There are plenty of defining years in the history books, and as 2020 draws to a close, it’s almost certain that the global pandemic will ensure that this year is featured prominently. With events cancelled, launches delayed, and country-wide lockdowns, the way we work has changed forever. Still, for financial technology and surrounding industries, this was also a year of challenge and opportunity.
This December, The Fintech Times is asking industry leaders for their ‘View from the Top’ to gain an insight into the decisions behind the last 12-months. Today, we’re looking at Switzerland-based specialist investment firm Bullet Capital. Founded in 2016, the company has current investments in seven fintechs, such as Stockholm-based Intergiro and Swedish publicly traded crypto broker Quickbit listed on the Nordic Growth Market. The family-run business has been forged from decades of experience across banking and finance to marketing and is now looking towards the UK for collaborations.
The self-proclaimed ‘rock and roll’ investment firm is headed up by Mathias Jonsson van Huuksloot, here he talks about the exciting times ahead for the industry and the compliance dangers unicorns (private, venture capital-backed firms worth more than $1billion) are facing.
What was the vision behind starting Bullet Capital?
I’ve been in the financial markets for more than 25 years and started my first business when I was 23 in Gothenburg, Sweden. I’m one of those entrepreneurs who has probably tried most things in most markets but have always circled back to the world of finance, one way or the other, and my focus now is on the fintech market.
I’d previously been in a partnership but when we parted ways, I knew I wanted to make the decisions more or less on my own terms, and that the common denominator would be that we only go where we can add value.
We’re a small firm but we are very hands on and would never invest unless we could be the lead investor. We love to look at companies that have a disruptive idea, but where the founders may have some difficulty or they’re going down the wrong path.
Do you have a certain formula that you follow?
The great thing about fintech is that it is always changing and that’s why we decided to stay fast and agile. We are a deal making company. That doesn’t mean we’re brokers, as we wouldn’t typically broker a deal. We prefer to go in as the lead investor.
We believe if we haven’t done our job within three years, then we haven’t done it correctly. So far, touch wood, it’s gone well. And, we’ve had some substantial returns along the way.
Where do you see your next investments coming from?
In our first few years we’ve been focused on the Nordic markets as a lot of things happening in the fintech industry are coming out of there. However, we are now looking at expanding outside of the Nordics, potentially into the UK and the rest of Europe.
We get sent decks to look at all the time, but interestingly, only two of the companies we work with have come to us this way. We like to keep our ears to the ground. We love problem solving and disruptive ideas. If we like what we see, we make our own enquiries.
Two of our current investments that we’re most excited about include Intergiro, which is on a mission to provide the financial toolkit required for our customers to thrive in the digital age and Wirex contender Quickbit.
In the autumn, Quickbit plans to release an app that will simplify the use of crypto in people’s everyday lives, and change over to a .com domain, this will help it to become the preferred crypto payment provider for various online merchants.
Has coronavirus scuppered any plans?
Luckily little to none. It’s business as usual for us although I will want to travel for face-to-face meetings as soon as possible. I’m not a fan of meetings online, I think I come across as old fashioned compared to the millennials who run these businesses that I invest in. They find it very old fashioned when I request a physical meeting, it’s almost like they don’t know what to do. Having said that, we handle everything online, so the impact has been quite small.
Who do you think is struggling at the moment within fintech?
I think the biggest challenges at the moment are for unicorns, such as Revolut. It has this insane valuation and it can be dangerous for them to be the first mover. It’s hard to change and yet if you don’t, then two months later you may have somebody else coming along who identified all their initial mistakes and has a better offering. The biggest difficulty ahead is compliance and, for a company like Revolut, it will be a struggle. It has received a lot of praise but has grown too quickly and will find it difficult to attract corporate accounts. Actually, I think Revolut possibly offer the worst and most sub-standard compliance experience out there because it has grown so quickly. With terrible service it will lose corporate clients; it’s not enough to be super cool or have the unicorn label if you haven’t got the basics down.
What challenges do you foresee within the industry?
If you look at today’s world, I think the opportunity as much as the challenge is with compliance. You have to adhere to all the regulatory requirements and those are very burdensome today, but there is so much you are still able to do within the boundaries of the current regulatory framework. For these large companies, it’s easier to say ‘no’ because they don’t understand something. But then they lose out on corporate clients because they don’t understand the compliance issues or the approach. I think that in the fintech world, it’s not about the coolest UX (user experience) or about using the latest buzzwords, it’s about understanding compliance and being efficient within the regulatory framework.
I predict that unicorns will struggle going forward, as both the opportunity and challenge is in compliance. If they grow too quickly then they will soon lose corporate clients as it becomes harder for them to adapt.
What are the benefits for the consumer when it comes to fintech adoption?
In a nutshell: making their life easier. It’s not about having the coolest product. In fact, this was the selling point of Revolut in their early days. The consumer will get behind anything that’s easy to adopt and saves them time. Winners in this industry are the ones who realise that it is all about the product. Right now, fintechs are charging huge set-up fees, this isn’t the same experience as with a traditional bank so it can feel strange to the end-user. This means that ultimately the fintech is living off high fees as a core model, but this will have to change when the market consolidates. Essentially, fees will become a race to the bottom for user-friendliness. This means that fees will have to go, the competition will once again be about the product which means the number of products in the marketplace won’t be as many.
Do you see any other industry changes on the horizon?
Compliance and the regulatory framework will continue to be challenges as the regulators themselves don’t fully know how to apply their instructions. When these people are scratching their heads there are problems on the horizon. Europeans may be concerned about Brexit but there are too many discussions to have to be worried about it just yet.
In the meantime, countries, such as Estonia and Holland, look exciting due to their commitment to the fintech space, including political backing for cryptocurrencies and blockchain technologies. By having De Nederlandsche Bank (the Central Bank in the Netherlands) onboard, fintech companies are finding acceptance in Holland. So, there is good news out there.
Can these challenges be aided by fintech?
We are in a relationship where both the regulator and the industry need to learn from each other. That includes growing together and understanding lots of scenarios going forward. Essentially things will change, whether that’s due to disruption, politics or the consumer demanding what they want.
Do you have any final thoughts?
In 10 years, traditional banks will still be there for their lending capabilities, mergers and acquisitions (M&A) expertise and as advisers but possibly not for retail. In as soon as five years, I see the adoption of cryptocurrency in the mainstream, with blockchain at the core of how we do business. From issuing shares and contracts to selling a house, our data will be stored securely.
Of course, there is still the threat that one election can change everything. We have already had that happen and lost money in the process, but in an investment, you can mitigate your risks. Looking forward, I am super excited. Of course, it is very challenging, with new startups everyone is competing in the same niche and with massive consolidation on the horizon, there can only be a few winners. After all, there are so many ways to apply the technology. But it’s extremely interesting and there’s a lot of sexy investments out there. The biggest change? Fees. They will have to drop as the market consolidates and many fintechs will lose out if they don’t pivot their core model.
