Silicon Alley and the Growing FinTech Ecosystem in NYC
Originally published on the Wharton FinTech blog on November 19, 2014 by Daniel McAuley and Steve Weiner.
Last Friday, twenty-one members of Wharton FinTech traveled to New York City on our first ever FinTech industry trek. With attendees from the Wharton MBA and the University of Pennsylvania Management and Technology programs, student interest in the first-ever Wharton FinTech trek exceeded capacity. The trek made five stops in the Silicon Alley area of New York City — a growing hotbed for technology innovation — visiting with FinTech startups and investors.
The first stop was SecondMarket’s loft-style office space in the heart of the Silicon Alley. SecondMarket was founded in 2004 as an online marketplace for global institutional and accredited investors to exchange illiquid assets, and is well-known for trading Facebook, Tesla, Zynga and Twitter stock before they went public. SecondMarket was represented by Michael Sonnenshein, from the Bitcoin Investment Trust, a subsidiary of SecondMarket and a rapidly growing business line that is being driven by Barry Silbert, the company’s founder. SecondMarket is poised for some unique changes as it seeks to capture value in the digital currency space, while continuing to grow its core software offerings. We were fortunate to discuss opportunities for MBAs at the company in addition to the future of Bitcoin and other digital currencies and hear what SecondMarket is doing in the space.
The trek continued to the brand-new home of Quarterspot — a small and medium business (SMB) online lending platform. The discussion was led by Adam Cohen, the co-founder and CEO of Quarterspot who demonstrated the startup’s unique, highly-technical and predictive risk management model that drives executive decision-making. Additionally, Adam — who used to run a startup incubator — provided perspective on how to attract high-performing talent to a nascent company and what it’s like to manage peers in a relatively flat organizational structure. “You need to find people who have been at a company for a little while [1–2 years] and are tired of being over-promised that they can make a difference. That’s who you want. Don’t manage them, collaborate.”
Next we headed over to Betterment, the automated investing service that came out of Columbia Business School, who hosted us for lunch and networking with the entire staff (including, of course, the office dog!). We were privileged to join the company’s co-founders, Jon Stein and Eli Broverman, for an intimate Q&A. Jon and Eli waxed poetic about developing a working relationship long before ever deciding to start a business together. We also heard from the founders how business school helped nurture the startup in its nascent days, although at that time many people told them they were tackling too big of a problem. Focusing more on Betterment today, the founders described their vision for MBA and technical hiring, user growth and continued drive to capture market share from traditional players in the space. “We think this is a trillion dollar market…so we have a long way to go” Jon said. We were grateful to get the perspective of two founders of a young company that has already amassed $1 billion in assets under management and raised $45 million in capital to grow their business.
We then made our way to the offices of Pave, a P2P lending startup and a founding sponsor of Wharton FinTech, where we hosted by the firm’s founders, Oren Bass and Sal Lahoud, as well as Kathryn Ebner (Business Development), David Rosen (Head of Underwriting), Ray Tamblyn (VP of Product) and Nick Kucharski (Lead Engineer). Having team members from each department in the company gave club members the opportunity to ask questions about topics ranging from entrepreneurship, FinTech in New York vs. London, and credit risk modeling. In addition to witnessing Pave’s impressive cohesiveness and collaborative spirit in action, we left with a clearer picture of the challenges that a startup can face in a highly regulated environment, such as fair lending standards, investor protections and securities law. Hearing how data analytics drive technology decisions or impact of marketing strategy on hiring made for a conversation that really educated everyone involved and set up a number of follow up connections.
We ended our day with the investors at FinTech Collective, a FinTech-focused VC firm, and two of their portfolio companies, Reonomy and OpenFolio. Getting a VC perspective was an invaluable way to round out our tour of FinTech in NYC. Gareth Jones, Co-Founder and General Partner at FinTech Collective, discussed the rise of crowdfunding and how lower cost of capital is driving change in the traditional VC model and what this means for investing hopefuls looking to break into the industry (hint: you might need startup experience). We also discussed how the availability of data around portfolio companies and user behavior is impacting the early stage investing process and the way VCs think about growing their portfolio companies. Richard Sarkis, the CEO of Reonomy and an alumnus of Wharton, told us how Reonomy is reinventing commercial real estate through the use of big data and machine learning. We also heard from OpenFolio, who is bringing the power of networks to the world of personal investing. Overall, we learned a lot from the FinTech Collective team about banking, capital markets, payments, bitcoin and regulatory arbitrage, and both enjoyed the lively discussion and people we met.
One of the biggest takeaways from the trip was seeing first-hand the burgeoning and exciting tech scene in NYC. For most of us, this was the first time interacting with startups in NYC and by all measures, there are a lot of synergies to be had when choosing to headquarter there, particularly in Silicon Alley. Pave specifically discussed the decision to move from San Francisco to NYC in the early days of the company in order to lower operating costs and take advantage of the growth of FinTech startups in NYC. If you are an entrepreneur or you are considering a job in FinTech, you should attend the NewFinance FinTech Meetups, subscribe to Alley Watch or reach out to Wharton FinTech to help connect you to the right people.
Getting to hear from a diverse group of FinTech companies working on SMB lending, automated investing, digital currency, P2P lending and VC was invaluable to those who attended. We are thrilled with the success of the trek and are looking forward to our next trek to the San Francisco Bay Area in February 2015. Please contact us if you are interested in hosting an engagement with Wharton FinTech and stay tuned for more information in the coming weeks!
