2023 was AI’s coming out party nearly 75 years in the making. ChatGPT became the fastest application to 100M+ users ever, becoming a verb in record time. From building co-pilots for your finances, to your fitness goals, to various vertical specific work tasks, AI is seemingly permeating every business. AI enables customization at scale previously unfeasible. One area where we believe customization matters most? Commerce. Imagine shopping in SoHo in New York, the Champs Élysées in Paris or at Oxford Street in London, wearing your new Ray-Ban Meta Smart Glasses with an integrated shopping “co-pilot” presenting options specifically targeted at you based on what’s in your closet, your Google searches, Instagram views, & TikTok followers, with the environmental impact of each item from traditional fast fashion like H&M and Zara to luxury fashion houses like Chanel and Prada to environmentally conscious brands like Patagonia and Another Tomorrow displayed as you shop. While this might have sounded like a sci-fi future just three years ago, it feels incredibly close to becoming reality today. 

Social Commerce

Companies like Meta, TikTok, Temu, Amazon, Shopify, & Pinterest, are experimenting at the intersection of AI and commerce, with tangible impacts on their products for consumers, and merchants alike. If ChatGPT was the fastest consumer app to 100M+ active users, social commerce platforms such as TikTok & Temu are quickly becoming the fastest marketplaces to $10B+ in annual GMV. 

In September 2023, TikTok launched TikTok Shop in the US, which lets creators tag products to allow users to buy directly from in-feed videos and live videos. TikTok Shop allows users to search for items, discover product recommendations, and manage their orders. During Black Friday & Cyber Monday, 5mn+ new U.S. customers purchased something on TikTok Shop, and TikTok is projecting they will grow their US business nearly ten-fold in 2024 to $17.5 billion in GMV. If you watched the Super Bowl, it was hard to miss the $21 million spent on commercials from Temu, a popular shopping marketplace with discounted products, advertising the platform where customers can “shop like a billionaire.” Founded in 2022 as part of Chinese parent company Pinduoduo, Temu is projecting GMV of $30 billion in 2024. With the momentum from the Super Bowl, the platform launched to the top of the Apple free downloads. Temu is leading the way in what many are referring to as “discovery based shopping” rather than “search based shopping” from platforms such as Amazon. Shoppers open up Temu, with the desire to buy something, but without having a firm idea on the what, which is a valuable unbranded search for merchants. These types of platforms & shopping experiences are appealing to a wide range of consumers with goods at an even wider range of price points, from those historically purchased at dollar stores to high-end luxury and everything in between. In November 2023 Temu had an estimated 17% market share in the US within the discount stores categories according to Earnest Analytics, compared to 8% for Five Below, 43% for Dollar General, and 28% for Dollar Tree. 

This focus on discovery is permeating other types of marketplaces and goes hand in hand with some of the trends we’re seeing in AI. During a September Investor Day, Pinterest provided a sneak peek into the way they are thinking about AI, customization and its impact on social commerce. Sabrina Ellis, Chief Product Officer, spoke to their focus on AI and using, “intent signals to deliver customized recommendations” with users telling them “that they know what they like, when they see it, but they struggle to put it into words.” Pinterest intends to help them by allowing users to search by theme as opposed to requiring explicit key-words. Through their Shop Similar & Shop The Look features, Pinterest can gather a tremendous amount of data, and receive billions of “intent signals” to give them the “ability to see trends in real time and predict consumer trends for the upcoming year. Similar to the discovery-based shopping that Temu is offering, platforms like Pinterest are top of the funnel of the shopping experience, looking to utilize these intent based signals to bring customized results to users at the right time in their shopping journey. 

Recommerce

Concurrent with the rise of social commerce retailers, we have seen increased concerns around sustainable commerce. Shein accounts for 1/5 of the global fast-fashion market, coupled with Temu, Alibaba & TikTok, they ship more than 6,000 tons every single day, resulting in 100+ Boeing 777 freighters. To put that in perspective, air freighters generate 47x more greenhouse gases than ocean shipping. With concerns around sustainable commerce and the next generation interested in purchasing from brands with more sustainable practices, we are seeing the rise of recommerce i.e. reverse commerce which “takes a circular approach to manufacturing and consumption, where products and materials are reintroduced back into the economy rather than dumped in landfills, ultimately helping to reduce waste and pollution.”

Historically there’s been a negative connotation associated with recommerce but this is starting to shift. In 2022, 52% of consumers shopped secondhand apparel with online resale expecting to reach $38 billion by 2027 & the global second hard market expected to reach $350 billion by 2027. In surveys, 2 in 5 items in Gen Z closets are secondhand, while secondhand is growing faster than any other channel of commerce. Why is this important? Brands risk falling behind in serving the next wave of sustainability-driven Gen Z consumers, forecasted to comprise 40% of global consumers by 2025, succumbing to rising marketing costs and low retention, if they don’t adopt a solution able to serve a circular experience for customers. 

We are also seeing fintech companies stepping up to the plate to adopt more sustainable commerce practices, in part being pushed by the need to address increased competition, rising CAC, inefficient retargeting spend, constrained LTV and weak access to third-party and secondary customers. Visa recently created a digital Recommerce space to work with individuals & businesses to learn more about how to adopt the six R’s of Recommerce – resale, repair, rental, refill, return and redistribution – and said, “we believe that the payments industry has the power to enable a positive shift towards more sustainable behaviors.”

This focus across industries has driven regulators and brands to step up to the plate to address the environmental impacts of social commerce. The EU is pushing digitalization and transparency across the product lifecycle with the Digital Product Passport and companies are being forced to reckon with their contribution of 10% of all greenhouse gas emissions each year by making decisions to drive down their emissions. 

