I think the nature of trust

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Speaker 1: has changed because if you think about this issue, like

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Speaker 1: would you give some app on the internet your logging

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Speaker 1: credentials to your bank account? Right? No, No, tens of

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Speaker 1: millions of people do just that. And uh, and it

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Speaker 1: used to be that you would it would take tremendous

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Speaker 1: infrastructure to build that brand to be trusted. And I

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Speaker 1: think that the the expectation now that consumers and businesses

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Speaker 1: have is of a call, like a tech curation, like

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Speaker 1: an experience that you expect, and if you don't get

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Speaker 1: that and you're entering the same password or you're answering

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Speaker 1: stupid questions, there's too frustrating, it's redundant you that reduces

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Speaker 1: your trust. And yet that experience characterizes many of the

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Speaker 1: legacy companies and they're trying to change all that, but

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Speaker 1: it's hard. I meanwhile, copies with these fantastic experiences, you're

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Speaker 1: on boarded in thirty seconds and all things are very simple.

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Speaker 1: So that builds trust, which would have taken a decade

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Speaker 1: to do years ago. So how do you invest against that?

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Speaker 1: How do you understand this ecosystem that's growing so fast

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Speaker 1: as you demonstrated with those figures, How do you pick

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Speaker 1: the winners? How do you even find the right companies,

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Speaker 1: especially at a nascent stage, which is where you want

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Speaker 1: to get them? So like I wouldn't say we make

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Speaker 1: a lot of mistakes. I tell people that, you know,

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Speaker 1: we have the best anti portfolio, and anti portfolio is

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Speaker 1: the is the companies you didn't invest in. And I

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Speaker 1: think we have the best, the best in the business

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Speaker 1: because we have like Robin Hood and Carter and Platt

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Speaker 1: and Marcata and Chime and uh, lots of great companies

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Speaker 1: that we didn't invest in. So we miss it that

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Speaker 1: you saw and passed. We passed, yea, And sometimes we

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Speaker 1: passed because we thought what they were trying to do

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Speaker 1: we saw. I think I think there's actually a valid

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Speaker 1: issue that sometimes if you know too much about a subject,

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Speaker 1: you might see the impediments to success, whereas if you

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Speaker 1: don't know very much about it, you just make a

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Speaker 1: bet on the people and figure it. Then they'll figure

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Speaker 1: it out, which so uh and I think that did

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Speaker 1: in fact characterize our you know, mistake that we made.

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Speaker 1: And sometimes we also said it's too expensive, the value

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Speaker 1: should be fifty million instead of you know, seventy and

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Speaker 1: so we passed now the companies Tenion or some thing,

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Speaker 1: and so we definitely make a lot of mistakes. But

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Speaker 1: what we I think we start with often start with

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Speaker 1: a premise about what we're looking for. So there's lots

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Speaker 1: of problems in the financial system and and we can

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Speaker 1: pick you know, if we go back to two thousand fourteen,

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Speaker 1: for example, we were very focused on the what a

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Speaker 1: mess the mortgage business was. And one of the one

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Speaker 1: of the problems in mortgage technology is the systems are

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Speaker 1: all very old and they were not Also, they weren't

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Speaker 1: built by technologists. They were you know, people running mortgage

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Speaker 1: companies were often sometimes bankers, but often salespeople. You know,

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Speaker 1: countrywide form by a salesman, and so nothing now there

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Speaker 1: was no real tech innovation at all in the generation

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Speaker 1: in mortgage. But we also felt that the most success

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Speaker 1: there's a lot of uh, a lot of problems of

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Speaker 1: being a mortgage company is regulated, requires capital, and it

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Speaker 1: also um there's a lot of volatility and originations because

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Speaker 1: of pre payment. So we said, we want to invest

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Speaker 1: in a mortgage company, we won't invest in an enterprise

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Speaker 1: software company that's addressing this. So who's the top Silicon

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Speaker 1: Valley team focused on this, and we found a group

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Speaker 1: of entrepreneurs that had had been a palanteer that had

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Speaker 1: done the mortgage project, a palenteer that they did for

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Speaker 1: JP Morgan and Bank of America and they came away saying, Hey,

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Speaker 1: this place is this is a this is nuts. This

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Speaker 1: whole thing works. We could definitely build this better. And

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Speaker 1: that's Blend. So that's that's a company we have used

