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In a Crowded Savings Market, Deep Industry Experience Set Vestwell Apart

Selling to financial advisors was the best way to distribute savings programs both in and out of the workplace — but only Vestwell knew it

As Co-Founder and Chief Customer Officer at wealth advisory startup FolioDynamix, Aaron Schumm wanted to do right by his employees and help set them up with retirement savings accounts. But he was underwhelmed by his options: fees were too high, service was terrible, and the technology powering it all did not work well.

Later, after FolioDynamix was acquired by Envestnet, Aaron delved into the world of workplace savings, and started the journey focused on 401(k) plans for small and emerging businesses. At the time, 72 percent of workers at companies with less than 100 employees did not have access to a company-sponsored retirement plan. Meanwhile, the industry’s low margins and historically sticky products meant that recordkeepers were consistently underinvesting in technology. The average small-market 401(k) plan customer was losing more than two percent of their retirement savings in plan admin fees, fund and annuity fees, and advisory fees. Spotting an opportunity, Schumm founded Vestwell in 2016 to build a cloud-based recordkeeping platform that would form the underlying infrastructure for workplace savings programs — starting with the 401(k).

“Vestwell was founded to provide advisors and employers with an affordable, compliant, and easy-to-use workplace savings platform to help close the savings gap in America, and F-Prime has supported that mission since our inception.”

Aaron Schumm, Vestwell Founder

The so-called “American savings crisis” goes further than retirement — for example, around 61 percent of Americans cannot afford to pay for a $1,000 emergency. The 401(k) landscape was indicative of the broader savings industry, operating on technology that has largely gone unchanged for 40 years. Retirement savings was just the beginning.

Other players had spotted the same opportunity to focus on the 401(k) market. Vestwell was one of several startups that emerged between 2015 and 2017 to build a new support platform for businesses’ 401(k) plans, and some had already delivered products to market and raised sizable warchests from big-name investors.

However, Aaron’s team possessed a unique insight: the majority of workplace savings programs, including retirement programs, were sold via financial advisors, and not directly to businesses. Vestwell built its platform incorporating the financial advisor as a core stakeholder, giving it the ability to offer far more flexibility in terms of funds, operational and reporting capabilities, and other retirement planning services.

 

Industry Experience Goes A Long Way

Aside from his experience at FolioDynamix, Aaron had also led or worked on product teams at Citi and Fiserv before starting Vestwell. By the time F-Prime met Aaron, we had been involved in the fintech industry long enough to recognize his strength as an industry veteran who genuinely understood the market better than his competitors.

In the mid-2010s, financial advisors served more than 70 percent of small market 401(k) plans. By building relationships with home offices and trust with individual advisors, Vestwell could efficiently sell to a large number of 401(k) plans — and this was the only viable path to revolutionize the SMB 401(k) market. When Aaron set out to raise his first round of funding, we teamed up with like-minded investors at Primary Venture Partners, FinTech Collective, and Commerce Ventures to help him execute that vision. The following year, we doubled down to lead Vestwell’s Series A.

“Vestwell was founded to provide advisors and employers with an affordable, compliant, and easy-to-use workplace savings platform to help close the savings gap in America, and F-Prime has supported that mission since our inception,” Aaron said at the time.

History has proved Vestwell’s thesis correct. Aaron has successfully led the company to become an award-winning record keeping platform that is far more efficient than any traditional platform today. Vestwell has also gone beyond just 401(k)s, creating the only single platform architecture to power other tax-preferred savings vehicles in and out of the workplace, such as emergency savings, 529 Education Savings, student loan matching payments, and ABLE disability savings programs.

Anticipating the value of public-private partnerships in driving innovation within the savings industry, Aaron has also established key partnerships with state governments. They have overwhelmingly turned to Vestwell for its ability to deliver a personalized savings experience on a state-of-the-art platform that spans all savings vehicle verticals. Vestwell now powers more than 80 percent of the live state auto-IRA savings program in the country.

As the company has rapidly expanded into a leading savings and investment platform, it has over $30B in assets saved and well over a million users employed across 350,000 businesses. In December 2023, Lightspeed Venture Partners led Vestwell’s latest funding round: a $125 million Series D — one of the largest rounds of its type for the year.

FedNow Turns One: What Have We Learned About US Real-Time Payments?

It’s been one year since the U.S. government launched FedNow, its long-awaited real-time payments (RTP) system.

More than 70 other countries already had national RTP rails at the time and some, like Brazil, India, and China have seen huge adoption in the years since they rolled out their own infrastructure. At the time, I compared their experience with the uniquely fragmented banking landscape and entrenched card payment infrastructure in the United States to make 10 predictions for FedNow.