This focus on integrating sustainable practices has also led brands to look at innovative solutions in the recommerce industry, specifically digital identity. In April 2021, LVMH, Prada, Richemont, Mercedes-Benz, and Cartier unveiled the Aura Blockchain Consortium, marking a pivotal shift in the luxury market’s approach to sustainability and authenticity. This initiative represents the first worldwide luxury blockchain, designed to offer unparalleled transparency and traceability across a product’s lifecycle. The Consortium aligns a product’s ID with a client’s ID, creating a robust infrastructure that allows consumers to trace a product’s journey and verify its authenticity from production to purchase, eliminating the need for third-party verification. The Aura Blockchain Consortium empowers consumers to monitor a product’s entire lifecycle through reliable data, enhancing transparency in the luxury sector and supporting the broader adoption of sustainable practices. With the adoption of the Aura Blockchain Consortium, we are seeing brands integrate greater sustainability initiatives into the core fabric of their business (no pun intended).

Conclusion

Commerce is constantly evolving, but with the integration of artificial intelligence, the rise of social commerce, and the increased focus on recommerce, as we sit here today the next decade feels ripe for equal or greater disruption than what we saw during 2010-2020 with eCommerce. AI enables unprecedented personalization and curation at scale, offering consumers a tailored discovery-based commerce journey. This has changed where eCommerce is conducted. No longer restricted to marketplaces such as Amazon, merchants can meet consumers where they are already spending time; on their social media apps, or in purpose built de novo applications. The rise of social commerce platforms has made shopping more interactive, and reintroduced social elements from the offline world. 

This hasn’t come without its drawbacks, most notably related to the carbon emissions of shipping millions of low priced items around the world on a daily basis. Fortunately, we’re seeing a growth in recommerce, reflective of the societal shift towards sustainability and the embrace of circular economic models, reducing waste. While these trends haven’t been directly linked in the past, recommerce is certainly receiving tailwinds from those concerned about a world with 24×7, same or next-day shipping alternatives for the most convenient goods to the highest end, and everything in between. 

Within this backdrop we believe the potential for innovation is immense. We envision a future where commerce is not just a transaction, but a curated, eco-conscious journey, driven by these various innovations. Businesses across the board will need to think about how they build more personalized, but also efficient and environmentally responsible consumer experiences into their product offerings, as consumers come to expect it. 

If you are building in the social commerce x fintech space, we would love to talk with you! Reach out to us at femaleinnovatorslab@anthemis.com. 

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Private markets are a massive market — there are currently $11 trillion in private assets under management (AUM), and it’s grown at an annual rate of almost 20 percent since 2017. While it’s only a tenth of the size of public markets, investors are increasingly looking to private markets to take advantage of the low correlation to public markets and amplify returns. This increase in capital and the number of market participants has only amplified the urgent need (and opportunity) for digitization and efficiency in private markets. The good news is that in 2023 we witnessed an emergence of sophisticated companies and tools that are helping to meet the digital demands of this complex asset class.

One of the historical challenges of private markets is illiquidity. It’s often debated whether the illiquidity of private markets is a feature or a bug: given the typically long holding periods and sheer number of private companies and funds in the world, transparent (not to mention executable) pricing and liquidity can be incredibly challenging. But that doesn’t mean mechanisms for liquidity can’t exist, particularly given the influx of new participants into the private market. This is where Anthemis portfolio company Liquidly comes in. They have created much-needed infrastructure for both fund managers and LPs to buy and sell secondary positions in their funds, creating a useful off/on ramp for GPs and LPs that were otherwise locked into a fund’s historically long lifecycle.

Another component of private markets is fund formation — an estimated $9 trillion of the $11 trillion in private market capital sits in funds (e.g. CRE, private credit, etc). Fund managers, syndicate leads and other institutions rely on fragmented legal, accounting, tax and compliance specialists to form, register and manage investment vehicles. These are necessary but mundane workflows that are ripe for disruption by software. That is the thesis behind Sydecar. Led by co-founder Nik Talreja, Sydecar has developed technology to standardize and automate the complex workflows involved in launching and managing private market funds and SPVs. The platform addresses a critical challenge in private capital formation: it significantly reduces the costs and time required for fund managers to enter the market. This efficiency opens doors for a broader range of investors to participate in and benefit from investment opportunities, increasing accessibility in private markets.

Access to private fund managers and the ability to invest in these vehicles has also been historically limited to a finite number of LPs with direct relationships. New companies like Allocate are not only providing digital access to a wide range of private market funds, but also giving qualified investors market data and benchmarking resources that shine much-needed light into the opaque world of alternative private investments. Whereas family offices and RIAs would have historically needed to build hundreds of relationships with GPs and fight for allocations, Allocate makes fund discovery, investment and reporting as efficient and cost-effective as using a standard digital brokerage account.

Finally, it’s worth recognizing the transformative impact LLMs and generative AI will have on private markets. These phenomena have revolutionized our ability to effectively manage, process, and extract value from unstructured data — a particularly noteworthy aspect of private markets. In contrast to public or institutional markets, where data is meticulously structured, even in complex instruments like over-the-counter (OTC) interest rate swaps or credit derivatives, private markets thrive on a less standardized and more fluid landscape. Anthemis portfolio company Carta, one of the pioneers of cap table management for private companies and funds, is using generative AI across its cap table and ventures businesses to speed up consumption and data extraction of legal documents.

We’re only at the beginning of the digital transformation of private markets. We don’t expect a copy-paste from public markets infrastructure, but we do expect to see the more modern design and private markets-specific solutions that usher in a golden era of private market innovation. If you or someone in your network has an idea or is working on a company in this space, the Anthemis team would love to connect.

You can also watch our recent webinar discussing the state of private markets here.

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From Anthemis’ earliest days, we’ve been committed to funding, supporting, and encouraging women founders. Today, we’re proud to continue that commitment by launching our Equity in Entrepreneurship report, which identifies a new metric VC firms can use as a north star to reach gender parity of founders within their portfolio companies.

VC firms have significant power in determining which founders succeed. Historically, that’s been mostly men. Holding that power means we also have a significant responsibility to create an equitable funding landscape. In recent years, there’s been a concerted push for gender parity across every part of the VC structure — but it’s not always backed by concrete action or financial commitments. Anthemis’ $50 million Female Innovators Lab Fund — the largest early-stage fintech fund focused on female founders–is one way we’re putting our money where our values are. But collectively, we in the VC industry can do much more.

