Steve Reis

When I first read Jevgenijs Kazanins's very excellent fintech take on why Cash App Pay could be the next major driver of Block’s growth, I was floored by his initially compelling case that if Cash App can incentivize more payments payments volume to go through Cash App Pay, they can drive massive gross profit uplift, because Cash App Pay’s take rate is substantially higher than Cash Card’s take rate on purchase volume (2-3x). But if it were true, why hasn’t Cash App taken advantage? Whereas Jevgenijs is more optimistic about the ~$2.5bn in GPV that Cash App Pay has generated in its first ~2.5 years of existence, I find it downright embarrassing. That’s less than 1% of Square’s GPV after two years in the wild? And that’s despite it being essentially pre-installed on every terminal with no change in hardware required. I started to have a sinking feeling that maybe something was missing in the calculus. And as I dove deeper, it became clear that the “magic” take rate uptick we thought we’d found was more of a magic trick, relying on some deception. The seeming increase in take rate comes about like this. Normally, when a Cash App user makes a purchase, Cash App acts as the Issuer which means there are several intermediaries between what the merchant is charged and what Block earns on the transaction, meaning its ultimate take rate is relatively low. But in the case of Cash App Pay, there’s potentially a few magic tricks at work. The first is that in this case, Block is facilitating the Square merchant’s acquiring POS AND it’s issuing the Cash App user’s debit card, thereby cutting the intermediaries down in the typical payments flow and seemingly increasing Cash App take rates by 35-50% (instead of just interchange, you’re now getting interchange and markup). But then gets even better with the second trick, because if you’re both the acquirer and the issuer, *you don’t even need the payment network at all*. You can simply move money by book transfer between your merchant’s bank account and your user’s bank account in a perfectly closed loop payment network. Suddenly, Cash App Pay has a magical 2.9% take rate with no money movement costs at all. The problem with these magic tricks, like the ones in life, is that they are actually using some deception to hide what’s truly happening. Let’s play it out. In the status quo, without Cash App Pay, Square would earn ~1.85% in acquirer markup and Cash App would earn 0.90% in interchange for a total of 2.75% in take rate. In the Cash App Pay case, Square and Cash App would split the 2.90% Merchant Discount rate they artfully charged without having any money movement. So instead of the 2-3x markup, the uptick is more like +15bps (+5%). So maybe there isn’t a massive take rate arbitrage, but Block should still be focusing on its closed loop payment network because it represents huge opportunity for other reasons. Read the full post at https://lnkd.in/d93nkn29.

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With the Synapse story still unfolding, it felt like an apt time to revisit the topic of BaaS and sponsor banking so I spent the weekend getting smarter ... 🚨 I covered some of this in a prior post, but wanted to dive a little deeper and spend time discussing: 🔵 The role that BaaS providers and Sponsor Banks play 🔵 The implications of the Synapse bankruptcy proceeding 🔵 Where I think the market goes from here 🔵 Who I think the winners will be longer term (e.g. infinant Inc + Coastal Community Bank) 🅣🅛🅓🅡: I'm hopeful that this is a wake up call to regulators to modernize the process and requirements associated with obtaining a bank charter. In an ideal world, all fintechs that touch the movement of money should have a clear path to earning a charter; thus ensuring that those same fintechs are held to the same regulatory standards that banks are held to. Read more here 👉 https://lnkd.in/e9FmKNM5 And as always, please share your thoughts or comments below 🗣 Some of these points can be polarizing - but all conjecture is welcome and encouraged - the most effective way forward is one that incorporates diverse perspectives! h/t: Jason Mikula for the great coverage of the unfolding events! cc: BankTech Ventures #BaaS #communitybanking #innovation

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Enterprise GTM is broken! Why? There is so much noise! It's getting harder to get in front of decision-makers, send them valuable content, and build trust! Everyone is bombarded by stuff they don't want. So they don't see your content and messages. Our founder and board chair, SC Moatti, will be on TechCrunch’s stage to tell you about how to fix enterprise GTM, backed by her collaboration with Products That Count’s 500k+ product leaders. You can upvote her talk so more people can learn how to fix their enterprise GTM 👇

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An important discussion that I see first hand in both my very deep tech focused investing industry in venture capital and as an ethnic minority. The anti-woke discussion MUST not derail critical corporate DEI initiatives but the lesson is we need to more than box tick. Fabric Ventures Money20/20

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If you're looking for inspiration and advice on how to grow your business from its early stages to scaling it at incredible rates, have a listen below. The Hiveway Inc. founders sit down with CanadianSME Small Business Magazine to discuss the highs and lows, and perseverance required - to take an idea to becoming a leader in a global partner ecosystem.