Those predictions were:

  1. FedNow would start a domino effect of RTP adoption, led by consumer use cases
  2. Mass network connectivity would take close to a decade
  3. FedNow would replace cash and checks, but not credit cards
  4. Person-to-business (P2B) account-to-account use cases would grow slowly, but steadily
  5. FedNow would offer an incremental improvement on payment infrastructure, not a paradigm shift
  6. Interoperability would be a prerequisite for any QR code renaissance
  7. Digital wallets would become the next battlefield in e-commerce and at the point of sale
  8. Authorized push payment fraud would rise
  9. Attracted by high speeds and low costs, consumers and small businesses would be quicker to adopt RTP
  10. FedNow would fuel cross-border money movement

A year on from FedNow’s launch, it’s time to check in on those predictions — some of which require more explanation than others. Let’s check through the quick ones first:

  • FedNow early in a long process of replacing cash and checks — but not credit cards.
  • FedNow is offering an incremental improvement on payment infrastructure, but not a paradigm shift.
  • For now, we are still waiting for the mass domestic adoption of FedNow that would help it fuel increased international money movement.

Okay, let’s take a look at what we learned:

Mass connectivity will take a long time…

…But hopefully not too long. I recently participated in a Wharton FinTech Podcast interview with Nick Stanescu, who serves as Chief FedNow Executive at the Federal Reserve Bank of Boston. During our discussion, he shared that there are now close to 900 financial institutions live on FedNow, including banks and credit unions of all sizes across all 50 states. A year ago, that number was 35. However, remember America’s uniquely fragmented banking system: the country has almost 8,000 banks and credit unions. So while mass connectivity is still a long way away, hopefully this encouraging early adoption rate means we’re closer to five years away, instead of ten.

FedNow will start a domino effect of RTP adoption

As Stanescu pointed out in our interview, the majority of FedNow transactions fall under consumer use cases. Most of those have been account-to-account payments, the funding of digital wallets, and even earned wage access, where workers can access their wages the same day they earn them. Other exciting use cases include insurance payouts and emergency relief payments, typically lengthy processes which would happen instantaneously on FedNow rails.

Merchant incentives: Cost savings alone aren’t enough

Brazil’s Pix system has one of the most impressive RTP adoption rates in the world, and is predicted to account for 40 percent of the country’s online shopping transactions by 2026. There are a number of structural reasons for RTP’s success in Brazil relative to the United States, including differences in card payments infrastructure and the aforementioned banking fragmentation (or lack thereof — in Brazil, the top five banks account for 80 percent of total commercial assets, compared with 49 percent in the US). But there’s another structural difference we hadn’t initially accounted for: merchant incentives.

In Brazil, card settlement typically takes 30 days, while higher merchant discount rates lead to higher interchange take rates for card transactions — 2.9 percent for credit and 1.6 percent for debit. In the US, those rates hover around 1-3 percent and 0.25-1 percent respectively. An incentive therefore exists to push Brazilian merchants towards Pix, while their American counterparts have no such incentive. Boleto, a printed cash voucher, is another popular Brazilian payment method, and costs less to accept but takes a lot longer to process, and is inconvenient for users to pay.

Compared to those two options, Pix offers drastic improvements on all fronts: higher conversion, cost reductions, and faster settlements. Cost alone is not a strong enough incentive for American merchants to adopt FedNow. Looking forward, RTP providers will have to rethink the overall merchant and customer experience including conversion, loyalty, and customer satisfaction.

Bank incentives: Hopping the revenue hurdle

Real incentives already exist for banks to participate in RTP networks. There are cost savings from a reduction in the handling of checks and cash, including ATM usage. However, some banks harbor concerns that FedNow will cannibalize revenue from other payment methods, such as wire and credit card interchange fees, because the RTP option will tend to be cheaper. It is true that in countries with high RTP adoption rates, like Brazil, high interest rates and the ubiquity of installment payments (the original BNPL) mean fewer consumers carry credit card balances. This means that the loss of credit card revenue is not as high for Brazilian issuers as it might be in the US.

However, businesses and consumers have a strong preference for speed. “Pseudo-RTP” players like Venmo, Cash App, and Zelle are useful early indicators of demand for the real thing — and Zelle is on pace to reach $1T in run-rate volume by the end of this year. Meanwhile, as FedNow adoption grows among financial institutions, there are big opportunities for fintech startups to help FIs with hurdles like authorized push payments (APP) fraud, instant reconciliation, and ERP integration.

