Tech deployment: VC, fintech, and banks – Sharing secrets to powerful outcomes

Danielle, Doyle, Chief Innovation Officer, Atlantic Union Bank; Matt Maxey, Chief Innovation Officer, Synovus Bank- moderator; Eric Schwartz, Operating Partner, Canapi Ventures

Transcript:

Matt Maxey (00:06):

We've got a 30 minute session this morning. Thanks for joining us. My name is Matt Maxey. I'm the Chief Innovation Officer at Synovus Bank. We're a large commercial bank in the southeastern United States, including here in this area of Florida. And today we're going to be talking about partnerships with banks and venture capital, fintechs, LP funds. And I'm joined here with two of my colleagues in the industry. Danielle Doyle is the Innovations Officer at Atlantic Union Bank, and my friend Eric Schwartz is also a partner with Canopy Ventures, which both Danielle's Bank and my bank are LPs in that fund. So we've got a number of things we want to talk about today. If we have time at the end, we will run a mic around if there's a question or two, but no promises because we're only at about 25 minutes in this session. So we'll try to hit the high points and leave time if we can. So with that, Eric, I'm going to throw it over to you for just a second. Tell us a little bit about Canopy Ventures. How are you structured? What's the value proposition to banks and early stage technology companies?

Eric Schwartz (01:13):

Sure. Thanks Matt and welcome. Glad everyone could join us this morning. So Canopy is a B2B FinTech Venture Fund. We are about 1.4 billion of assets under management and we deploy capital on behalf of 68 financial institutions based in the us. We've got 24 portfolio companies across our two funds, and unlike maybe a traditional venture fund that's focused on really just driving venture level returns for their investors, we have a dual mandate. The first one is returns for our investors, but the second one, the reason I'm here today and the reason that Danielle, Matt, and a number of other of our LPs work so closely together is we're committed to delivering strategic value add for our investors. And that takes the form of a lot of different venues, including in-person events, education events, and all sorts of things we'll talk about over the course of today's panel.

Matt Maxey (02:08):

Thanks, Eric. One of the things that I think about, and maybe on the minds of some of our audience today are, and Danielle, you as well feel free to both comment on this, is it seems like the consortium of banks and the limited partner structure with Canopy and other similar structure venture capital funds could open up concerns around IP leakage, if you will, or giving up a competitive advantage with tech partnerships. Curious what both of you all think about that and how your firms look beyond that in your partnerships with organizations like Canopy?

Danielle Doyle (02:46):

Absolutely. I think that where we are in the broader market is really ripe for collaboration. So I don't think that because we're using so much third party technology, it's not like we're building things under the covers anymore. So I think it's best for all the banks in the community if we are working together.

Eric Schwartz (03:05):

Yeah, I just add that a lot of the conversations that we have with our LPs, we're doing it on a no-name basis. So if we're having a conversation about a new loan operating system or a new fraud prevention system with one of our LPs, it's not like we're parading around the list of banks that we're speaking with about those options. At the same time and at the request of the partners in the fund is we're very happy to make introductions. And I think to Danielle's point, collaboration is key to making FinTech adoption technology adoption successful. We've all gone through similar challenges, whether they be core integrations or just deployment of new technology and better to go at this together and learn from each other's mistakes footfalls are challenges than to try to figure this out Novo every single time.

Matt Maxey (03:58):

And I would just add from the Synovus perspective, obviously there's a balance sheet implication here. Allocating capital and the calls that come associated with that, there's a return element frankly, however, the majority of the advantage we see in being in funds like this, and we're in several, are really around the strategic partnerships. And in particular looking at early stage fintechs, perhaps even pre-investment within the pool to say, Hey, what do you think about this? Is there a value proposition for your banking operations or your digital collaboration models or your customer experience objectives, or does it even fit within your corporate strategy? And so getting really early looks at what those technology solutions are, how the innovators in those early stage technology companies are thinking about solving problems, and then have the ability to give a tight feedback loop and somewhat perfect both the investment side of the activity that we have with Canopy and others, but also participate in deploying those solutions within our own four walls. And I guess on that point, let's pivot to some of the success stories. Eric, let's start with you. If you want to speak about some of the ones either for Atlantic Union Synovus or just the LP base at large.

