DealmakingFintech

NEA’s Jai Sajnani talks M&A, bundling & what’s ahead in fintech

Sajnani is focused on fintech (both B2B and B2C) and enterprise investments

Jai Sajnani, a principal on the technology team at storied venture firm New Enterprise Associates (NEA), has been active in the fintech space long enough to witness it go from an intriguing sector to one that everyone wants to invest in.

At NEA, Sajnani is focused on fintech (both B2B and B2C) and enterprise investments and is interested in companies “building disruptive technologies both domestically and in emerging markets.”

He is a board observer at smart money platform Divvy, banktech Zero and rewards startup Drop, among other companies. Sajnani is also involved in the firm’s investments in Plaid and Robinhood, among others.

With a degree in electrical engineering from Stanford University, Sajnani went on to serve in variety of engineering roles as well as a business analyst at McKinsey & Co. before becoming an investor with NEA. The Menlo Park venture firm has raised 17 funds to date and has had over 390 M&A exits and more than 230 IPOs since its 1977 inception. NEA currently has over $23 billion in assets under management and has recently backed the likes of insurtech Bestow.

FinLedger talked with Sajnani to get his thoughts on everything from what areas of fintech are primed to evolve and develop to the bundled versus unbundled approach to distribution.

FinLedger: What do you believe is driving intensified VC interest in the fintech space?

Sajnani: NEA has been interested in the sector for a very long time. We’ve invested in B2B fintech for over 20 years at this point — companies like Financial Engines which really pioneered the digital advisory space, to Braintree in payments, Xoom on the remittance side, and then more recently with companies like Plaid; our most recently announced investment was in a company called Divvy, delivering software and payments platforms for expense managementSo we’ve been participating in the space for a very long time. Along this journey, we’ve been able to see some amazing trends play out and are fortunate to have had some great exits. In 2013, Braintree integrated with PayPal, and at the start of 2020 Visa announced its intent to acquire Plaid. The last 18 months have seen a flurry of exits in the fintech space and I think the continued flow of M&A activity has really piqued the interest of the broader ecosystem.

FinLedger: Yes, that actually leads me to my next question – we have noticed there’s been this uptick in strategic M&A in fintech – what do you think is driving these deals and valuations?

Sajnani: It highly depends on who the parties involved are. But the standard kind of motivation for any of these transactions is the desire to expand into new capabilities and/or to bolster your team. Many legacy financial institutions are seeing that there’s a lot of potential in the startup sector of the market with companies that have grown very quickly and been incredibly innovative and could be a huge asset to their overall platform. And there’s quite a wide array of legacy companies in the industry eager to upgrade their B2B software offerings. M&A can be an efficient way to do that – particularly when there is a wealth of talent and technology available. We’ve been fortunate to see the benefits of that over the last few months.

FinLedger: That makes sense. What market conditions do you think are driving growth for B2B fintech?

Sajnani: We have seen an increased focus on serving the CFO and finance teams within an org. These groups have largely been left out of the software evolution that’s happened over the last few years, and now there’s going to be increased attention to that segment of the enterprise. While previously bound to Excel and manual planning and reconciliation processes, these individuals can now leverage software driven reconciliation tools, treasury management, expense management, FP&A, and related platforms. 

FinLedger: Absolutely. Are there other areas of fintech do you think are primed to develop and evolve?

The U.S. has a really interesting landscape where there’s 11,000 or so financial institutions ranging from credit unions and community banks to larger, scaled banks. And these are institutions that have been surviving for many years on the legacy technology built by a trifecta of providers – such as FIS, FISERV, and Jack Henry. What’s been interesting is that while there’s been consolidation and a reduction of the count of institutions over the last 20 to 30 years, there’s only been a surge in membership on both the retail side and the commercial side, as these banks are looking to build their SMB base as well. With the pandemic, they’re severely hamstrung in their ability to keep growing as this tech was designed for onboarding and servicing customers in-person. We’re curious to see how these banks’ approach to digital transformation evolves over the next few months, and what providers come in to upgrade legacy cores and allow local FIs to service customers online and via mobile. 

FinLedger: In the early days of fintech acceleration it felt like unbundling was all the rage but now we’re starting to see more fintechs with bundled products and services. Do you have any thoughts around what might be driving this trend or do you have a view on unbundled versus a bundled approach to distribution? 

Sajnani: Fintechs, depending on how efficient they’ve been with customer acquisition, are trying to boost lifetime value to be able to pay back their initial acquisition cost. So, when a company has spent three to four figures to acquire a customer, they’re hoping to keep that customer over a long period of time and continue to upsell them on new products – driving towards building a sustainable business. I think that that’s proven to be true in a handful of examples. 

You’ve got a lot of companies in the real estate space, where the initial value proposition is around buying a home or securing a mortgage, who will soon offer title insurance and perhaps even repairs and maintenance on your home over the long term. Separately, you’ve got the neo-banks who are going in and offering a checking and savings product, and then expanding to advisory services or investment services. So yes, we’re seeing it in many different shapes and forms. And I think consumers are aligning around a brand that they have grown to trust for not just one financial service but for multiple, and companies that have been the most efficient at initial acquisition will continue to reap the majority of the rewards here.

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