Security is a moving target

Wherever RTP systems gain traction, crimes like social engineering fraud, scams, and even physical robbery associated with APP fraud rise as a result. In 2023, the Brazilian Public Security Yearbook counted around 1M phone robberies, with thieves tending to act on Fridays, giving them more time to drain accounts while banks are closed over the weekend. Once they’re in a victim’s phone, a thief can do everything from place an order via MercadoLibre’s one-click checkout to access bank accounts — the average Brazilian has 5.8 accounts per person — and Pix rails, along with the 800 or so fintechs connected to them.

Combatting APP fraud is a team effort. Google recently launched a new anti-theft feature for Android devices that locks Brazilian phone screens when its AI detects a theft. The Federal Reserve has developed a tool called ScamClassifier to help the payments industry improve scam reporting, detection, and mitigation. And startups are emerging to tackle fraud on a global scale, with TunicPay, Archer Protect, and SOS Golpe as just a few notable examples.

Tap-to-Pay could level the playing field for offline PoS payments

One of my predictions last year was that digital wallets would become the next battlefield in e-commerce and at the point of sale, and that has become more and more true over the last year. At last count, digital wallets were the leading e-commerce payment method in the US, accounting for 37 percent of all e-commerce transactions (Asia Pacific at 70 percent and China at 82 percent), while credit card came second at 32 percent, and debit card a distant third at 19 percent.

However, digital wallets lag at physical points of sale (15 percent of total transaction value) because of the lack of interoperable QR codes, and other sources of friction. After all, it’s a laborious process to open your banking app, enter credentials, and scan a QR code while a cashier waits. Tap-to-pay technology would level the playing field for real-time payments, reducing the whole process to a single step — just like swiping your credit card. For now, though, issues like dispute management, instant refunds, and reconciliation still need to be solved.

Tap-to-pay has some big tailwinds at its back right now. Earlier this month, as part of the anti-competition settlement, the EU just accepted Apple’s offer to enable near-field communication (NFC) features for non-Apple wallet systems on Apple devices, including tap-to-pay. It also includes Face ID biometric authentication, defaulting for preferred payment apps, and a dispute settlement mechanism. And in the same month, NFC Forum announced a new functionality called multi-purpose tap. With it, a customer in a store could tap their phone on a terminal that simultaneously pays for their goods, checks their ID if they’re buying age-restricted goods like alcohol, adds points to their loyalty account, and provides a digital receipt.

Overall, infrastructure is emerging to help merchants manage a customer’s whole shopping journey, generate more sales, and ultimately boost customer loyalty. Because remember: improved costs and settlement times alone are not enough to entice merchants or consumers to adopt the real-time payments enabled by FedNow.

Looking ahead, opportunities abound for fintech startups to build and partner with financial institutions to fight APP fraud, enable instant reconciliation, integrate ERPs, and build interoperability between payment systems. Wherever startups are helping FIs orchestrate a smooth implementation and onboarding of FedNow, we are eager to partner up.

 

Originally published on Forbes.

Redefining Interoperability and Solving Healthcare’s Toughest Data Challenges

Boston-based 1upHealth brought seamless data transfer to healthcare

Since the mid-2010s we have been able to access banking, credit card, and brokerage information within a single app. But while fintech players like Quovo and Plaid have long undergirded data transfer and interoperability within the realm of finance, healthcare data segmentation has persisted. Patients must often keep track of their medical histories, diagnoses, and treatments across multiple care providers and access portals — if they can figure out how to access it at all.

 

Change on the Horizon

That status quo began to shift with the 2009 passage of the HITECH act, which encouraged the adoption of electronic health records (EHRs). Later, government agencies mandated data sharing between payers and providers using the Fast Healthcare Interoperability Resources (FHIR) protocol as a common standard. By 2021, more than 96 percent of medical records had been digitized.

“1upHealth’s collaboration with F-Prime represented a pivotal step for the company.”

Ricky Sahu, Founder

As investors in PatientPing (now Bamboo Health) and Quovo — pioneers in facilitating healthcare and financial data exchanges, respectively — F-Prime Capital’s Carl Byers, Brett Cook, and David Jegen had long believed in the potential of healthcare data interoperability to boost efficiency across the healthcare ecosystem. Through close collaborations between the Heath IT and Services and Tech investment teams, they identified four key pillars for our thesis, including:

1. Successful players would start by serving data-holding providers and payers
2. Aggregators will be essential, but few (if any) would be able to differentiate themselves
3. It is essential to serve well and win the app developer ecosystem
4. Strong network effects are possible

When the right company came along, we were ready.

 

Healthcare’s Modern Data Platform

Despite initial resistance within the healthcare industry, healthcare payers had begun selecting vendors to help them comply with regulatory changes. The situation created a unique catalyst and opportunity for a company like Boston-based 1upHealth, which had developed a cloud-based platform that helps healthcare companies collect, organize, share, and use their data more effectively. By bringing together patient records, insurance claims, and other types of health data, the company facilitates improved healthcare, lower costs, and less risk.