Eric Schwartz (05:15):

Happy to. So going back to that theme I mentioned a couple minutes ago about driving strategic returns for our LPs, one of the things that our team is keenly focused on is making introductions between the fintechs that we are either investing in or just meeting and the LPs that are investing with us. And to date, we've done a little over 500 introductions to banks like Atlantic Union and Synovus and have actually helped to facilitate over 80 commercial agreements between our portfolio companies and the banks that work with us. So what does that mean besides throwing numbers up on the page? Well, it means that we've helped to drive 30 million worth of annual recurring revenue just within the ecosystem that we've bought or built, throw some type of multiple five, 10 x on that to drive what enterprise value looks like. We're organically creating value, enterprise value for the companies that we've collectively invested in. And to Matt's earlier point, we're using the network that we've established to help facilitate the diligence process to make sure that founders are meeting innovation officers like the two that are on the stage with me today so that they're hearing directly from the buyer, they're hearing directly from those that are thinking about innovation at their financial institutions instead of building their solutions really in a box in the lab versus out in the wild.

Danielle Doyle (06:41):

Yeah, I think to add to that a bit, I think it's important to remember that success looks a little bit different for everyone given the little bit less maturity on the side of my innovation program at my bank, success looks a little bit different for me than it does at a Synovus. Really having over last year had the opportunity to really plug into these collaboration events. That's a massive success for the organization because it's giving my team the opportunity to learn about things that they wouldn't necessarily know before. So while we might not be piloting the best and brightest quite yet, we're building up those opportunities and we're not so focused on running the day-to-day operations of the bank.

Matt Maxey (07:24):

For Synovus. We have a couple things I guess I would share the strategic value that we see beyond just combing through the portfolios and getting a look at early stage fintechs, the ability to pilot and do proofs of concept with internal customers to kind of test the strategic benefits, pros and cons of a particular solution is what it is. And that's very powerful. What I would also say is one of the things that we did a couple years ago, and we're starting to do this with our other venture partners as well, is we came up with this idea of doing a demo day within the bank. And so we went to the Canopy team and said, look, we want to bring the solutions that you have in the portfolio. At the time, I think it was five or six of which we were already using to power our digital strategies internally. We want to bring the additional solutions front and center to our lines of business and our strategic partners within the bank. Would you help us with that? And so we worked collaboratively with them. They brought resources to bear, we brought resources to bear. What we ended up with was the week after Thanksgiving 2021, we did a session at our innovation lab in Atlanta, Georgia where Canopy came down. They brought five of their portfolio fintechs centered around a theme. We brought decision makers and those that own P and Ls for investment from the bank. And we had a lot of collaborations, a three or four hour event, we went through say 20 minutes or 30 minutes of each one. Then we had breakout sessions and folks could sign up and go meet with maybe a smaller group in a more intimate setting, but could ask questions of the founders, show us this and show us that and how would this work? And then we did a mixer offsite and it was a low cost opportunity. What I'll tell you was we ended up signing two contracts coming out of that. We did the second one last fall. We're going to sign at least two more coming out of that. We've got more plans around that. So from my perspective, it's not just about the specific solutions, but how can you pull those technologies earlier into your organizations and get your business partners excited about those and get them into the rhythm of engagement, which drives value for the bank. And we're really excited about that. We have bigger plans kind of on top of that. Alright, so let's talk a little bit about the early stage technology and innovation. There's always we'll do air quotes less successful stories. One of the things from an innovation perspective, and I know Danielle and others, other colleagues we have in the industry, we talk about this a lot, is the goal is to put things down as fast as possible and take this precious few pile of gems to the front of the line for investment. And so we've built a lot of discipline around that as innovators in banking, but there's always failures. And internally we don't talk so much about fail fast, fail forward, we talk about the iterations towards success. And so let's maybe talk, Eric, give us an example or two if you can about some things that maybe didn't work out as designed and maybe how your LPs and kind of ecosystem partners have helped you Perfect that.