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Speaker 1: in So we were looking, we looked at all kinds

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Speaker 1: of coming and we said, this is this is the

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Speaker 1: team and UM that's become now you know, very big

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Speaker 1: company and they have UM they just raised money from

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Speaker 1: General and Acute close to billion dollars and they're really

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Speaker 1: becoming i think, not just the enterprise solution for mortgage origination,

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Speaker 1: for digital mortgage origination, but really for UM all kinds

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Speaker 1: of of of loan originations and count originations. Tell me

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Speaker 1: about the appetite from the limited partner perspective, from the pensions,

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Speaker 1: the endowments, the sovereign funds, the family offices growing. What

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Speaker 1: was your experience raising money this time versus the previous

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Speaker 1: two funds. You know, it's interesting on that point because

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Speaker 1: we didn't have and we still don't have. We've only

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Speaker 1: had one partial exit and we got another one coming.

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Speaker 1: But the but we don't have twenty year track records

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Speaker 1: showing how great we are in all these different environments.

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Speaker 1: So I'd say many of the endowments and pension funds

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Speaker 1: who looked at us, we got good feedback, but they

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Speaker 1: passed UH. And so really our core investors are in

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Speaker 1: many cases that we have some insurance companies who do

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Speaker 1: have some sovereign wealth funds UH and one sovereign wealth

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Speaker 1: fund UM. But many cases they're investing with us because

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Speaker 1: we have a good I think they like our business

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Speaker 1: model a lot like our like our position in the market,

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Speaker 1: and we have very good I think we have very

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Speaker 1: good portfolio construction, so you can be optimistic about future

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Speaker 1: exits and returns. But a lot of them invested with

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Speaker 1: us because they want the lens on the future of fintech.

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Speaker 1: And I think, what what is UH, maybe not unique AboutUs,

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Speaker 1: because there's something really good investors in this space too.

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Speaker 1: But we now get about twenty five inbound companies a week,

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Speaker 1: about half of which are very good references, you know,

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Speaker 1: from a from a founder we know, or from another

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Speaker 1: top tier VC investor, and so we have just tremendous

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Speaker 1: deal flow. And yeah, we turned we missed things, as

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Speaker 1: I said, but we often it's rare that we didn't

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Speaker 1: see it. And so the fact that we UH and

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Speaker 1: we we spent a lot of our effort in engaging

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Speaker 1: our LPs. We want them to know what we're looking

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Speaker 1: at while we're looking at it. So we actually have

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Speaker 1: a monthly call where we talk about that or something.

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Speaker 1: We have two meetings a year, not one. So a

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Speaker 1: lot of people I would say, perhaps I allively look

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Speaker 1: at the LP meeting is sort of a pain and

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Speaker 1: they don't look forward to it. We I actually really

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Speaker 1: like it. We have very good kind of repport engagement

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Speaker 1: with them trying to do that right. So let's go

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Speaker 1: back a little ways. Tell me about the initial idea,

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Speaker 1: because it's interesting to look at your background. You know,

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Speaker 1: you were a banker, you worked in a company, you

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Speaker 1: were the president of Visa, mean, you obviously saw this

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Speaker 1: technology and financial services from a very high level at

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Speaker 1: one of the most important companies in the world, and

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Speaker 1: then you sort of switched over to be more of

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Speaker 1: an investor. Walk me through that evolution. Well, when I started,

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Speaker 1: I was a banker and I started at the Old

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Speaker 1: Smith Barney actually, so then Sandy Wild bought that in

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Speaker 1: and there was a one of the things that really

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Speaker 1: a big impact of me. There was a emerging of

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Speaker 1: talent there are a lot of talents of people there already,

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Speaker 1: but but you had Sandy Wild. But Jamie Diamond was

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Speaker 1: the twenty nine year old CFO. Frank Bisignano worked in

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Speaker 1: operations at the beginning, didn't even run operations. Jay Fishman,

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Speaker 1: a fantastic person, became chairman of Travelers UM. Charlie Sharf,

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Speaker 1: who now runs bank in New York, was the head

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Speaker 1: of planning and analysis working for Jamie. So it was

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Speaker 1: a remarkable talent factory, and you learned how to manage.