Thankfully, there’s a long history of gender parity efforts from which we can draw inspiration. It strikes me as fitting that we’re releasing the Equity in Entrepreneurship report soon after Claudia Goldin won a Nobel Prize for her work studying women’s progress in the workforce and the process of closing the gender wage gap over hundreds of years.

One of the lessons of Goldin’s work is that closing the gender wage gap has been an uneven process, reflecting the societal and family structures that shape our behavior and economic outcomes. This kind of change takes time, commitment, and vigilance. We must not let small gains lull us into complacency.

In the VC space, our work is cut out for us: startups with at least one woman founder raised just 17.2% of VC funds in 2022, and white women received 79% of seed-stage funding intended for diverse founders. To change these numbers, we need to consistently reassess our goals and the data we use to measure progress toward them.

One goal post that many VC firms use is that 50% of portfolio companies should have a woman founder.

Our Equity in Entrepreneurship report explains why that won’t lead to portfolio parity in the way we might expect, and identifies a new goal post: 70% of the companies that VCs invest in should have at least one woman founder. (In short, this is because a portfolio in which 50% of companies are woman-founded doesn’t mean 50% of founders are women.)

We recognize that this may feel ambitious, but we believe it’s a worthy goal. More equitable gender representation among founders means we’re tapping into founders’ full potential and not leaving any value on the table. It’s also an important step to ensure women founders feel included and welcome, which begins a virtuous cycle toward a more inclusive society.

The report outlines concrete actions that all of us in the VC community can take to get there, like examining the race and gender intersections in our portfolios, partnering with organizations that support entrepreneurship among women, and building spaces where networks of untapped founders are present.

To our VC peers: we know that none of us are in this alone. We want to hear about strategies you’re using to move the needle toward gender parity in your portfolios, and toward a more equitable ecosystem overall. In the coming months, we look forward to facilitating future conversations.

The full Equity in Entrepreneurship report outlines how we identified 70% as a new north star for portfolio parity, what we’re doing at Anthemis to create an equitable ecosystem, and our perspective on where we go from here. We’re eager to hear reactions and reflections on this from everyone in the VC community.

Thank you to everyone at Anthemis who worked on this report — especially Alex Mayall for the thoughtful data analysis — and to all those striving for gender parity in our own portfolio.

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Getting back to basics

In Q4 of 2023, our new normal feels pretty familiar. In many ways, we’re revisiting the fundamentals of venture and growth investing. We can see how most firms are reprioritizing, aiming for strong business model fundamentals over revenue growth at all costs. And today’s market seems to be (mostly) dissuading the VC community from FOMO (fear of missing out) investing. Parsing signal from noise, some venture firms are recalibrating their pipeline management against this new backdrop. It’s clear that VCs today will only really fund startups with product-market fit and a clear path to profitability.
At Anthemis, the most challenging investing environment for us was actually the post-Covid zero interest rate, bull market starting in 2020, lasting through to the start of 2022. While we largely avoided FOMO deals, owing to our thesis-driven investment strategy, we certainly had to adapt to the prevailing market realities. What we found most alarming wasn’t the amount of capital available, or even eye-watering valuations; rather, it was the speed at which deals were completed during that period. For those of us deploying at the earliest stages, we saw how quickly firms sped through diligence, often discounting the importance of founder-investor relationship building. In 2023 and in the year ahead, we’ll continue to see early-stage investors and founders place more importance on pre-close relationship building. At the seed stage, we can again prioritize building these professional relationships as a key component of our investment process. Relationships that are key to making and supporting great investment outcomes and that are destined to evolve, deepen, and when a startup is successful, span many years.

Anchoring valuations in our new reality

We anticipate investors and company founders to continue to slowly adjust to a new valuation paradigm and to increasingly discover new “clearing prices” as “bid/ask spreads” continue to close in the next few quarters, as startups will continue to need to raise capital and get deals done. However, we don’t expect prices to shift too much (in either direction) from where they are now, and we expect pricing to become more heterogeneous and company-specific. I also believe that given the current macro and geo-political landscape, including the U.S. elections in late 2024, there is unlikely to be a substantive IPO renaissance in the near term.

2023 and 2024 may not offer much to the public markets, but they will give us an opportunity to learn from past valuation missteps. Closing out the year, venture leaders will try to understand where we went wrong with pricing and solidify new heuristics for this new capital markets environment. Most of us can agree that pricing blew past the “right levels” where shareholders, employees, and founders would have been happiest — and yet, there is still much work to settle on a new market consensus for the coming quarters. The end of year accounting closes will probably be a catalyst for setting a new baseline. At Anthemis, we’re excited about the opportunities to take a much more quantitative approach to modeling private markets asset pricing and valuations as one lasting benefit of the benign market environment of the past cycle was the creation of hundreds of publicly traded fintech companies. Although public fintechs may be more dense in some financial services sub-categories compared with others, we are steadily approaching the point where it is possible to collect sufficient data to deploy traditional multiples-based equity valuation methodologies as a key input to determining appropriate private company valuations. And over the coming years, as more fintechs enter the public realm and private secondary markets continue to develop depth and breadth, venture capital valuation methodologies will become “more science, and less art.” For fintech founders, this will also give them the tools to better optimise their business models and growth strategies to align with market signals, even from the earliest stages.

Embracing a market transition

While some narratives frame the last eighteen months as an unmitigated disaster, we recognize that alongside the obvious challenges arising, there are equally clear opportunities arising from this market dislocation. A more normalized and discerning market actually suits our investment approach at Anthemis: it makes it easier to find signal from noise and it facilitates being deliberate in our process for sourcing and analyzing the companies that match our thesis, while also leaving more space for serendipity to operate in our pipeline. It allows the time for more thoughtful discussions with founders and reflections on both risks and opportunities that are part of the natural DNA of venture markets. While the exuberance of the “up and to the right” bull market might have been advantageous for some, especially in the short term, given the illiquidity and long time horizons innate to successful venture investing, it is very difficult to be successful as a “momentum” investor in this asset class. This is where our experience investing and navigating through multiple previous market cycles and asset classes has been valuable in keeping us grounded through this bull and bear market cycle. Given that our (sector and thesis driven) investment style is more “hunting” than “gathering”, while not immune to broad market trends (no one is), it allows us to navigate different and changing market environments more resiliently. And we constantly remind ourselves that our job is to invest in great companies — not to invest in all the great companies.