We quickly realized that 1upHealth had developed the healthcare industry’s most sophisticated FHIR-enabled health data platform, which supported interoperability across the healthcare ecosystem. The founding team shared a strong skill set across tech infrastructure, healthcare and resource management. From this expertise, they rapidly built a robust platform and fast-scaling sales engine, demonstrating clear product-market fit by the time we led 1upHealth’s Series B in April 2021.

“1upHealth’s collaboration with F-Prime represented a pivotal step for the company,” Founder Ricky Sahu told us recently. “They have helped us through multiple financial planning and strategic efforts, shared their historical experience working with and investing in companies across healthcare data and adjacent industries, and fostered critical connections ranging from new team members to prospective customers.”

 

Infrastructure for Impact

Using its platform, 1upHealth customers can streamline the collection of clinical data to power workflows like quality reporting, risk adjustment, care management, and utilization management. Their data is easily accessible and discoverable for all downstream applications and analytics functions, and complies with health data exchange regulations including prior authorization, payer-to-payer, and provider access rules, leveraging FHIR application programming interface (APIs).

Since our investment, 1upHealth has emerged as the leading vendor to tech-forward healthcare buyers seeking a cloud-based solution to support a more interoperable future. We are also excited to see payers and collaborating entities like healthcare providers using 1upHealth’s cloud infrastructure to support the transition of payment models between payers and providers from the predominant fee-for-service model, which tends to misalign incentives, to a value and risk-based arrangement that aligns payers and providers’ focus behind patient health. As investors, we saw PatientPing (now Bamboo Health) help facilitate data sharing for these purposes and looking forward, we see a tremendous opportunity to provide the infrastructure for similar use cases and companies.

Behind the Build: Q&A with Tammy Sun, Carrot Fertility

Tammy Sun, the Founder and CEO of Carrot Fertility, is a pioneering leader driving transformative change in global fertility care. With a profound commitment to comprehensive and inclusive services, Carrot Fertility addresses the diverse needs of individuals navigating their family-building journeys and beyond.

Navigating the complex landscape of women’s health and fertility care demands an inclusive and personalized approach—a principle that aligns closely with Carrot’s mission. Tammy highlights the diverse needs of those facing fertility challenges, emphasizing the critical role of tailored support amidst a sea of information, costs, and legal considerations. Carrot’s innovative model encompasses the full spectrum of fertility and hormonal healthcare, pioneering a lifecycle approach that transcends traditional boundaries.

As Carrot continues to expand its offerings and educate members, Tammy remains steadfast in her pursuit of transforming reproductive health and family-building care on a global scale.

What motivated you to start Carrot Fertility?

In my 30s, I decided to freeze my eggs. I was surprised to learn that despite having a great job and health insurance, my three rounds of egg freezing wouldn’t be covered. I spent more than $35,000 out-of-pocket.

While the overall experience was emotionally challenging, I also felt grateful that I had enough money in savings to pay for my care. That’s not true for most people who undergo fertility treatments. Cost is one of the biggest barriers to accessing care, and I was set on changing that. Carrot’s mission was born from this vision of fertility care for all, inclusive of age, sex, sexual orientation, gender identity, race, income, marital status, and geography. Today, we are the leading global platform for comprehensive support and access to care for maternity through menopause — and pre-pregnancy through parenting.

Can you tell us a bit about the women’s health landscape overall? What makes fertility care so complex? Why is an inclusive, personalized, and comprehensive approach necessary for those experiencing infertility?

While fertility and family-building care is a fundamental part of healthcare, there’s no one-size-fits-all approach. Some people know they want to grow their family but aren’t sure where to start. Others have begun the process but have encountered challenges and need guidance on what step to take next. The experience is unique for everyone, but with so much information out there – and other added complexities, including navigating costs and local laws and regulations – it can be challenging for an individual to understand what’s best for them and their personal needs. That’s why we work directly with our members to create personalized Carrot Plans that guide members every step of the way.

How does Carrot stand out from other women’s health players? What current gaps is the company fulfilling?

What sets Carrot apart is our global and inclusive approach. We are the first organization to demonstrate an international presence since day one. We have reached into more than 130 countries and offer end-to-end translation of the Carrot app (web, iOS, Android) in ten languages, allowing employers to offer unilateral benefits.

Carrot is also the only fertility benefits platform that focuses on the full lifecycle of fertility and hormonal healthcare – from fertility preservation, treatments, and pregnancy to menopause and low testosterone for healthy aging. We have the largest provider network to support members globally, no matter their age or journey.

How has F-Prime supported Carrot in getting to where it is today?

