Nyca Partners, a venture firm founded by former Visa President Hans Morris, announced today that it is launching an inaugural fund focused on financial technology startups.
The firm, whose name is a hybrid of New York and California — Morris’s two primary bases of operations — expects to invest $10 million to $15 million a year in portfolio companies, Morris told attendees at Wednesday’s Venture Alpha East conference in New York. Nyca will back from five to 10 startups per year, Morris said in a separate interview.
Focus areas will include merchant payments services, alternative credit networks and tools, and new approaches for improving financial services infrastructure.
For now, Morris is investing his own money. Three other partners have committed to invest, and two to three more may join in about a month, he said. He declined to name any of the partners.
Morris is ambivalent about whether he will seek out LPs to raise a formal fund. “I don’t know,” he said. “If you’re really successful, then you don’t need LPs.”
Nyca already has five startups in its portfolio: Lending Club, CardWorks, Global Analytics, Affirm and a stealth company. (Morris invested directly in Affirm and has equity in Global Analytics due to its acquisition of Workpays.me. His equity in Lending Club and CardWorks comes from his work on the boards of both companies.)
The announcement of Nyca comes as investment activity is heating up in the fintech space. Last year, VC firms invested a record $551mm in financial services, by Morris’s calculation, including large rounds for individual companies including Lending Club, Klarna, Square, Stripe and On Deck Capital. As a portion of total venture outlays, however, fintech remains small, accounting for less than 2% of venture investment last year, Morris said.
Nyca is betting that the simultaneous availability of richer data sets, smart phones, cloud computing, and digital currency protocols will fundamentally change how financial processes could be organized. “Technology, instead of being an impediment to better financial services, now has the ability to enable it,” Morris wrote in a blog post set to go live later today. (Nyca’s website goes live today at 5:30 p.m. EST.)
While Morris is bullish about fintech, he said fintech startups face daunting and sector-specific challenges. In particular, Morris said, many startups pin their success on having large, established financial service providers adopt their tools. This can be problematic, as large financial services companies have a history of taking their time to make such decisions, potentially taking years to review a new service before adopting it. Also, they’re looking for services that provide more than incremental improvements.
Morris knows of what he speaks. Prior to serving as president of Visa from 2007 to 2009, he spent 27 years at Citigroup, including serving from 2002-2007 as CFO.
“In payments, being better isn’t adequate,” he said. “You have to solve a problem for which right now there is no solution.”
Before investing in a company, Morris said, he looks for four things. First, the product must be fair and transparent and in the interest of the borrower or customer. Second, it must have a competitive advantage of infrastructure and underwriting that is sustainable. Third, it must have a competitive advantage in origination. And fourth, the company must demonstrate that it can eliminate funding risk, given the typically long wait time for broad market adoption.
In addition to running Nyca, Morris serves an adviser to private equity firm General Atlantic.
Additional reporting by Lawrence Aragon
Photo: Hans Morris, founder of Nyca Partners, speaks at Venture Alpha East on March 26, 2014. Reuters/Bernadette Marciniak. All rights reserved.