When we established Anthemis over a decade ago, venture was considered a ‘craft’ business. In the greater pantheon of global capital markets, it was a small, idiosyncratic backwater. However, the two decade long secular bull market in technology-led economic change that began the 21st century, supercharged by the incredible amount of central bank liquidity created post-financial crisis and post-Covid created an enormous impetus and tail wind to transform the market for private capital generally, and venture capital in particular into an established and important component of global institutional capital markets. Today, venture and growth investing can now truly be considered a distinct asset class alongside private equity, public equities, private credit, debt, and other financial instruments. It is now an unavoidable component in the toolkit of institutional deployment of investment capital. As venture and growth capital moves into this new “adulthood” over the next decade, this will create extraordinary opportunities for investors with the experience, skills and mindset to adapt to this new normal.

To listen to the Navigating the Changing Tides: Fintech Venture and Growth Investing webinar, register here. We hope you can join us for our future webinars.

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The shift will serve both investors and operators well in this macroeconomic environment; for whatever it’s worth, I also think it’s exactly what our planet needs.

The age of “[x] but online” investing is over, and not a moment too soon.

The urgent global problems that private markets need to solve now are just way more complicated. Solving them – and capturing the massive profits those solutions can create – demands equal parts huge ambition and deep domain expertise.

We’ve built Anthemis with those opportunities in mind – as a hybridization of that long standing dichotomy between specialism and generalism. Our thesis and approach allow us to simultaneously capture the unique benefits of a specialist investor, without losing the addressable market and diversification of a generalist.

The financial services industry, the world’s largest by earnings, is continuously evolving and remains fragmented, with no institution holding even a meaningful plurality of global market share. As industries, geographies, and demographics begin to adopt digital financial services infrastructure, promising opportunities emerge daily.

Consider these statistics: The Americas have 11,651 FinTech startups, the most globally, with a staggering $239 billion invested in FinTechs in 2021. In 2022, the Americas attracted over 40 percent of total sector investments, solidifying its position as the leading region for FinTech investments. (Statista Research Department, May 16, 2023)

Bored Apes and ride-hailing might be global and universal, but so is customer loyalty, cash management, insurance underwriting, the desire to build wealth and retire with dignity.

Outside of life sciences and climate, there’s no other sector with so much opportunity combined with such high experiential barriers to entry, combined with such massive addressable global markets. A new class of venture firms is optimizing around precisely that array of unique structural attributes – and leveraging them to create unprecedented investment performance.

In industries as diverse and expansive as finance, a purely specialist or generalist approach can be limiting. Specialists can drill down into the intricacies of financial innovations, but understanding (and profiting from) broader economic and technological shifts is quintessentially a generalist’s strength. And while generalists can capture macro trends in global finance, the nuanced expertise required to evaluate, say, a niche insurance product’s viability is a specialist’s domain.

It’s no coincidence that three of the most resilient sectors for venture investment in 2023 have been financial services, health care, and climate. In health care, a balance between general knowledge of healthcare trends and specialized insights into biotechnologies or telemedicine platforms can be the difference between spotting a unicorn and missing out. In climate, specialists bring a nuanced understanding of the interplay between technology, environment, and market dynamics – discerning truly transformative solutions from the merely incremental, and ensuring that capital is channeled into ventures that promise genuine, scalable impact.

This shift isn’t just a strategic advantage; it’s a moral and social imperative. A more holistic and interdisciplinary approach will revolutionize the venture capital ecosystem and, by extension, the nature of innovation and problem-solving at a global scale.

Investing in a complex world demands an approach that encompasses social, technological, economic, and environmental aspects. This is where the hybrid model shines. Imagine a venture capital firm equipped with specialists in AI ethics, blockchain technology, clean energy, and public health. Such a firm could evaluate investment opportunities not just based on their potential for financial returns, but also their societal impact, regulatory landscape, and long-term viability.

This sort of multi-dimensional analysis would be difficult to achieve with either a purely specialist or purely generalist approach. Generalists, with their broader perspective, can foresee how different sectors intersect and influence each other, while specialists can provide the depth of understanding needed to evaluate each opportunity on its own terms. The two combined can create a symbiotic relationship, elevating the entire investment process into a more strategic, insightful endeavor.

Not only do these hybrid venture capital models serve the goals of investors and entrepreneurs, but they also align well with emerging consumer demands and societal expectations. As we progress further into the 21st century, consumers are increasingly demanding that companies are not just profitable, but also socially responsible and sustainable.

Investments that don’t account for these factors risk obsolescence.

The future belongs to firms that can seamlessly meld the depth of specialization with the breadth of generalization. This is the way forward for venture capital, and by extension, for addressing the myriad challenges we face today.

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It’s no secret that retailers today are facing an immense amount of pressure. After the retail boom of the COVID-19 pandemic and the supply chain disruptions and economic downturn that followed, many retailers are reeling from all the change. While eCommerce growth has reverted to pre-pandemic levels, it is still a growing portion of overall sales, and our shopping journeys are increasingly connected to our lives online, presenting a unique set of challenges and opportunities for brands.

Retailers are facing unprecedented levels of competition, which means they must fight tooth and nail to attract consumers that are bombarded with products at every turn. For a while, digital advertising with third-party cookies was the go-to solution. Recent changes in privacy laws and policies have made that pathway more expensive and less effective than ever. And the challenges don’t end once a consumer has reached a brand’s website: the likelihood of an item in a cart converting into an actual purchase is surprisingly low (70%+ of online carts are abandoned.) No wonder retailers are desperate to cling to the consumers that reach their site, select an item, and make a purchase. Given the upfront barriers, customer loyalty and advocacy is critical to growth. This means the work continues long after an order is placed. Quality customer service and a smooth delivery process are essential. But rising to this challenge can be expensive and logistically complex. With all this pressure, it isn’t a surprise that retailers’ costs have increased by 60% over the last five years.