Carl and the F-Prime team have been instrumental in Carrot’s journey by deeply understanding the significance of enhancing health outcomes through improving access to high-quality, lifelong fertility care. Since joining Carrot’s board in August 2020, Carl has been a key strategic partner when navigating challenges and seizing opportunities in the ever-evolving healthcare landscape. Carl’s strategic approach, coupled with his profound expertise, has guided us toward success for our customers, partners, and most importantly our members.

How did you come up with the company name?

First-generation fertility products were largely cycle tracking-related and feminized in their naming and branding. We knew early on that fertility was a human healthcare issue — not only a women’s health issue. Carrot is easy to say, easy to recognize, and we’re continuing to build a brand around the name that invites all people to engage in lifelong fertility and hormonal healthcare.

What’s been the most rewarding part of your tenure with Carrot to date?

Hearing directly from our Carrot members. We support people throughout some of the most meaningful times in their lives, and we don’t take that for granted. Whether it’s hearing from members who adopted their son, a member who was able to work with a postpartum doula, or a member who could now afford to freeze her eggs, each and every one of these personal stories means so much to me, and our team. It’s the most rewarding part of our work.

What’s the best piece of professional advice you’ve ever received?

One of the best pieces of advice I ever received was from a friend, who sadly passed away a few years ago. She was a daring, brilliant, and successful entrepreneur. She was also an author who published a best-selling book not long before she passed away. I once asked her why she decided to write a book and she replied, “because I could no longer not write one.” She had something she thought she could give the world. Similarly, there was a point when I could no longer not start a company whose mission is to bring fertility care to all people. This is the advice I’d pass on to anyone thinking about embarking on a journey to build an enduring company. Do it, but only if you think there’s no other pursuit you can, or should, be doing instead.

What are your near-term and future goals for Carrot? How do you see Carrot supporting expanded access to fertility and family building care?

We continue to focus on expanding access and improving outcomes for our members through personalized care. That includes educating our members about their options and guiding them to the right level of intervention based on their needs.

With preventive options like fertility testing, ovulation tracking, and nutrition support, we encourage members to approach their fertility health proactively. Two-thirds of Carrot members choose less invasive options over IVF when appropriate, eliminating costly and medically unnecessary procedures.

For cases where IVF is the best option, Carrot members are educated on the benefits of single embryo transfer (SET), which is the single most predictive indicator of a singleton IVF pregnancy and subsequent successful live birth. It is an important clinical protocol used to avoid multiple gestation pregnancies, which are associated with higher medical costs and poorer health outcomes for mothers and infants.

Last year, we published an internal study, also validated by independent actuarial service Milliman, demonstrating the highest reported SET rate of any fertility benefits vendor and an IVF pregnancy rate greatly exceeding national averages. The study found that Carrot’s SET rate of 93% was 27% higher than the national average and that our IVF pregnancy rate of 60% is 11% percent higher than the national average. Our industry-leading SET rate leads to a reduced risk of low-birth-weight deliveries and costly NICU admissions, ultimately reducing overall healthcare costs.

What makes you most hopeful about the impact that Carrot could have for women when it comes to family building and beyond?

Over the last few years at Carrot, we’ve launched new products and expanded our offerings to ensure our members have access to care, no matter what fertility, pregnancy, hormonal health, or family-building journeys they’re on. One product I’m particularly passionate about is our menopause support.

By 2025, 1.1 billion women worldwide will have experienced menopause. Symptoms can last for years and disrupt daily life, yet menopause is rarely discussed at work despite it impacting women at the height of their careers. In fact, 80% of women cite menopause as a workplace challenge and more than half have considered making an employment change due to menopause.

We were the first fertility benefits platform to introduce menopause support, and now, nearly all of our 1,000+ customers have started offering the benefit to their employees, showing promise that the tides are turning towards more menopause support in the workplace. I’m hopeful that a year from now, we’ll see even more leading employers recognize the need for menopause support and that it becomes a standard part of healthcare benefits.

Led by “Work Brothers,” RiskRecon Struck Gold in Third-Party Cyber Risk

In his role as Chief Information Security Officer at Salt Lake City-based Zions Bank, Kelly White was a typical enterprise software customer — and he had a problem. Every time his team tried to onboard a new vendor, they had to embark on a slow and increasingly antiquated security assessment process built on questionnaires, documentation reviews, and on-site visits. Methods for vetting potential vendors had not kept pace with business data’s accelerating migration to third-party environments, or the increased business risks that accompanied it.

