20 VC 024 Financing Finch with Marc Bernegger of Orange Growth Capital

In episode 24 of "20 minutes VC," Harry Stebbings interviews Mark Bernaga, a seasoned entrepreneur and venture capitalist specializing in the fintech sector. Mark recounts his entrepreneurial journey, starting with his web-based party platform sold to Axel Springer, and his second venture, Amando, sold to Zing. Transitioning into venture capital, he discusses the explosive growth of fintech since 2010, its evolution from a niche to a mainstream sector, and the potential for a fintech bubble. Mark also delves into the democratization of financial services, the importance of sustainable business models over free services, and the need for initial traction in startups for institutional investment. He predicts further industry growth, consolidation, and the impact of social networks and big tech on fintech. Additionally, Mark touches on the resurgence of fintech in Switzerland and the changing landscape of stock market trading influenced by social elements and user-friendly apps. Throughout the interview, he emphasizes the significance of unique value propositions for startups and shares his perspective on the future of blockchain technology.

• Mark Bernaga has had a successful career as both a VC and entrepreneur.
• Founded US gang at 20, sold to Axel Springer.
• Founded Amando, sold to Zing in 2010.
• Awarded Best Newcomer of the Year 2010 by Swiss ICT.
• Transitioned into venture capital, specializing in fintech, and is a venture partner at Orange Growth Capital.

"At just 20 years old, Mark founded the party platform US gang, which was sold to Axel Springer, and he's also a founder of Amando, which was sold to Zing in 2010."

This quote highlights Mark Bernaga's early entrepreneurial success and his notable exits which contributed to his recognition in the industry.

• Mark was concerned about his future after his second exit before turning 30.
• Fascinated by the lack of disruption in the financial industry compared to other sectors.
• Decided to become a fintech investor due to the potential he saw in the space.

"And after having had my second exit before I turned 30, I was a little bit worried what to do next and decided to go to the other side and was very fascinated by the fact that the financial industry was not really disrupted like you saw it in other industries already a few years ago, and decided to turn into a fintech investor."

The quote explains Mark's motivation to shift from entrepreneurship to venture capital, driven by the opportunity he identified in the fintech sector.

• Fintech was a very niche sector in 2010 with around 30 companies in Europe.
• The sector has since exploded, with more than 30 new companies appearing weekly.
• Early fintech was referred to as Finance 2.0, particularly in German-speaking Europe.
• The sector's growth mirrors the early days of the web industry.
• There is both excitement and hype surrounding the current state of fintech.

"Today I think we see more than 30 companies, new companies a week in this field. So it was really a niche sector, quite tiny, quite invisible. Nobody really talked and wrote about it."

This quote illustrates the rapid growth of the fintech sector from a small, obscure niche to a booming industry with a significant number of new entrants each week.

• The digital revolution took longer to impact the financial industry's business cases and value chains.
• The financial industry is a major sector, accounting for nearly a quarter of global GDP.
• Initial lack of focus on fintech is attributed to its slow start in digital transformation.

"I mean, I think as everybody knows, it just took much more time and I think much more than everybody expected until the digital revolution really also changed the business cases and value change in the banking world, in the financial industry in general."

The quote addresses the delayed digital transformation in the financial sector, which eventually led to the rapid expansion of fintech startups once the industry began to embrace change.

• The financial industry is experiencing a change similar to a "snowball effect."
• There is an increase in fintech entrepreneurs and money inflow.
• The industry has not been as disrupted as others in the past but is now catching up.

"somehow related to the financial industry. But it was not really disrupted in the same extent like other industries. And I think this is now definitely changing and it's a little bit like a snowball effect."

The quote explains the current transformation in the financial industry, which is now starting to experience significant changes and disruptions similar to other sectors, described metaphorically as a snowball effect.

• The fintech industry is experiencing high valuations and substantial investor funding.
• There is skepticism about the sustainability of numerous fintech startups.
• Only a few companies are expected to succeed long-term.

"I think at the end, for example, if you look into the payment space, there's no way that all of these innovative players and ideas will succeed."

This quote expresses the belief that despite the large number of fintech companies, particularly in the payment space, not all will be successful, suggesting an inevitable market consolidation.

• There is a focus on democratizing financial services for consumers.
• The interest lies in creating sustainable business models, not just free services.
• The goal is to build companies with money-based revenue models.

"So just the fact that the whole financial industry is getting democratized by these new players."

The quote highlights the impact of fintech on making financial services more accessible to a broader audience, emphasizing the industry's democratization.

• Institutional investors prefer startups with initial traction, such as customer and revenue indicators.
• As a private investor, there is a preference for early-stage involvement, even from the founding stage.
• The level of startup maturity required for investment varies based on the investor's perspective.

"It depends. In our fund, it's definitely good that you already have some initial traction."

This quote indicates that for the speaker's fund, they prefer to invest in startups that have already shown some level of success or proof of concept, such as having initial customers or revenue.

• Investment in fintech has seen significant growth and is expected to continue.
• Traditional financial industry players are starting to participate in fintech investment.
• The future will likely include both increased funding and market consolidation.

"I think we will see similar growth in this year just because also a lot of big players out of the traditional financial industry are joining the game."