Because of all this, many brands are leaning more heavily on eCommerce enablement tools to manage different elements of their business. While these tools were once nice-to-haves, they are now necessities. But most brands do not have endless technology budgets. So how does a brand address the challenges of this industry while managing an increasingly expensive and complex technology stack? There isn’t a silver bullet, but we believe that three emerging shifts in mentality will help retailers prioritize and position themselves for the future of commerce.

Consumers need everything everywhere all at once

This is the first mindset shift retailers must adopt. For decades, we saw multinational retailers enter the eCommerce market to compete with up-and-coming brands. Then, we saw a wave of eCommerce first businesses, like Allbirds and Casper, open brick-and-mortar stores to address the limitations of an online-only presence. But it is no longer enough to have a presence in these discrete channels. First, channel options are proliferating and blurring rapidly. Consumers are shopping on mobile, social media apps, and live streaming platforms. Brands must think creatively about when, where, and how products are placed in a consumer’s consideration set. We anticipate commerce being even more embedded into our lives over the next decade. Whether that’s in leisure activities, workplaces, or smart devices, brands that think creatively about context will be poised to win the battle for conversion.

Channel selection is just the first step. Ensuring a connected, seamless experience across channels is even more important. Consumers want to effortlessly explore options and make shopping decisions, which means brand interactions should travel seamlessly across mediums. This more connected, expansive mindset requires brands to think beyond individual products. It isn’t enough to know that a consumer is purchasing workout clothes in-store. That should be connected to the running shoes they purchased on Instagram two days ago, and the questions they asked on your website about the wear and tear associated with different workouts. By connecting these behaviors, a brand can build an understanding of someone embarking on a fitness journey and engage them at the most critical points.

This connectivity can also reach beyond the organization itself. As retailers look to build loyalty, many will emphasize consortium models. By offering complimentary products and services from other companies, retailers will help customers extract more value from each purchase and lean more heavily on trusted brands. This has already been effective in sectors like travel and hospitality (i.e., partnerships between airlines and hotel chains), and as retailers adopt a more connected mentality, it will likely become a bigger part of our shopping experiences.

So, retailers should look beyond obvious channels, beyond individual products, and even beyond their organizations to build a cohesive ecosystem that amplifies moments of joy and purpose in the shopping journey. When it comes to selecting technology products, this mentality will lead to product management, payment, and rewards solutions that prioritize ease and flexibility.

It’s not enough to learn from the past, you have to see the future.

This seems like a tall order, but relying on historical data is not enough for the modern retail landscape. Supply chains, for example, have grown incredibly complex. We learned over the last few years how challenges with a given supplier can ripple throughout a network and cause costly delays. It’s estimated that supply chain disruptions cost businesses an average of $182m in 2021 — often because historical data could not account for the unprecedented circumstances. Brands are now looking to diversify their supplier base, find suppliers closer to home, and integrate digital tools into their processes. Modern logistics and inventory management products leverage real-time data to understand fluctuations in demands, customer preferences, and system shocks. Retailers will increasingly leverage this data for more accurate forecasting and more efficient solutions like load pooling and dynamic re-routing. They will also opt for more responsive and embedded financing solutions at every point in the value chain.

For customers, this real-time data leads to a more tailored, transparent experience, and one that aligns their preferences with a retailer’s current options and limitations. This means that pricing, sales, and rewards can be tailored more effectively. Currently, 40% of the largest retailers use dynamic algorithms to optimize pricing based on supply and demand. As access to data increases, and retailers face more margin pressure, solutions like this will become more prevalent for retailers of all sizes. Data sources will also expand beyond supply and demand, to include competitive dynamics, internal factors like inventory levels and KPIs, and external factors like market sentiment.

Brands that adopt this mentality will opt for solutions that make every aspect of the value chain more forward-looking. Supply chains will anticipate needs and instantly adjust to accommodate changes. Shoppers will have hyper-personalized shopping experiences, complete with curated product and payment options. Imagine a world where consumers will be directed towards payment methods that optimize their preferred goals–from maximizing rewards to building credit scores. The winning brands of the future are preparing for such experiences.

Less is more.

It’s clear that retailers have a lot on their plates… so how can they ease the burden while keeping costs manageable? Increasing integration between disparate systems is a critical first step. Over the last few years, there has been a dramatic rise in the number of available eCommerce enablement tools. These products help smaller, online brands achieve the sophistication and efficiency of industry leaders like Amazon. As retailers look to build more unique and compelling shopping experiences, they will continue to opt for a modular, composable tech stack that maximizes flexibility and performance. But these point solutions typically address one discreet problem or function — like online search, credit, returns, etc. To ease the burden on retailers to reconcile the relevant data between systems, we believe that brands will increasingly opt for more integrated solutions. Such products are built to connect throughout the tech stack and ensure that data flows seamlessly. We also anticipate the emergence of orchestration platforms that bring point solutions together for a more connected backend infrastructure. As brands make critical decisions about technology solutions, solving for greater integration should be at the top of the list.

Opting for more automated solutions will also help retailers maximize value. Advancements in machine learning and generative AI are making it easier to automate decision-making and execution. For example, new tools can discern patterns in customer service complaints and generate responses with a greater likelihood to address issues in a timely manner. Other products are emerging that generate stock images and landing pages in real time based on the preferences of individual consumers. Automated solutions like this reduce the need for manual intervention and help retailers combat rising costs.

While brands are facing challenges from all angles, they have never had more tools at their disposal. We believe that groundbreaking innovation often emerges at times like these. The shift to a more connected ecosystem, forward-looking analytics, and greater integration and automation opens the door to dynamic retail experiences. At Anthemis, we already back incredible companies building in this space, like Moonshot, Pack Digital, Qover, and Power (exited.) And we are excited to connect with anyone that is driving the future of commerce.

Have an idea?