Frustrated by his inability to find a method that would identify and monitor third-party cybersecurity risk for his enterprise, Kelly set out to build a product that could. He started spending nights and weekends working in his basement, coding a solution capable of automatically discovering and assessing any vendor’s security posture from the outside looking in. To scale up his basement creation and bring it to market, Kelly teamed up with Co-founder Eric Blatte, who brought a wealth of go-to-market leadership experience at several high-growth security startups. Together, they raised RiskRecon’s $3 million Seed Round in late 2015.

The Security Problem With Third-Party Software

As SaaS and third-party software usage exploded among enterprises in the early-to-mid 2010s, so did their cyber risk exposure. Data assets moved en-masse to third-party environments, drawing heightened scrutiny from boards, management, and regulators.

Everyone had the same problem Kelly had experienced at Zions Bank: enterprises’ methods for managing third-party risk lagged behind the increased need. A typical enterprise customer might send out a questionnaire with hundreds of questions to a new vendor, kicking off a lengthy research process complete with follow-up emails, conference calls, and on-site visits. The only objective or tech-based method of assessment available was penetration testing, which was extremely costly and, in any case, rarely allowed by vendors.

During F-Prime’s research in the space, we found that third-party vendors caused almost half of all enterprise data breaches — and the rate of third-party breach events was growing at more than 30 percent each year, even while the vendor security assessment process remained subjective and highly manual. Such breach events were hitting the headlines at an increasing rate, impacting healthcare, mega retailers, financial service providers, and even national governments and militaries.

Tech and Team Advantages

While cybersecurity was already crowded with startups in the mid-2010s, RiskRecon was one of the few startups with a former CISO at the helm. We suspected that Kelly’s experience in his customers’ shoes would be an incredible secret weapon in such a noisy market — and it was.

Informed by Kelly’s first-hand experience as an enterprise security leader, the product also stood out from the crowd. Instead of aggregating noisy threat intelligence data, the team used machine learning to generate a high-quality, risk-prioritized dataset for enterprises — a competitive differentiation that built enormous trust with its customers. When RiskRecon’s data indicated security weakness in a vendor, users learned to pay attention.

Early on, the company sold its product to a handful of large financial services customers, and by maintaining close connections at those firms RiskRecon was able to rapidly incorporate customer feedback to the point where it was automating work on their behalf. As a result, the company gradually took a lead over better-funded competitors who merely delivered risk ratings and reports.

The nature of the product also meant it was easy to sell — the team could quickly deliver self-assessments for a prospect’s cybersecurity posture and show up to demos with immediately actionable insights. It was a simple next step for RiskRecon to give prospects the same insights into the cybersecurity risk hygiene of their entire supply chain.

Aware of the outdated nature of third-party security assessment processes, F-Prime recognized the superiority of RiskRecon’s solution and the uniquely successful dynamic between its founders. When Kelly and Eric set out to raise a Series A, we committed early and partnered with Dell Technologies Capital to lead the $12M round. With some early success under their belt, Accel Partners led RiskRecon’s Series B only a year later, and F-Prime doubled-down.

“Building a startup with the early success of RiskRecon required a focus on rapidly building the right team and ensuring the team is heading in the right direction at breakneck speed, while serving existing customers and winning new ones,” Kelly told us. “It was wonderful to have F-Prime, who were a calm and steady hand by our side, for the best days and the worst days.”

“My Work Brother”

Kelly’s expertise as a security leader at an enterprise organization — RiskRecon’s exact customer profile — was one ingredient for the company’s success. A second ingredient was his co-founder Eric’s experience at several cybersecurity startups, including Imprivata (acquired by Thoma Bravo) and Trusteer (acquired by IBM Security).

At RiskRecon, Eric reportedly referred to himself as “Chief Bottle Washer,” referencing the way a “chief cook and bottle washer” would take responsibility for the most important and menial tasks alike in a 19th-century naval kitchen. He was always responsible for sales and field marketing, and at various points covered everything from negotiating legal contracts and coordinating billing to winning renewals.

The third ingredient was the unique relationship between the two founders.

“I came into RiskRecon knowing loads about cybersecurity and risk management, but I knew virtually nothing about business,” Kelly said. “Eric had far more business experience and wisdom, and he patiently helped build RiskRecon through every stage.”

Acquisition

In 2019, Mastercard approached RiskRecon with an acquisition offer that the team couldn’t refuse. While the company wasn’t for sale, the deal offered an opportunity to accelerate RiskRecon’s distribution to thousands of customers with the backing of a global brand.

“Through a powerful combination of automation and data-driven advanced technology, RiskRecon offers an exciting opportunity to complement our existing strategy and technology to secure the cyberspace,” Mastercard President of Cyber and Intelligence Ajay Bhalla said at the time.

