Five Questions with Ben Savage, partner at Clocktower Technology Ventures

Ben Savage of Clocktower Technology Ventures, a noted fintech investor, is responsible for Clocktower’s private-market activities. The Santa Monica, California, VC has funded companies such as Embroker, MoneyLion, Currency, CircleUp, Papaya and bread.

What fundraising trends are you noticing?

Fundraising is always difficult until it’s easy. The thing we continue to hear from LPs in the venture marketplace is that the speed at which general partners are coming back to LPs for more capital continues to be very fast. There are a lot of downstream consequences for this. We’re hearing from some allocators that they’re already halfway booked for next year because they know people are going to come to them and they’ve already signaled it. In some cases, the GPs are front-running commitments for future vehicles on an unsolicited basis. On the other end, you have a different set of LPs starting to get stretched because there is not as much liquidity and the realization events are not as typical. Companies are also staying private longer than in any previous cycle.

A second dynamic we’re hearing about is that LPs are increasingly looking for, and the market is increasingly delivering to them, opportunities to partner with general partners that are doing something different. This makes sense in a world where an awful lot of capital is competing for an awful lot of opportunities.

As best we can tell, these are all changes in the margins.

Do you think the public markets ignore fintech?

I wouldn’t say they ignore fintech but there are very few venture-backed fintech public companies at the moment. … There is a healthy skepticism among public investors of valuations in private markets for financial services. Post-IPO [trading] of recent fintech IPOs is middling. We need to see a couple more companies perform well, like Square has performed, for that skepticism to fade. It will take time.

Do you think the bloom is off the online lenders?

The answer is yes and no. In the beginning, the narrative of online lenders revolved around the idea of financing online lenders through the peer-to-peer model, which was a revolution in financial services. The underlying value of loan originators was radically higher through an innovative financing mechanism. Today, people look at it and say it is innovative but just another item on the menu of choices that an originator can wield to finance their activity. There is no intrinsic reason to change the way I value loan originators based on how they finance themselves …

There is still a question about the long-term view of this model on the origination side. In the aggregate, the space has been performing well. There are a meaningful number of people that have built loan books that went into distress, but so far, a goodly number of years into this, the aggregate overall performance has been good. Notwithstanding certain originators whose books have blown up, overall, it’s been okay. The caveat is we haven’t seen a credit cycle and seen how in the aggregate they’ve performed when stressed.

What do you think about the OCC’s special fintech charter and why are the fintechs not signing up for it?

It’s new and there are a lot of unknowns about it. It’s the kind of thing where you don’t want to be the first. You want to be the second and let whoever is first go through the pain of figuring out the nuances about it. Some uncertainty is the regulatory issue. There are some new court cases questioning whether [the OCC] has the regulatory authority to do it.

What’s the biggest issue facing fintechs today?

The ongoing debate [over] unbundling versus rebundling of traditional financial services. A few years ago, the narrative was unbundling banks and breaking apart their services. Today, there are still some people who believe in that bank view, [but] a lot of fintech startups are starting to rebundle financial services. Many have started as roboadvisers, or debit card banking solutions, or unsecured lenders, and they’re now adding back in services that you get from traditional banks. I would contend that no one really knows what model will be predominant over the next 10 years and which models consumers will go to.

Edited for clarity by Luisa Beltran