We would love to meet with you! We are passionate about tackling the largest challenges and opportunities being faced in every aspect of the eCommerce stack. If you are building a FinTech or embedded finance business in this space, please reach out to me at bukie@anthemis.com.

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So we were very excited to host a virtual conversation last week about the journey to and through that acquisition. The key players from both sides of the table shared their perspectives; we were joined by Randy Fernando, Power’s founder and now Marqeta’s VP of Product, and Blake Clifton, Marqeta’s Head of Corporate Development.

Blake, Randy, and Anthemis Partner Tom Ryan discussed their own professional journeys, the key factors both parties considered in exploring an acquisition, best practices along the way, and the promises and challenges of scaling a fintech business through M&A. You can watch the full conversation below. Here are a few excerpts that we valued:

• When an institution calls, answer – whether you see a sale on the horizon or not. Blake Clifton told us, “if there’s a founder we call in our space and they don’t take the call, we don’t want them. Because that’s not an intelligent founder. You’re going to learn things even if you don’t reveal anything and you’re not for sale. This acquisition happened because that dialogue stayed open…for more than six months.”
• Power wasn’t instantly open to the concept of acquisition. Here’s Randy Fernando: “we asked ourselves if an acquisition was a path that we wanted to go down, and the obvious answer was no. But at some point, we thought that we’re probably going to become competitors if we don’t go down this path…so we started to think about whether it made sense to partner to try to accelerate our vision…for us, strategically, and as we started to get to know the team more, it began to make a lot of sense.”
• Err on the side of an uncomfortable level of mutual transparency. As Randy said, “we were very open with what we believed was best for the future of credit and Marqeta. We were very open about our style and culture and team. Sometimes as you’re going through a negotiation, you refrain from sharing those details. But we felt like it was important because we knew that our work wasn’t going to end the day of closing. It was actually just beginning and we were going to be writing many more chapters here.”
• Does Marqeta have a certain number of acquisitions that it can make each year? Absolutely not. Blake told us that “we look at as many startups as possible. We are constantly combing through. When I called him, Power was in stealth and Randy’s first question was, ‘how did you even find us?’ There’s not really a target acquisition number…I can never hit the number I want to. Because this is how we formulate our view of the world and what great is.”

The Marqeta-Power acquisition validates our belief that strategic M&A will continue to be a critical driver of innovation in an industry that often grows through collaboration rather than disruption. We think that acquisition appetite among financial institutions will be even more pivotal here against the backdrop of an uncertain environment in public markets and the macroeconomy.

We were so proud of Randy, his co-founder Andrew, and the Power team for achieving this incredible milestone. It was a privilege to partner with them to reimagine the infrastructure of branded cards and create a platform that an industry leader like Marqeta viewed as essential to its growth.

Randy and Andrew will remain an important part of the Anthemis ecosystem, joining a sprawling network of financial institutions, industry visionaries, and more than 200 portfolio companies. We’re thrilled to count Blake and Marqeta a part of that ecosystem now as well!

We really enjoyed this dialogue and hope you will too. Watch the replay here.

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Last week, the Anthemis Female Innovators Lab Fund (FIL), the largest early-stage fund solely focused on investing in female founders in fintech, unveiled a partnership with Aviva – a leading insurance, wealth management, and retirement business – to expand investment in female founded fintech businesses across the US, Canada, the UK, and Europe, in addition to providing further support through our venture studio/lab.

This new capital and strategic partnership with Aviva brings complementary insight and expertise to FIL’s existing LP base – especially around insurance, wealth, and retirement solutions, which are core to early stage fintech innovations.

Aviva’s 325-year track record, and its 18.5 million customers in the UK, Ireland and Canada, reflect its core values of innovating for the future needs of customers, people, and society. Aviva’s long-standing support for increasing female leadership makes it a perfect match for Anthemis Female Innovators Lab Fund’s commitment to cultivating sustainable and equitable innovation through the financial services ecosystem.

Established in 2019 as a fund and venture studio in partnership with Barclays, the Anthemis Female Innovators Lab Fund has since tripled its fund size, expanded its global investment footprint across North America, the UK, and Europe, and supported numerous companies from launch through follow-on funding rounds.

Over the past three years, Barclays has doubled its investment in the fund, supported its global expansion, and has also provided deep SME to portfolio companies and pathways to partners. Rise, created by Barclays, has also been made available to Female Innovators Lab portfolio companies, driving greater awareness around our joint mission of attaining gender equity in the fintech ecosystem.

Since inception, the Female Innovators Lab Fund team has met with thousands of companies across embedded finance, fintech, insurtech, DeFi, and crypto. Its portfolio now includes Addition (US), Clutch Wallet (US), Pile (Germany), and many more.

The Female Innovators Lab team has also added numerous women investors to the team in both US and UK/European markets. These women bring strong operator and founder backgrounds, as well as financial service expertise, to their work alongside specialized team members focused on talent, tech, product, and marketing through the firm’s venture studio.

As women are two times more likely than men to invest in female founders, Anthemis’ focus on hiring diverse investing teams since day one – 57% of decision-makers on the investment team are women, 54% of investment team members are women and 52% of the broader Anthemis team are women – has led the way in the industry. By comparison, in 2020, only about 12% of decision-makers at VC firms were women, and most firms still operate without a single female partner.

Aviva, under CEO Amanda Blanc, has also embraced diverse teams and leaders. Blanc became the 2021 UK Government’s Women in Finance Champion as a beacon for their Women in Finance Charter, an initiative urging firms in London to commit to increasing gender diversity.

The trifecta of Anthemis, Barclays, and Aviva ensures best-in-class venture capital, company building, financial services, and insurance expertise, as fintech founders look for value-add investors to support them in building sustainable businesses at scale.

With a focus on female founders, female investors, and strategically aligned partners, we view Female Innovators Lab Fund as a pathway to a massive untapped financial market opportunity, with far-reaching effects and virtuous cycles in the financial and insurance ecosystems.

To learn more about the Female Innovators Lab Fund, or to pitch us, visit our website or email us at femaleinnovatorslab@anthemis.com.