Eric Schwartz (10:20):

Yeah, absolutely. And yeah, I appreciate the, it's not a failure, it's an opportunity to do things better the next time. I guess the two points I'd make, the first is in a strategic fund, not every idea we stick in front of an LP is going to be successful or fit for purpose, whether it be kind of the overall tech stack or maturity of an organization relative to where a company is or just strategic priorities of one institution versus another. Specific to an example, and we can focus on Synovus for just a moment, there was an early stage company we helped facilitate really the seed in series A called able and they're a kind of digital document management slash loan management, AI powered, I'll throw some more hyphens and commas in their solution. And what we found early, and I think this is really the power of the Canopy Alliance, is how do you focus on and zero in on product market fit. What we come up with day one and with the founders isn't necessarily what we wind up going to market with or isn't necessarily where you wind up evolving the company into a growth stage company. And what we did over the series of really months is the ABLE team went from one LP to another and kind of embedded themselves with the loan teams there, with the lending teams there and collaborated with them side by side, here's what we're building, let's test, let's iterate figure this out and wind up evolving the product into something that's much more fit for purpose, not necessarily from the whiteboard that happened at HQ, but what happens when the users actually start interacting with the software and interacting with the technology. That wasn't great the first, second or third iteration, but I think we're finally to a point now with the product and I'll let my colleagues comment on it, but I think we're finally to point now where based on that feedback and based on that collaborative ecosystem that we've built, we're in a much better place and have a product now that is more refined in terms of how we go to market, more refined in terms of how we're talking about it with customers and ultimately is a much more powerful tool than where we started on day one.

Matt Maxey (12:30):

Another example I'll share, there was a early stage company in one of our portfolios that we took a look at about 18, 19 months ago. And it was intriguing to our business partners kind of fit within the commercial space portfolio management space. And the play was to essentially lower the risk profile but also lower our opex and overhead associated with operating that part of the business. And they had a great concept, they had a great storyboard, but it was missing kind of the true data underneath to say this is actually what it can do. Let's drop the model into your environment, kind of vacuum up some of your data and spit some analysis out. And they weren't really quite to that point to be able to materialize those expectations for us. Fast forward to say 30, 45 days ago, and their offering has really come along nicely. They're getting a good amount of demand in that space. They've expanded their offering and now we have a line of business that's very excited about it and likely will be investing in their product to deploy it within our operations. So again, you're kind of circling back to the iteration on early conversations, feedback loops, it's so powerful. Another example I'll give, there's an LP in one of the funds that we're in and we kind of give each other a hard time on certain fronts, but the relationship that we've developed with that bank and others like it where we can have down to earth conversations about real shared challenges or Hey, this is what I'm thinking about using for this. Have you seen another FinTech that can do this better? Another partnership has really strengthened I think some of the non competitive LP bank relationships that we have at Synovus. Danielle, any thoughts on that from your perspective?

Danielle Doyle (14:15):

No, I think you are absolutely correct. I think one thing that when we're looking at these earlier stage companies as well as far as iterating our success is not being too excited about something that's shiny and new. Having the opportunity to really look at it from a step back and understand that while this technology is really exciting right now, it might not be fitting all of our needs and we need to be thinking evolve that product, if that makes sense. Or it may not be a fit even though we might really want it to be a fit.

Matt Maxey (14:47):

So we'll turn I guess to somewhat the elephant in the room as an innovator. I think the assumption often is you like to move fast and you don't care about risk. Well, that's actually not the case and I think most of us would agree with that. In fact, what we talk a lot about within Synovus is there are guardrails to innovation that are required to really make sure that you're getting to the outcomes that you want when you need to get to them with the appropriate amount of risk. And so we've developed a whole program that all of our leadership team has to go through from the C-suite down to frontline managers talking about innovation and what does that mean? Not specific to FinTech, but just in terms of taking and ideation. And so with that, I want to kind of turn a little bit to the risk side of innovation. The joint statement that was just released by the regulating bodies on third party risk and then even before that happened a few days ago, we had kind of planned to hit that topic. It's like how do you take the new and move it into your organization faster without significantly increasing your risk exposure? And so I just want to throw that ball up there to either one of you that wants to comment on that.

Danielle Doyle (16:00):

I'll just add a quick thought to get started. I think that is another area where collaboration in between community, mid-size banks is so key so that we don't each need to reinvent the wheel as we're bringing in these new technologies into our technology platforms.