“Mastercard has been one of those brands that has stood out as a true innovator, focusing on the real problems of real businesses,” Kelly added. “By becoming part of their team, we have an opportunity to scale our solution and help companies in new industries and geographies take steps to better manage their cybersecurity risk.”

Kelly remains CEO of RiskRecon within the Mastercard organization. Meanwhile, Eric stayed with MasterCard until 2021, when he joined F-Prime and Eight Roads Ventures as a Venture Partner.

“I have seen the F-Prime team at work from the perspective of a founder and as a venture partner,” Eric told us. “They have a massive wealth of knowledge and supportive resources at their disposal. If they aren’t able to help portfolio companies with a problem, they almost certainly know someone who can — and they’re always happy to make the introduction.”

“Building a startup with the early success of RiskRecon required a focus on rapidly building the right team and ensuring the team is heading in the right direction at breakneck speed, while serving existing customers and winning new ones.”

— Kelly White, Co-Founder & CEO

Video Interview: M&A Deal Activity

Rocio Wu, Principal at F-Prime and Adam Reilly, National Managing Partner, Mergers, Acquisitions, and Restructuring Services at Deloitte Consulting LLP, join Jill Malandrino on Nasdaq TradeTalks to discuss M&A deal activity and why leaders are increasingly recognizing the path to success requires the strong foundation of a well-defined strategy.

Video Interview: The State of Robotics report

Audrow Nash interviewed F-Prime’s Sanjay Aggarwal about the State of Robotics report for his podcast. Over almost two hours of conversation, they covered Sanjay’s background as a robotics engineer, the role of venture capitalists in the robotics ecosystem, and how that involvement has changed over the last five years.

Originally published by the Audrow Nash Podcast

 

 

State of Robotics in 2024: The Rise of Vertical Robotics

Venture capital investments in the robotics industry fell for the second straight year in 2023, down to $10.6B from $18.5B in 2022. However, within the downturn we find a number of indicators suggesting that the industry is, in fact, in an exceptionally strong position heading into the next five years.

That’s the headline for our second annual State of Robotics report. You can dive into the full report and its data here, and read on for our own analysis.

robotics funding 2019-2023

 

A Period of Transition

While the funding drop mirrors trends in the broader tech startup and venture capital ecosystem, it is more pronounced in the robotics industry as the torrent of capital investors once poured into the autonomous vehicle sector has dried up. AV companies raised $9.7B in 2021 — in 2023, they raised just $2.2B.

rise of vertical robotics

As the AV sector falls victim to an over-emphasis on technological ambition and under-emphasis on commercial viability, Vertical Robotics companies are attracting a new wave of talented founders, investment capital, and corporate interest. AV companies raised around 70 percent of venture capital invested in robotics in 2019, but by 2023 that figure had fallen to less than 30 percent — much of which is now focused on trucking. Meanwhile, Vertical Robotics companies’ share of investment in the industry has grown over the same time period. While the Vertical Robotics sector also experienced an overall decline in investment in 2023, it has experienced net growth over the last five years, from $2.4B in 2019 to $4.1B last year. In 2023, logistics and medical robots saw the most activity.

Vertical Robotics companies target industrial use cases with end-to-end solutions, typically augmenting tasks performed by humans and thereby enhancing the productivity of existing labor. Examples include pick-and-place robots in fulfillment centers, or autonomous vehicles moving crops on a farm or in a nursery.

robotics exits ipos M&A 2013-2023

Exits also slowed in 2023. Deal volume and deal value both dropped to a five-year low in the robotics industry. The drop in deal value was especially tough — as a whole, robotics deals in 2023 were worth less than 10 percent of the exits in 2022. Of the 46 companies that went public via IPO or SPAC (remember those?) since 2019, as of the end of 2023 only eight trade as independent companies with market caps above $250M.

early stage robotics funding

 

Signs of Endurance

Despite the overall decline in funding for tech startups, investing in robotics at the early Seed and Series A stages held up better than late-stage investing over the last three years. This is reflective of investor excitement about the tailwinds creating opportunities in the sector, including rapid advancements in AI, falling hardware costs, and labor shortages. In turn, these trends are driving more experienced and talented founders to create robotics businesses. Startup accelerator Y Combinator, a longstanding bellwether of early stage investment activity, included robotics as one of the focus areas of its 2024 cohort. The last few years’ robust early stage activity will drive increased later-stage investment as companies mature and achieve commercial milestones.

value in private robotics companies

Meanwhile, given the challenging exit market of the last 12+ months, there is still a significant amount of value locked in private robotics companies. There are currently 20 private companies which have raised at valuations north of $1B, with an aggregate last-round valuation of $118B. While much of the value is in AV companies, where valuations are likely to reset, there is still an attractive backlog of robotics startups capable of driving significant exit value going forward.