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There’s no denying it – climate tech has made a serious comeback in the world of venture. With more than $40bn deployed across more than 600 deals in 2021 and investment as a whole growing at five times the rate of the rest of the venture capital ecosystem over the past five years, interest in the space has never been higher. While funds like Blue Bear, Energy Impact Partners, Powerhouse, Congruent, Union Square Ventures, Lowercarbon Capital and many others have all raised climate tech-specific funds, generalist investors have joined the party as well, with over 1,400 firms participating in at least one climate tech deal in 2021.

As fintech investors at Anthemis, we have been particularly interested in the intersection of financial services and climate tech. From its effect on underlying risk profiles, to its impact on the energy grid, to the need for renewable energy infrastructure financing, climate change creates challenges and subsequent opportunities in the world of financial services. If any of the following resonates with what you’re building or investing in, please reach out – would love to chat!

New risks create the need for new underwriting models

From an insurance perspective, climate change represents a major threat to the industry. As both the frequency and severity of natural disasters continues to increase, insurers’ catastrophe losses have escalated, totaling $89bn in 2020. The US alone experienced 22 extreme weather and climate-related disasters that caused an excess of $1bn in losses each in 2020.

This increase in climate-associated risk has created challenges for carriers, causing them to rethink their approach to underwriting, often leading to reductions in coverage and increased premium costs for the insured. For example, California saw residential non-renewals increase by 31% between 2018 and 2019 as a result of growing wildfire risk. Under the new “Risk Rating 2.0” system from the US Federal Emergency Management Agency (FEMA) for calculating flood rates, 77 percent of customers are set to see increases in premiums.

These complex underwriting circumstances create opportunities for startups that can more accurately price risk. At Anthemis, we’ve invested in companies like Kettle and Stable, dealing with wildfire and commodities, respectively. Others in the space include the likes of FutureProof which operates as an MGA and develops technology to effectively leverage data to gain a more comprehensive understanding of risk profiles, offering insurance products accordingly.

Parametric policies offer the potential for significant efficiency

When natural disasters occur, traditional insurance solutions tend to struggle to verify, process, and pay out claims, given the fact that the financial impact of damages must be assessed on a per-policy basis. The sheer volume of claims being processed at once leads to operational nightmares that result in real inefficiencies, with claims at times taking years to be processed. For example, two years after the disaster of Hurricane Maria in Puerto Rico, $1.6bn in insurance claims remained unresolved. This is absolutely brutal for the affected individuals and businesses, who rely on the insurance payouts to rebuild.

Climate-related risks are a logical place to start for parametric policies. The clear occurrence of a documentable and quantifiable event allows insurers to create and trigger policies in a straightforward fashion. When a natural disaster or weather-related event occurs, claims payouts are automatically triggered based on predetermined factors and preselected levels of coverage. As such, claims assessment costs for insurers can be dramatically reduced, while policyholders can see cash in days rather than potentially months to years.

Despite the obvious benefits, parametric insurance is still very much in its early days, generating roughly $500m in premiums in 2021. While the space is growing rapidly at 60% YoY, we at Anthemis believe that modern technology will be key to unlocking its potential. The execution of parametric insurance presents unique challenges in terms of policy creation and payout execution. With the former, the use and analysis of accurate data is extremely important. Since parametric policies are constructed in a forward-looking fashion (with predetermined outcomes based on the occurrence of future events), pricing must be highly accurate in order to maintain ideal loss ratios. As such, advanced predictive analytics based on a variety of granular data sources become highly necessary. Further, given that when an event does take place, a large number of policyholders will be entitled to payouts, insurers must be able to effectively manage and execute policies on a large scale.

Companies are tackling these challenges in a number of ways. Startups like Demex and Súper (Anthemis portfolio companies), Descartes, Arbol, Jumpstart, and all serve as policy underwriters, leveraging their abilities to uniquely assess and price risk. Others like Raincoat (an Anthemis portfolio company) and Plover partner with financial institutions to help create, manage, and trigger policies at scale.

Assessing climate risk requires high quality data and analytics

Increasing climate risk inevitably results in a greater overall threat to our infrastructure and physical assets.

Data aggregators and analytics providers will play a key role in accurately assessing this new risk in its various forms. In the same way that Moody’s and S&P can assess credit risk, climate risk analytics providers can pull geospatial, weather, asset-level, and other related data to create risk scoring methodologies. This intelligence can then be applied to insurance, banking, asset management, real estate, energy, manufacturing, retail, agriculture, and more in order to stay ahead of climate volatility.

Moody’s has already been acquisitive in the space, buying RMS in 2021 for $2bn. A number of startups like Jupiter Intelligence, One Concern, Cervest, Gro Intelligence, Climavision, Sust Global, Climate AI, Cloud to Street, and Terrafuse AI have all entered the space as well. While their end products may differ slightly in terms of distribution (some offering an API that provides data and risk scoring, others offering more of a dashboard to visualize risk across a full portfolio of assets), the general premise of delivering data and analytics to better understand climate risk remains.

At Anthemis, we are excited to continue backing founders who can make a real difference in mitigating the financial risks associated with our changing climate. If you’re a founder or investor in the space (or in fintech more broadly), we’d love to chat at ecosystemteam@anthemis.com. 

The post Fintech and Climate — Creating Resiliency Through the Application of Financial Services (Part one) appeared first on Anthemis.

A venture studio, or startup studio, is a business model where studios not only offer venture capital to startups but also operational support and resources. Studios are often built with in-house talent-sourcing teams, marketing teams, industry specialists, extra office space and other resources they can offer to early-stage startups. Over time, the venture studio model has evolved into two subtypes: concept-led, where a firm works with founders and their team to create the business idea, and founder-led, where the founder comes to the studio with a business idea and the studio works with the team to evolve the idea and build out the business in numerous ways beyond just capital. In addition to this evolution, while many venture studios existed as stand alone models, we’ve witnessed a shift where more venture firms are starting venture studios within their new or already existing funds and operations.