Eric Schwartz (16:17):

Yeah, I'm a risk management consultant or recovering risk management consultant for 13 years and did FinTech for seven years before that. So you're speaking my love language, Matt at Canopy, we think about this from a couple different ways and all of us at the firm, at the partner level have either been regulators, advisors, operators or bankers. So we get the joke, so to speak. And there are two pieces that I think about in the context of the way we do investing that really hits on a lot of the two themes that Danielle and Matt just talked about. The first one is the financial diligence we do on the companies that we invest in as any good investor would do. You're peeling back the pages, you're making sure we're in the business of investing in companies that are losing money, but we're looking at these companies from their prospect of when can they be profitable? Where can they drive value for the customers that they're serving? The second point, I think this is where funds like Canopy come in and others that are kind of bank tech focused among other things is when we do diligence on a company, we're also doing regulatory diligence on them. We're doing compliance diligence on them in part because that's part of our DNA and we think about things, but in large part because we know these companies need to sell into regulated financial institutions in addition to other enterprise enterprises. So we approach our overall diligence process built from the ground up, thinking about a lot of these issues that Matt and Danielle just highlighted, including things like the third party risk management process. And I know we'll talk a little bit about this vendor management playbook that we collaborated on over the past couple months as really an engine to help facilitate a lot of that.

Matt Maxey (17:59):

As Eric just mentioned, there were a number of LPs including Synovus that kind of came together last year, maybe about a year ago. And we said, we've got a problem. We see what what's on the horizon is we need to move faster, but we feel like we're not equipped to move faster internally. And we also think that we gave several examples of fintechs in the portfolio. They're not appropriately having expectations set about how to engage with banks and what does that mean, what to expect, how long will the process take, what types of assets and collateral do they need to be thinking about? These technologists and innovators are great at the thing they do, but there needs to be a way to bring them quickly up to speed so that we can have some faster collaboration innovation. And so what we did was we came together and the Canopy team said, look, let's build a playbook. Let's come together. We had a series of workshops and ultimately what we ended up with, I think it's publicly available, isn't it? And so you can hit the Canopy website if you want to look at it, but it's what we think is a helpful way to set expectations with very specific things that fintechs can do in preparation to deal with banks on the other side. We kind of sat back after that was done and we presented to the whole LP base and got some good feedback on it. And also from the portfolio companies on the other side of that, we're like, okay, what are we going to do with this as far as our own internal operations at the bank? And so a number of us have started working heavily with our sourcing and procurement third party risk management risk organizations to really take a step back and say what is essential? What is required that's table stakes? And then what beyond that do we need to have in place to make sure that we can adopt these kinds of solutions in a more efficient way? Examples are, you know, have your main line process for third party risk management partner due diligence, but then maybe you have a sidecar or a light process to say, this is what a proof of concept would look like and these are the things that we would maybe take off the required table with certain assumptions. Is it test data? Is it production data? Is it their system? Is it ours? Those kinds of things. What's the cost threshold? And so a number of us have really taken that away and started to push internally to equip our organizations to move in a more expeditious way, but really trying to get to the value faster, but being very transparent with the fact that we don't want to incrementally increase our risk. And then the other thing I would say is risk partners at the table and these discussions upfront is so powerful. We've got a number of stakeholders within our organization, whether it's our BSA officer or our head of consumer compliance, third party risks, our chief procurement officer. They're all very about making sure that the expectations are set and our processes are geared toward not slowing the bank down unless it's intended, and having those gears set at the right level internally. So that I think work that we did as a collaborative LP base and then trained our fintechs with in the portfolio and now we're sharing externally and using internally I think has been really powerful. And another example of one of the reasons why we see a lot of value in being in Canopy and other LP funds. Similar to that. Any other comments on that topic? Alright, so look, starting small can be powerful. I would think that there's probably some of you in the room that are thinking, okay, where do I start? I'm not in a fund like this, whether it's capital is scarce or internal willingness to partner on looking at things like this seems complicated. One of the things we wanted to leave with is leave the group with is it is possible to start somewhere. So Danielle, maybe ask you to speak on some of that and then Eric would love your thoughts as well.

Danielle Doyle (22:00):

Absolutely. I'd like to reiterate that success looks different for everyone and that's absolutely okay. And I think that's something that absolutely should be embraced. So I think a great baby step is entertaining fun relationship because a great opportunity to meet with people who, they do this all day every day. They're fantastic experts, they're industry experts. And so leveraging that understanding opportunity and just network knowledge is a huge step forward for any organization, regardless of the ability to make substantial investments in integrating any of that technology quite yet. It really helps build a roadmap without too much real overhead.