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Speaker 1: And I was a banker, but I end up being

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Speaker 1: made head of the group, the Financial Institutions group, and

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Speaker 1: I was twenty nine. So that and and I we

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Speaker 1: ended up focusing It wasn't called vintech, but we focused

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Speaker 1: on this thesis which which still is my thesis, should

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Speaker 1: be her thesis, which is declining information. Most of the

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Speaker 1: profit pools and financial services are based upon a competitive

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Speaker 1: event of information. Right, So if you're trading bonds, or

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Speaker 1: you're investing money, or you're ensuring lives UH, or you're

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Speaker 1: making loans, if you don't have a competitive avantage, if

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Speaker 1: there's perfect information, there's no margin. So margin goes away,

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Speaker 1: and so then the nature of your relationship instead of

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Speaker 1: the profit pool coming from that competitive advantage. The competitive

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Speaker 1: advantage some cases is a byproduct of that information, so

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Speaker 1: the data coming out of it might be used in

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Speaker 1: another way. Google would be an example that like they

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Speaker 1: get all search data, they don't sell search data. They

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Speaker 1: sell advertising based on search data. So there's there's a

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Speaker 1: derivative of the data can be monetized. But also it

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Speaker 1: could be just in terms of organizing choices and and

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Speaker 1: statement ng or or um holding assets or managing decisions,

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Speaker 1: help people make good decisions. So that's how financial services changed.

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Speaker 1: huge impact on me is I got uh, Frank Busignando

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Speaker 1: how does that actually work? I didn't know of the

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Speaker 1: So I think that when I meet with companies now

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Speaker 1: a very deep appreciation for that. For five years, I

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Speaker 1: telling my wife about it because she said, oh, moved

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Speaker 1: you know what, this is the market leader almost two

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Speaker 1: learned a lot, uh and I um, you know, I'm

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Speaker 1: proud of what what I did there and what the

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Speaker 1: point out before we're talking NICAS stands for New York California.

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Speaker 1: And the idea when I formed it was that Wall

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Speaker 1: understand financial system. So we could bridge these two things

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Speaker 1: that would be valuable. It'd be helpful to the entrepreneurs,

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Speaker 1: that came from living there. I lived there, I wouldn't

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Speaker 1: a lot there too. I must say I thought I

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Speaker 1: knew a lot about investing and UM and they have

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Speaker 1: and the issue though for me, was that they tend

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Speaker 1: that point looking to invest let's say a hundred or

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Speaker 1: these changes that were quite dramatic and evident in financial services,

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Speaker 1: that we needed to to invest earlier, and that wasn't

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Speaker 1: their model. So um So, anyway, that's when I said, well,

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Speaker 1: I'm gonna go start my own right company and give

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Speaker 1: it a shot. And so how do you put together

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Speaker 1: a team for something like that? What are you looking

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Speaker 1: for and where do you find the oaks that ultimately

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Speaker 1: formed the core Because, as you say, you grew up

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Speaker 1: in some very distinct cultures in a lot of ways.

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Speaker 1: I mean the name checking you did about you know,

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Speaker 1: working at Smith Barney back in the day. I mean

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Speaker 1: you're talking about some of the leaders of modern finance

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Speaker 1: at this point. So what do you take from that?

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Speaker 1: What do you take from Visa and especially this New

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Speaker 1: York California thing to blend all of those ethos? Well,

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Speaker 1: you know, we try to make it different from the beginning.

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Speaker 1: And actually I'll send it to if you want. I

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Speaker 1: have I have a one page I put together out

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Speaker 1: what in December November two thousand thirteen. What are we

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Speaker 1: trying to do? Yeah? And actually reads pretty well. I start,

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Speaker 1: we do a team offside every quarder. I always start

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Speaker 1: with us and because uh, one thing we said is, uh,

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Speaker 1: what do the companies need? And what I felt is

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Speaker 1: if we assemble a group of very respected investors and partners,

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Speaker 1: that could be a unique model that could really create values.

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Speaker 1: So we started this idea which we now call our

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Speaker 1: l P A s our Limited Partner Advisors. And I

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Speaker 1: don't think anyone else has ever done this before. So

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Speaker 1: that was our source of capital where individuals who were experts.