Unlike other formats like incubators, accelerators, and typical VC firms, venture studios offer the most hands-on support to founders. Venture studios provide all resources that a startup needs to succeed such as talent sourcing, operations management, legal advisory, and capital. This helps to address some of the biggest problems that startups face: identifying proper PMF, lack of funding, and finding the right team. In return, the venture studio ask for equity has drastically ranged from participating in rounds traditional market pricing just like other VC funds to a steep 30–80% of equity. To summarize, the average equity ownership ranges drastically.

Why are they so successful?

While some data reports that 90% of self funded startups fail and 25–30% of startups with VC funding fail, venture studios may offer even better prospects for startups. In a study of 23 venture studios, only 9% had failed. IdeaLab, the first venture studio, 5% of its portfolio became unicorns, as opposed to the industry average of 1.28%. There are now an estimated 724 venture studios globally with over 50% launched in the last 6 years. What are some clues to their success?

While incubators, accelerators, and venture capital firms offer founders capital and some may offer small forms of support, venture studios are often built with dedicated resources specifically for startups. Incubators invest in companies that need help developing their idea into a business but that don’t plan on needing support all the way until exit; accelerators seek startups with a minimum viable product (MVP) and provide them with capital to grow. Venture studios help founders with just an idea build a business model, like an incubator, yet they also stay on past the MVP phase to help the startup continue to grow, like an accelerator. Venture studios cover both these stages and help startups through a longer chunk of their lifecycle than other venture funds. Craig Kronenberger from the Startup Studio offers a great breakdown of the types of funding and support available to early founders and how venture studios offer unique value to founders, particularly those that seek to break into or break out of current systems.

So, how are venture studios able to provide so much support to startups? Venture studios take advantage of economies of scale: hiring in-house talent recruitment, marketing, operations, and finance teams which they can offer to many different startups. Founders get access to a direct ecosystem that can fill their every need without having to spend time and money searching for top talent and without having to commit to hiring an employee that they might not need throughout their entire journey.

Venture studios get to develop in-house talent that they can trust to create and scale founder’s startups. Employees at venture studios become almost like consultants, gaining hands-on experience growing early stage businesses across a variety of industries. Founders then get access to these seasoned employees who’ve seen and helped many, many startups before them.

Because venture studios provide so much of the talent and assets that startups often have trouble sourcing, they can take on potentially “riskier” investments: founders with a great idea but no proven track record or an unvalidated market. Startups with great ideas but no comparable exit multiple or industry p/e ratio can get the funding they need to grow from a venture studio whereas otherwise they may not have had an option or the right amount of support in this new space.

VC and Corporate Strategy

According to CB Insights’ 2021 mid-year report, corporate venture capital (CVC) reached record levels in 2021. Funding surpassed 2020 levels at only half-way through the year.

Corporate venture capital (CVC) offers a solution to the Innovator’s Dilemma, where small startups are able to iterate technology until it’s good enough to take market share from large companies. CVC allows large corporations to keep their market share by creating novel products and technology internally. Eventually, all large corporations will need to create a CVC arm or invest in venture capital funds in order to grow and prevent disruption from young tech startups.

Working with a VC fund/venture studio is one of the best forms of CVC for large corporations. This is because while many growth strategies of large conglomerates fail to create economic value, corporate venture studios properly incentivize large corporations to grow without destroying economic value through the application of adjacency strategies.

Corporations can create economic value and achieve high levels of growth by using adjacency strategies to grow their market or even shift their core. Successful adjacency strategies must be singularly chosen and carried out; corporations are very rarely able to execute multiple simultaneously because each strategy represents a tradeoff. Types of adjacency strategies include product adjacencies (new product for the same core set of customers), geographic adjacencies (new region – this has a lower-than-avg success rate), value chain adjacencies (vertically integrating across value chain), channel adjacencies (new distribution method, same product), customer adjacencies (modifying product or technology used to serve a new customer segment). Corporate venture studio partnerships incentivize the use of singular adjacency strategy – by investing hard dollars into companies, corporations are more invested in the success of their startups. Corporations that are able to carve out a competitive advantage from their venture studios will need to choose a particular adjacency strategy aligned with their current core competencies.

For example, if a company is best known for its customer service and relationship with its customers, it will have the proper resources to support startups that could serve its existing clientele. It could easily provide founders with beta testers and maybe a customer base as well. On the other hand, if a company is best known for its stellar product, it may be best to invest in innovators in the distribution space that could take the corporation’s product into new channels. The startup could in turn benefit from having a stellar product to test its new distribution technology on.

Corporations can achieve these synergies by deliberately choosing and implementing an adjacency strategy through their venture partnerships. Rather than investing in many early-stage companies and seeing what sticks as a typical CVC would, corporations with a venture capital/studio strategy could successfully grow by investing in startups that build on its existing core competencies. As the number of startups increases and corporations continue to face the Innovator’s Dilemma, corporate venture studio funds and partnerships will become an increasingly important part of corporate strategy, especially smart growth moves for large corporations looking to keep their market share from an increasing threat of new entrants.

Looking Forward

Venture has historically been a driver of economic value: eighty-two percent of R&D investment and 57% of total market capitalization of public U.S. companies from 1979 to 2015 were from VC-backed companies. Paul Romer’s theory of endogenous growth helps explain why. His theory states that investments into intangible assets will lead to economic expansion while investments into physical capital will not. This means that investing in research and development (R&D) creates more jobs while building factories does not provide as many benefits for society as investing in R&D would. Venture capital funds the R&D investment that grows the economy. Venture studios are now the smart way forward to ensure that R&D spending is well-invested with a higher success rate (remember only 9% fail!) compared to other venture firm models.

Capital is shifting from public markets to private markets as an increasing number of investors are seeking higher returns and regulations ease on acquisitions. Though this is an exciting time to be in venture, an increased amount of funds does not equal success for all VCs. In order to win in their markets, venture firms will need to carve out a competitive advantage and execute an accompanying strategy. Independent venture studios are an attractive offering to founders with an idea in a novel market that benefit from developing a successful business model and strategy for. Corporate venture studio partnerships will become necessary for corporate growth and continued survival as large corporations face an increasing amount of disruption from nimble, iterative startups.

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