The quote predicts continued growth in fintech investment, driven by the entry of established financial industry players into the fintech space, indicating a trend towards more significant involvement by traditional institutions.

• Social networks like Snapchat and Facebook have moved into fintech with features like Snapcash and messenger payments.
• This movement is seen as beneficial for customers, offering cheaper, better, and more convenient services.
• It's uncertain which social network will dominate the mobile payments market.
• Anticipation for more big players, including telcos, to offer similar services in the near future.

"And we've seen social networks recently move into the fintech space with Snapchat, Snap cash and then the Facebook messengers payments through the messenger app."

This quote outlines the trend of social networks venturing into financial technology by introducing their own payment services.

"I think all these social networks are perfect players to enter this market and to enable their existing customer base, these new payment services."

Mark Bernaga emphasizes the aptness of social networks in expanding their services to include mobile payments, leveraging their large customer bases.

• Switzerland, particularly Zurich, is experiencing a fintech resurgence.
• Events like fintech hackathons, startup boot camps, and Finance 2.0 conferences are signaling increased activity in the Swiss fintech space.
• Switzerland aims to catch up with fintech leaders like the UK within two years.

"Switzerland seems to have trailed behind the likes of London and Scandinavia in terms of fintech development."

Harry Stebbings notes that Switzerland has been slower in fintech development compared to other European regions.

"So there is now a lot of movement, a lot of activity, but it will be interesting to see what's at the end, the essence and the result."

Mark Bernaga acknowledges the current fintech activities in Switzerland and is curious about the tangible outcomes that will emerge from these efforts.

• Orange Growth Capital has invested in Bux, a social gamified trading platform.
• There is a debate about whether these platforms lower the barrier to stock market entry, potentially leading to uninformed gambling.
• The key to these platforms is transparency in terms and organization.

"Is this the way you believe stock market trading is moving? And how do you respond to critics that suggest it allows the mass market, who don't necessarily have significant investor knowledge, the ability to gamble?"

Harry Stebbings questions the future direction of stock market trading and the potential risks associated with gamified trading platforms for inexperienced investors.

"I think it added value for the end customer being able to join the stock market normally, also at a much lower level than it would be possible normally."

Mark Bernaga argues that gamified trading platforms offer value by making stock market participation accessible to a broader audience at lower entry levels.

• Millennials are drawn to trading platforms due to user experience and accessibility.
• The appeal is not primarily based on the social element, as platforms like Facebook are not widely used for stock market discussions by millennials.
• The convenience of app-based, smartphone-oriented platforms like Robinhood is a significant factor.
• The ease of starting to trade with no paperwork and a quick registration process lowers the entry barrier for millennials to explore the stock market.

"I think it's really more about the user experience, the accessibility, the easy to use, the app based smartphone oriented approach."

Explanation: Mark Bernaga emphasizes that the primary reason millennials are attracted to trading platforms is the user-friendly design and accessibility of smartphone apps, which simplify the process of engaging with the stock market.

• Mark Bernaga believes that blockchain technology will have a significant impact on the future, while the future of bitcoin is less certain.
• He distinguishes between the broader potential of blockchain and the narrower scope of bitcoin.

"The future of blockchain is big. The future of bitcoin is difficult, but I would separate it."

Explanation: Mark Bernaga suggests that blockchain technology has a promising future due to its broad applications, whereas bitcoin, as a component of blockchain, faces more challenges and uncertainties.

• Fintech entrepreneurs should focus on their Unique Selling Proposition (USP) and the added value for customers.
• Despite fintech's specific regulatory challenges and entry barriers, the advice for entrepreneurs remains consistent across industries.

"I think that's something which is always, sometimes missing. So what's the USP? And focusing on that and focusing on r1 added value, that's, I think, the most important advice or tip I give to all emerging entrepreneurs."

Explanation: Mark Bernaga advises fintech entrepreneurs to concentrate on identifying and emphasizing their USP and the value they provide to customers, which is a crucial aspect often overlooked.

• Mark Bernaga views himself as an entrepreneur who is now more focused on investing.
• As an investor, he enjoys the strategic approach and the ability to select teams without being deeply involved in operational activities.
• He finds the role of an entrepreneurial investor to be exciting and fulfilling.

"I would say my whole daily structure and my activities are quite similar to the ones I had as an entrepreneur in the past."

Explanation: Mark Bernaga shares that his daily activities as an investor are similar to those he experienced as an entrepreneur, but with the added benefit of a strategic focus and less involvement in day-to-day operations.

• Harry Stebbings thanks Mark Bernaga for sharing his insights on the fintech space.
• Listeners are directed to the blog for more information and encouraged to subscribe and leave a review on iTunes.
• Harry Stebbings invites suggestions for future questions and expresses anticipation for the next episode.

"Well, Mark, thank you so much for coming on the show. I've so enjoyed chatting to you and hearing about your experiences in the fintech space, and I look forward to having you on the show again soon."

Explanation: Harry Stebbings concludes the interview by expressing gratitude to Mark Bernaga for his participation and contributions to the discussion on fintech, signaling a positive reception and the possibility of future engagements.