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Days after celebrating Ibotta’s IPO, Hans Tung shares his thoughts with TechCrunch’s Mary Ann Azevedo on down rounds, AI, and more: 📈 On down rounds: “It’s like getting a report card or test/exam score. It doesn’t really matter until you have an exit. An #IPO is actually just a milestone, not the end game. An IPO is the beginning of public investors being along for the ride. So when you think in longer-term valuations, up or down temporarily doesn’t matter as much as generating a big outcome at the end.” 🤖 On #AI: “You can argue that we’re only in the first half of the first inning for AI… You do see a lot of crazy rounds happening at the beginning of a boom, but there will be bifurcation. There will be companies that end up doing great, and most companies may not. You’ve gotta still be very thoughtful about choosing which ones have a chance of being around for a very long period of time." 💡On our new name: “We picked the name Notable because we want to put the focus on the founders. We invest in notable founders, notable causes, notable ideas—even notable investors."

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This is why Affiniti is uniquely positioned to be the next winner for SMB financial operating systems. Egregious customer acquisition costs have plagued Silicon Valley for the past decade. From the infamous Ubers/Lyfts of the world to the more recent microfulfillment startups — it's a recurring roadblock to success. You can watch my full Founders, Inc. interview to hear all of our strategies and stories here: https://lnkd.in/g8-wysBs

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I read two good Substack posts earlier this week about Cash App Pay, one from Jevgenijs Kazanins and the second from Samir Desai. If your a payments nerd like me, you should check them both out. Some really interesting perspectives that obviously overlap with a substantial portion of the thesis behind Tandym. Networks, and the products that run on them, are getting disintermediated. It started in earnest with BNPL, and it’s only growing with experiences like Cash App Pay and (to a much smaller extent, for now) Tandym.

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🚨 The former CFO of Dropbox, Sujay Jaswa oversees the investment and operating activities as a founding partner at WndrCo, alongside media vet Jeffrey Katzenberg. He joins us for VC Wednesdays.🚨 🖋️  You recently closed a $460 million VC fund. Where are you looking to deploy that? Everything we do is around the idea of the future of work and helping people optimize how they get work done. That’s why we're investors in companies like Airtable, Figma, Databricks, Deel, 1Password and others. That won’t change, but now, you'll see us really focus on the applications of AI that will meaningfully disrupt how work gets done, like in finance, HR and customer support. 🖋️  Why should founders work with WndrCo? One thing that we do that's different is starting one to two companies a year in areas that we think have the potential to yield big returns. So, when we talk to entrepreneurs, our operating experience stays current, and that angle on venture is fairly unique. The second is that each partner at WndrCo has built something, so we have the empathy that comes from that experience. Third, we do only five to seven deals a year, versus bigger firms that do hundreds. Because we have a smaller portfolio, entrepreneurs can get a hold of literally every partner within a couple of hours, 365 days a year. 🖋️ Which startup pitch sticks out the most in your memory over others and why? My favorite is one that’s not a household name yet, even though the business is absolutely on fire. It’s Aura, an all-in-one product to protect you and your family online. The idea is that unlike the physical world, you have no idea what your kids are doing on their phones and devices. Aura gives parents the tools to navigate raising a kid in our mobile-first and digital-first world. When the founder, Hari Ravichandran, walked me through how he would take it to market, it was love at first sight. He's an extraordinary entrepreneur and the best go-to-market person I've ever met when it comes to consumer products. 🖋️ What’s one investment you regret passing on and why? At the end of the day, this whole business is built on being part of monster companies as early as possible. One of the best enterprise companies of the last decade is Databricks. The founder and CEO, Ali Ghodsi, is a very good friend of mine, and for whatever reason, it never occurred to me in the early years to twist his arm to try and let him take our money. We invested in Databricks later than I’d have liked to. 🖋️  What’s the biggest thing you’ve learned working with Jeffrey Katzenberg? The biggest thing I've learned is that you can't be him, and it’s impossible to keep up with him. He's relentless, and I have never met someone who works harder than him. If he says he's going to do something, no matter how hard, if it's within his capabilities, he'll do it. He's a doer, and he just gets stuff done. I admire that so tremendously. #VCWednesdays #vc #venturecapital #startups #TechonLinkedIn

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Looking for some spicy fintech takes? Marqeta’s CEO Simon Khalaf & Plaid's CEO Zachary Perret have thoughts 💡 With the candor and humor that only fintech OGs can bring we cover how👇 - Credit modeling and fraud detection will undergo massive transformation in the next 3-5 years - Digital payment cards are more addictive than TikTok! GenAI can offer personalized, real-time rewards, turning payment cards into powerful engagement tools. - Al companies will integrate financial services too (i.e. every company will be a fintech company!) New episode of Andreessen Horowitz's "In the Vault" featuring our conversation at our 3rd annual Connect/Fintech (full episode link in comments)

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Let's finally get rid off the "VC alphabet song" and redo the system to become more founder friendly. "The benchmarks set by funding stages are often arbitrary and not necessarily aligned with the actual development needs of individual startups." #vc #venturecapital #founder #fundraising #startups #fundingstages #funding #fundingrounds #pitchbook

