As a passive observer, then investor, and then operator within Financial Tech, I have developed a greater appreciation for the nature of disruption, influence, and integration.   At the onset, I think most entrepreneurs and innovators are inclined to DISRUPT  — with a strong intent to completely re-write the Rules and tear down existing institutions with one fell swoop.   As they innovate and navigate the landscape, they face headwinds and side-currents, which impede their forward momentum.  This is especially true in Financial services, where such roadblocks (and/or barriers to entry) including existing economies of scale, large capital requirements, heavy regulation, incumbent distribution networks, and the heavy inertia of existing stakeholder behavior.  The last one is especially true of individuals at institutions where desired partnerships exist or of the consumer of your product who are used to a traditional way of doing business with little desire to change.

For those entrepreneurs lucky enough to have a real differentiator (E.g. MASSIVE TECH DELTA in either in analytical speed, processing bandwidth, automated pattern recognition with machine learning  AND/OR  COST ADVANTAGE with zero or close-to- zero marginal distribution costs;  for the latter, I think of a 100% digital bank like Movenbank or a mobile-only, commission-free brokerage like RobinHood), the industry starts to hear a gentle whisper that is then reverberated in an echo-chamber.   The industry is like “Cool, we should meet these people and at minimum, try to learn as much as we can.  We will then Build, Buy, Partner or develop other strategic options in a matrix.”  In any case, INFLUENCE is achieved because the innovator has started a conversation and that dialogue can end of in either of three ways:  Go, No-Go, or stay in perpetual purgatory (different from No-Go because hope springs eternal in this slow-roll , eventual No of a “Degobah-y Swamp”).

If the market timing works out and VC trend investing has capitalized a wave of possible players who achieved any number of good things:  1)  Substantial, albeit expensive client acquisition; 2) Niche expertise in marketing to a desired audience (E.g. Millennials) ; or 3) Strong unit economics albeit without any scale; then an incumbent will likely consider a strategic takeout.   Especially, if they are a large, cash-flowing incumbent with low growth and want to invigorate their investors with a growth story or point of differentiation.  The entrepreneurs who have been paper-wealthy but cash-poor take the deal and join the evil empire they set out to disrupt/ destroy in my first paragraph.  Ah……INTEGRATION.

Empirical data shows this playbook.   The shakeout in the Roboadvisor segment (E.g. FutureAdvisor, Earnest, the surprising non-acquisition of Betterment as of the writing of this blog post ) mirrors this exactly.  Machine learning / AI plays are mid-stream but Kensho’s acquisition by S&P global is a good outcome and arguably better than the potential outcome for large, bulky enterprise tech plays like Palantir’s non-event with Oracle and including several investor write-downs.   I’ll leave my thoughts on Crypto and Blockchain for an entirely separate post.  Stay tuned and *hello again* if you made it through my maiden post.