Eric Schwartz (22:40):

Yeah, I guess I'd leave the group with just a quick thought of best practices that we've identified in helping to facilitate bank FinTech relationships over the past three or four years. And admittedly a lot of these come from the experience we've had with Atlantic Union and Synovus. The first one is get your senior management involved in the process. You're going to need buy-in at the top to promote innovation. The second one is finding champions within your lines of business or functional areas. So Matt hit on that with the demo days that we did getting them front row seats, maybe not from the perspective of, yes, I'm going to buy this software, this solution tomorrow, but highlighting and forgive the phrase, but the art of the possible, what's out there? How are people thinking differently? How are we serving our customers differently and taking advantage of that. And then the last piece, and Matt alluded to this as well, is getting risk and compliance involved early and often. It's one thing to say, well, we love the solution, we want to implement it. This would be great for our customers, but at the end of the day, if it doesn't pass the sniff test from procurement or legal or from a compliance perspective, it's dead on arrival. So keeping in mind those three points we we've seen a tremendous amount of uptick and engagement between the banks that we work with, the companies that we invest in or just partner with and definitely see those as keys to success.

Matt Maxey (24:11):

From my perspective, what I would say is, and Eric mentioned this, I think it's the biggest thing I would leave you with is the partnership with your business and strategic p and l owners within your organizations is absolutely critical. Early on in some of the piloting and POC work that we did, we always tried to create, for lack of a better phrase, an arrange marriage between a portfolio FinTech solution and what the problem they were trying to solve and then connecting the dots with the internal line of business sponsor for that particular thing. And so don't focus on the shiny objects, focus on the real needle movers and the value drivers with your internal business partners. Bring the future straight in front of their face with some of these conversations. There's a number of organizations out there that I think are good options in the VCLP space specifically for banks. Canopy of course is one of those, and it's one that we have a great relationship with, but there are others, right? And the other thing I would say is maybe don't limit yourself to just FinTech portfolios. One of the ones that we are in has a FinTech or two in it, but it's a probably 40 to 50 FinTech venture capital fund, and very few of them are bank and finance focused. And we've actually found some really interesting solutions in there that we can package in particularly on the consumer side, that have really stretched our internal thought process and kind of discovery around customer value and customer problems that we can solve with technologies like that. So I know this panel is specifically around FinTech and partnerships, but the reality of it is there's great early tech that's not specific to banking and finance and their funds oriented around those. And I would encourage this group to explore some of those and what they could also do with them potentially. So with that, any other final comments? We might have a moment or two for a question if there is from the room. Any questions?

Audience member 1 (26:28):

So as Chief Innovation Officers, how involved do you guys, the two of you get in working with the lines of business to select, maybe not from an LP perspective, you're not familiar, they're out there solving a problem. Do you look at those opportunities? Do they bring those to you and just get your feedback when once they've gone down a process, an RFP process or what not?

Danielle Doyle (26:53):

Is so that the relationships with the lines of businesses absolutely paramount to what I do every day. So I really do firmly believe it's a two-way street. They're the ones running their businesses, it's up for them to decide what problems they need filled. So they bring me those and I'm, my place is to be no one else what's out there to fill those problems. But also it's my responsibility to know what's out in the market and bring them opportunities. So having the strong relationship with those stakeholders is incredibly important.

Matt Maxey (27:25):

And I would just add very similar to what Danielle said, so my responsibility at Synovus is enterprise wide. So although we do enable a lot of things through technology and I receive the strategic aspects of our venture investments, we also are looking at everything from new market evolution to product evolution as far out as five horizons. So a lot of that collaboration is absolutely driven with strong partnerships from the business. Some of it is customer oriented, some of it is more futuristic and looking outside of finance and saying, Hey, this thing over here is interesting from a customer behavior perspective, what if that started to intersect with banking and finance at some point, whether it's middle market, commercial, retail, and what would our response be? How big is the wave? How close to shore is it? So much of what our practice is with innovation, we have a very small team intentionally around this, but much of our practice is really built around helping the organization, including all of the p and l owners, see, think, and do differently around those. So it's both seeing some of the things with projects and initiatives, POCs, all of that, and then equipping them to really do innovation on their own. And that's absolutely driven by a relationship. There's no black box kind of method behind this. Any other quick questions before we wrap? Well look, Eric, Danielle, thank you so much for joining me up here. This has been a great conversation. I love this story to tell here. Not so much about the great things we've been able to do, but we deeply believe that these types of relationships can be needle movers for FIS. And so great to have you both and thank you all for joining us today. Hope you enjoy the rest of the conference.