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Speaker 1: So in fact, we we combined, we brought together that

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Speaker 1: expertise and and uh and made a network to communicate

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Speaker 1: that expertise to companies. But that was our capital base

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Speaker 1: where all these people and some really amazing people. Well,

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Speaker 1: and on that point, what's so interesting is that historically,

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Speaker 1: as much as private equity firms talk about, you know,

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Speaker 1: broadly defined talk about you know, these are our partners

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Speaker 1: and things like that, they are at some to some extent,

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Speaker 1: at arm's length. Right, there's not necessarily the intimate relationship

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Speaker 1: that that you're describing or what it sounds likescribing. Well,

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Speaker 1: actually this was pretty radical idea. Our first investment committee

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Speaker 1: was formed with me plus these five other people that

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Speaker 1: we called our investment partners, but they weren't full time.

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Speaker 1: They didn't work in the GP. But the group was

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Speaker 1: Brian Finn, who had been the president Credit Sweet, Charlie

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Speaker 1: Songhurst who have been head of strategy at Microsoft and

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Speaker 1: very plugged in Silicon Valley, Osama Bader who built the

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Speaker 1: Google wallet, and I've been at PayPal and then started

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Speaker 1: a company called Point, Max Levchin, who co founded PayPal,

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Speaker 1: founded a company called a Firm Um and then Tom Niglas,

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Speaker 1: who who I knew from Solomon Brothers where he had

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Speaker 1: been the c I. Oh, but then he had been

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Speaker 1: the CIO at Citadel for eighteen years. So it was intentionally.

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Speaker 1: If you think about that split, there's a bunch of

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Speaker 1: it's kind of New York in California. That was the

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Speaker 1: idea actually and UM and then we added we added

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Speaker 1: we now have I think fifty five l p a

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Speaker 1: s and it includes every year. You could take that group,

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Speaker 1: but I don't know, uh, Larry Summers or or or

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Speaker 1: two star vall around the risk practice at McKenzie or

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Speaker 1: Judd Lynnville Rank Global Cards at a City Group or

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Speaker 1: to Myopolis ran CFTC and CFTC. So it's it's an

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Speaker 1: amazing group. And as I say, someone is a phone

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Speaker 1: call away from the truth, right and uh and and

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Speaker 1: you know, so you can bring up a complex obscure

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Speaker 1: topic like how would regulators react to this, or how

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Speaker 1: would or what should a company do in this circumstance,

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Speaker 1: or what exactly is the problem in um OTC clearing

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Speaker 1: or you know, equity derivatives, like someone will be able

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Speaker 1: to analyze that problem with precision. And then I think

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Speaker 1: one of the most important things is I call precision introductions.

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Speaker 1: So it's one thing to do, like an email introke.

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Speaker 1: You could say, this is the person that owns the

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Speaker 1: decision that's going to be made, right, that's very valuable

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Speaker 1: to a company. And I could say my year, all right,

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Speaker 1: before I let you go, what's the one biggest idea

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Speaker 1: you've heard about fintech that sort of knocked you back

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Speaker 1: in terms of a theory that is ultimately investable? The

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Speaker 1: one idea that knocks me back, there's you know, I mean,

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Speaker 1: it's it's rare that you see a truly unique idea

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Speaker 1: if you're twenty five a week. Many of them are

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Speaker 1: variations on things sing before I think propel that's a

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Speaker 1: really that was a really unique idea. And when um

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Speaker 1: the entrepreneur came out of Facebook, Jimmy Chen, and he

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Speaker 1: he wanted to create an app to help people who

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Speaker 1: are on food stamps manage their lives better. So basically

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Speaker 1: became an app that helps you sort out what your

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Speaker 1: benefits are and it becomes a regular, almost daily form

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Speaker 1: of interaction for about three million people. And then he

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Speaker 1: wants to say, we're gonna that group navigate the financial system.

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Speaker 1: So they're definitely people who have, you know, some setback

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Speaker 1: in life. But how can you can we give them

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Speaker 1: a debit card that is in their interest and then

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Speaker 1: what are the other things that we could offer in

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Speaker 1: terms of financial services that are valuable them. Sounds really

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Speaker 1: great idea of CEO, and uh, we love working with them.

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Speaker 1: That was Hans Morris, managing partner of Nika Partners, a

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Speaker 1: longtime investor and banker in the world of money. You've

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Speaker 1: been listening to Bloomberg Business Week Extra, be sure to

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Speaker 1: tune into Bloomberg Business Week Radio. That's live Monday through

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Speaker 1: Friday at two pm Wall Street Time. I'm Jason Kelly.

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Speaker 1: This is Bloomberg