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How much to dilute at each round of fundraising: As entrepreneurs embark on their venture journeys, understanding the dilution at each funding stage is critical. I recently explored Peter Walker's insightful piece from Carta and SaaSOpen 2024, which sheds light on the equity landscape from pre-seed rounds to the public offering. 🔑 Key Takeaways: 1) Founder Equity Dynamics: Initially, if you're in a two-cofounder setup, expect a median split of 55% to 45%. This balance shifts as more parties get involved. 2) The Cost of Capital: SAFEs, while popular, stack up in dilution significantly. It's crucial to approach them with a strategy. 3) Standard Dilution Rates: Retaining about 20% post-Seed and Series A rounds remains within market norms. 4) Bridge Rounds Proliferation: These are increasingly common and often dictate subsequent funding structure. 📈 Understanding these dynamics helps founders make informed decisions about fundraising and equity distribution, ensuring the long-term health and potential success of their startups. PS. check out 🔔 for a winning pitch deck the template created by Silicon Valley legend, Peter Thiel https://lnkd.in/ejp-Bhnu

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As we dive into 2024, the Series A fundraising landscape is becoming increasingly daunting. Investment standards are soaring, and fewer startups are making the cut. Series A investors are finding many seed stage companies too premature. The median valuation jump from seed to Series A skyrocketed from $19.5 million in Q1 2022 to $28.7 million in Q1 2024. Investors now demand stronger revenue performance, targeting $2 million to $3 million in ARR, up from $1 million to $2 million. Alarmingly, only 12% of Q1 2022 seed startups secured Series A funding within two years, down from 31.8% in Q1 2020. #venture #earlystage #seedtoseriesa #seed #seriesa #inspireglobalventures https://lnkd.in/gW4bkcNy

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Is it worth investing in YC companies at scale? Brian Bell from Team Ignite VC shares his thoughts on early stage investing, YC and more with Nataraj! Don't miss the full conversation 👇 #startups #venture #vc #yc #podcast

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This is a must listen to for anyone B2B founder. How to figure out Product Market Fit. One of best frameworks I've seen in a while. https://lnkd.in/ghSmhVNB

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At Costanoa Ventures, we pride ourselves on identifying and supporting exceptional founders poised to create impactful, lasting change. Hona is a shining example, driven by a trio of extremely talented founders: Manny Griffiths, Joshua Christensen, and Matt McClellan. They each bring unique, differentiated expertise to the table, and Amy Cheetham and I are extremely excited to partner with them. There are approximately 450,000 law firms in the United States, with half of those firms being B2C - think personal injury, mass tort, or immigration law as opposed to BigLaw. One of the reasons we love how Hona is tackling this market is their focus on B2C law firms and product excellence - B2B firms are historically difficult to sell brand new software products into, but B2C firms are completely different buyers. Oftentimes there's just a handful of lawyers and paralegals in a partnership, and any piece of technology they can use to give them an edge would be valuable. 44% of negative Google reviews on law firms directly reference poor communication as the reason for a negative experience, and the number 1 reason for Attorney Bar complaints in the U.S. is "lack of communication". On the lawyer's side, attorneys, paralegals and legal assistants spend an average of 7.4 hours per week on unnecessary updates, redundant communication, and activities that aren't directly contributing towards getting a client's case solved. Manny and the team at Hona are working to change all of that. Hona delivers a tightly-integrated communications platform to help facilitate better communication between law firms and their clients. During legal proceedings, client communications tend to be a large resource-stressor for law firms. Clients will frequently call firms for case updates, legal explanations, or general administrative questions that tend to eat away at firm resources without providing any additional progress toward case resolution. Hona exists to ease that burden - it’s a platform that allows law firms to efficiently communicate with their clients over text, easily build customizable web pages and embed videos, and share information on case status and basic legal process education. This crucial communication processes allow attorneys to focus on their job – moving cases forward, while keeping their clients informed and educated. If you're a lawyer dealing with these problems - don't hesitate to reach out to us or the Hona team! It's a privilege to work with Hona on this journey. The company has been growing at a rapid pace, and they're delivering meaningful technology to help people get through legal proceedings in a much more fluid, transparent, and easy process. Manny, Joshua, and Matt are exceptional founders whose combined skills and dedication to continuous learning position them perfectly to lead Hona to success. They're just getting started, and we can't wait to see what they'll achieve.

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Doing a webinar on feature flags and platform engineering with Cycloid - Sustainable Platform Engineering. It'll cover things like how feature flags can fit into the platform engineering workflow, and how slower-moving orgs are moving from legacy infrastructure/platforms right now. Plus, CTO thoughts from Matt! #platformengineering #featureflags

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Bold move by Stripe. Decoupling payments from their services stack 🤯 A big shift towards greater flexibility and customization in the fintech space, and I am looking forward to see how this all plays out in the next couple of months... Especially for B2B that haven't integrated Stripe and their services so far. Standalone verifications? Yes. Standalone risk/fraud detection? Yes Standalone in-person payments? Yes 100+ payment methods? Hell yes https://lnkd.in/d7cvwvQ3

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