That exit backlog will create a massive tailwind for the industry in the coming years. The IPO window will reopen and established businesses will seek to reinvent their product offerings through the acquisition of Vertical Robotics players, sharpening the opportunity in the eyes of many investors. Over time, the virtuous cycle of company creation and exit will accelerate.

The past year has been a wake-up call to the entire venture ecosystem — and particularly robotics. Hype-driven investment cycles inevitably come to an end, while those focused on business fundamentals endure. Investors today are looking for differentiated solutions which transform massive addressable markets, but they must also deliver superior financial results. The industry’s tailwinds have positioned it to be one of the driving sectors for venture returns in the coming years — though plenty of work remains to deliver on the financial promise of robotics.

Fintech Is Operating at Scale, With Huge Growth Potential

Over the last 10 years, investors poured more than $370B into fintech startups across the globe. As a result, we now have a sector comprised of many companies operating at scale — and with plenty of room to grow. In our recent State of Fintech report, my colleagues and I took stock of the sector’s progress over the last decade, identifying the companies that have reached (or are about to reach) enterprise scale.

 

As a Sector, Fintech Is Now Operating at Scale

scaled fintechs

A decade ago, Coinbase did not exist; now, it generates $2.8B in revenue a year, and is one of 25 companies in the F-Prime Fintech Index whose revenue exceeded $1B in 2023. That’s more than half of the companies in the index.

Having achieved scale, the larger companies in the F-Prime Fintech Index are still growing rapidly. Public companies like Oscar Health, Nubank, Wise, and Bill.com are posting LTM revenue growth in excess of 50 percent. Toast brought in $3.6B in revenue in 2023 — 45 percent more than in 2022. Meanwhile, a contingent of privately listed companies like Circle (102 percent) and Chime (95 percent) are nonetheless operating at a similar scale to their public counterparts with $1.6B and $1.9B, respectively. The 10 fastest-growing companies in the F-Prime Fintech Index are growing at 54.1 percent, whereas their counterparts in the Emerging Cloud Index are growing at 33.3 percent.

 

Plenty of Scaled Fintechs Remain Private

Outside of the public markets, we find a cohort of scaled fintech companies that have reached a high level of maturity, but continue to operate privately. Stripe is a great example. The company has raised more than $9.1B from private investors, with the latest coming in around $6.9B. However, it earmarked a sizeable portion of the round to pay employees’ personal tax liabilities for expired shares, due to Stripe’s long tenure as a privately held startup. The company is subject to endless speculation about when it will finally go public. Others in this category include Klarna, which brought in $2.1B and is reportedly considering a public listing, and Revolut, which has $1.9B in revenue.

Overall, startups are staying private longer. According to Nasdaq, the median age of a company at its IPO in 1980 was six years. In 2021, the median age was 11, thanks in part to the increasing volumes of capital flooding into the private markets. However, companies like Stripe, Binance, Klarna, Chime, and Circle represent a crop of scaled fintechs that are reaching the limits of the private markets, and will soon find themselves with no option but to go public. The fintech floodgates are about to open even further.

 

Scaling Fast

Beyond the largest players, the F-Prime Fintech Index also lists a group of companies that are poised to join the billion dollar revenue club. Remitly, for instance, posted 46 percent revenue growth, ending Q3 with LTM revenue at $871M. Payoneer grew 36 percent to reach $790M LTM revenue by Q3, and Xero grew 27 percent to $982M. These companies could post even slower growth in 2024 and still reach $1B in revenue.

It is worth noting how quickly these companies reached this milestone. Block (fka Square) went from zero to more than $1B in revenue in a matter of five years. It took Nubank, Stripe, and Adyen seven, eight and 11 years, respectively. As early stage investors, we often ask ourselves whether a company can bring in more than $1B in revenue someday, and it is re-affirming for the sector to see private startups scaling so rapidly. The speed and scale of their growth validates our conviction about the size of the markets they’re chasing. Many of these startups are still operating in their local markets or in just a handful of countries. Like many older multinationals, they will be able to continue scaling as publicly listed companies selling internationally and would benefit from the prestige and resources that come with public listing.

fintech ipos

Overall, the number and size of companies poised to go public or cross the billion-dollar revenue threshold heralds further growth for the fintech industry. Over the next five years, we believe the F-Prime Fintech Index’s market capitalization will grow significantly from new public listings.

We encourage you to tinker with the F-Prime Fintech Index, which now includes head-to-head comparisons; dynamic charts comparing company performance (by market cap, revenue, growth, margins, multiples, and more); and multiples benchmarks to help explore the connections between valuation multiples and performance metrics like margins and growth rates.

 

Originally published in Financial Revolutionist.