Michael Gilroy — Co-Head of Growth Investing, Head of Fintech at Coatue — On his investing philosophy
In today’s episode, Andrew Janssens sits down with Michael Gilroy,Co-Head of Growth Investing, Head of Fintech at Coatue.
“We firmly believe there’s a lot of room for innovation from here to go out and attack this market cap, which is supported by $6 trillion in gross profit. So we’re really just getting started.
As an investor and an operator, you just have to be cognizant of the category you’re going after, and how it should be valued. Ultimately, these are all massive opportunities, but they shouldn’t all be valued the same.”
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Michael has spent more than a decade investing in fintech and is a thought leader in the fintech space. Alongside Chase Packard and Leslie Wang, Michael co-published “Fintech & the Pursuit of the Prize” a widely-cited assessment of the Fintech space that was presented at last year’s Money 20/20. Prior to Coatue, Michael was a Partner at Canaan, an early-stage VC fund.
In this content-packed episode, Andrew and Michael discuss:
- How Michael began his career in Fintech and landed at Coatue
“So how did I end up in FinTech? Coming out of school, I studied economics at Berkeley, and went directly into investment banking, really focused on technology… from there, I went to a firm called Canaan Partners. I actually moved to New York immediately to join Canaan. A guy named Dan supported and hired me there, prior to Canaan he ran debit at MasterCard, and so he was really my entry point into fintech.
And that’s where I’ve been for the last decade here. Dan was an extraordinary investor and mentor and somebody who’s still very close to me, and then from Canaan, actually moved back to San Francisco to come home, and met Thomas Lafond, who started the private business here at Coatue. And, you know, one thing led to another and I ended up coming over here to join the team, where I’ve been for three and a half years and run the FinTech practice.”
- Why Michael joined Coatue and his day-to-day
“You know, when I first started talking to Thomas, what strikes you about [Coatue] is it’s a truly global firm, you know, we have investments all over the world. And, you know, as you know, we invest seed through public. And so the range of companies and trends you get exposure to, I feel is unmatched.
And so as a result of that, on any given day, I can be in an investment committee, and we’re talking about a very exciting seed stage opportunity. And we’re talking about a very large position and a public company, right. And this will happen all in the same meeting. And so, on any given day, I could be working with founders in a board setting.
… We’re constantly looking at the portfolio on both the public and private side, identifying areas where we want to be more aggressive and maybe own more of. And I think that’s kind of been the, you know, really the focal point of the last 12 months here, as the markets have corrected.
On putting together Coatue’s whitepaper: “Fintech and the Pursuit of the Prize”
“And this is something that we worked on with my partners Chase and Lesley here. And the exercise really started as an internal view. We’re really big on data and DAX here and Coatue. And we wanted to just kind of pause and say, “Where are we right?” We just experienced, what is the very first venture boom in FinTech. If you look at you know, go back to 1999–2010 there’s very little, you know, innovation within FinTech — people didn’t really know how to approach it. And that’s obviously changed.
I think people woke up to the the opportunity there and again, really, these underpenetrated TAMs, I think the key takeaways there. I came out of it. And we have on one of the slides, we’re still in the very first inning.
What’s the data to support that? There’s over $11 trillion of financial services market cap out there. Only 2% of that today is FinTech market cap. And we kind of define FinTech as “had gone public within the last decade or so.” And you kind of put that on a page next to the legacy banks. And you know, they’re in the 75 to 100 years old range.
And so, we firmly believe there’s a lot of room for innovation from here to go out and attack this market cap, which is also supported by $6 trillion in gross profit. So we’re really just getting started, I think the key is, again, we touched on this a little bit, it’s nuanced. And as an investor and an operator, you just have to be cognizant of the category you’re going after, and how it should be valued. Ultimately, these are all massive opportunities, but they shouldn’t all be valued the same.
- Coatue’s proposed “Rule of 200” for fintech investments:
“So there’s the rule of 40 in software. And that really captures revenue growth and profitability, right? Going back to this point that Fintech is very nuanced, we needed a way to distill, frankly, additional data points and metrics for these businesses. And so what we’ve done is we’ve added two variables here, net dollar retention and gross profit.
So the rule of 200 is very simply MDR net dollar retention, revenue growth, gross profit percent and EBIT percent. And a lot of people you mentioned Twitter, a lot of people on Twitter, were saying, why on earth? Would you have gross profit and EBIT? You know, in this calculation, the reality is many of these businesses are not quite scaled, right? And you need to look at both of these side by side, I think gross profit points to, you know, the ability to get to a certain profitability metric over time to ultimately support whatever you’re spending on sales and marketing, right.
And so, there are a number of examples of high gross profit businesses with very, very negative EBIT, that are spending a lot of money on sales and marketing. And so the unit economics break down NDR is very important to put into the calculation, because that tells you hey, how good is this business model? If you go back to the beginning of SAS, right, everybody loves SAS, because you have this baked in NDR, right? There’s, there’s annual contracts, you have the ability to upsell with other products. And so we see a lot of companies across really payments in general and billpay and SMB acquiring, where these nd ours are best in class, not only in FinTech, but also in software, and we wanted to make sure we rewarded these businesses, you know, on this metric.
- The globalization of Fintech
- Michael’s advice to Founders
- and a whole lot more!
Check out the Episode on the platform of your choice here → Spotify | Soundcloud | Apple Podcasts
About Michael
Michael Gilroy, Head of Fintech, Co-COO of Growth and General Partner at Coatue. Coatue is a multi-stage technology investor across both private and public markets. Prior to Coatue, Michael was a Partner at Canaan, an early-stage VC fund.
About Coatue
Coatue is a lifecycle investment manager with investments across venture, growth, thematic, and structured capital strategies. Coatue provides support and resources at all stages of growth to enable the development of companies with significant global impact.
About the Author
Andrew Janssens is a second-year MBA Candidate at The Wharton School, where he is part of the Wharton FinTech Podcast team. He has a passion for the nerdy corners of financial services, venture capital, and all things FinTech. Don’t hesitate to reach out with questions, comments, feedback, and opportunities at ajanss@wharton.upenn.edu.
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