David Blumberg, founder and managing partner of Blumberg Capital., started the early-stage venture firm in 1991 with the goal of partnering with passionate entrepreneurs to build successful technology companies.
With over $600 million in assets under management (AUM), Blumberg Capital specializes in leading seed and Series A rounds collaborating with angel investors, other venture capital firms and strategic partners.
FinLedger talked with Blumberg about everything from his thoughts on where fintech is headed, why he thinks remote work is here to stay to his move to Miami.
The interview has been edited for clarity and brevity.
Tell me about your firm’s investment thesis.
Our thesis for investments is based on investing in early-stage capital efficient technology companies in North America, Israel and Europe that are automating the white-collar economy by merging big data and artificial intelligence (AI), integrating IT and healthcare, transforming the automotive industry from a product to a service, innovating in fintech, building data businesses with growing barriers to entry, orchestrating and simplifying cybersecurity operations addressing new challenges and innovating in new domains.
When evaluating companies at Blumberg, we use the Six Ts: theme (the problem being solved), team (the people solving the problem), terrain (the ins and outs of the competitive market), technology (why it’s better than other solutions), traction (customers) and terms that are clear, simple and align incentives.
We at FinLedger are primarily focused on B2B fintech. What are some of the B2B fintech companies in your portfolio? Which are recent investments? Have you seen any major exits in the fintech space and if so, what are they?
We’ve been investing in early-stage fintech companies for more than a decade. Fintech companies currently make up 30% of our portfolio. Our fintech portfolio companies include Lendio, Trulioo, EasyKnock, Credorax and Fundbox.
In terms of exits, Blumberg Capital has supported a number of fintech companies that went on to be acquired including Able, Allerez and Zooz.
Lendio is the largest marketplace for small business loans in the United States. I believe they did more than any other financial institution in terms of approving or matching borrowers with lenders to the original PPP program. They have 100 banks on their lender marketplace with hundreds of 1000s of borrowers across the Small Business spectrum. They’re providing a marvelous service to this country during a difficult time. Their unified portal aggregates all the data so it can be reused to submit to other banks or institutions.
Another portfolio company, Fundbox, provides merchant cash advances for small businesses, and has proven itself to be extraordinarily savvy and resilient during this crisis and the lockdowns, which hurt small businesses more severely than they injured big business.
One reason is that they have a third eye of credit analysis. That third eye, the ability to watch invoicing systems, has proven to be extremely helpful to Fundbox in being a great underwriter, and in managing the risk.
We’ve also backed Katapult, which serves the prime credit customers (and recently went public via a SPAC, which FinLedger covered here). And really its customers are retailers such as Wayfair, Lenovo, Casper, Purple, Samsung and others. It’s helping them with their winter sale purchases for those folks who don’t have a credit card and need to lease to own. That’s a good program that doesn’t allow people to generally get into deep debt. Plus, if they can’t afford a product, they can bring it back.
How do you believe COVID-19 has affected the fintech industry?
The popularity of fintech was already on the rise, but COVID-19 further accelerated its adoption. In our portfolio in particular, we’ve seen our fintech companies do very well this year. As lockdowns and remote work became the new normal, there was a decisive shift away from cash and toward contactless payment and other digital methods. With physical stores closed, the boom in e-commerce also contributed to the increased use of digital payments.
In fact, Blumberg Capital’s recent fintech survey of consumer behavior and attitudes on financial technologies found that the COVID-19 lockdowns accelerated consumer use of fintech solutions and decreased their use of cash substantially.
In addition, the pandemic caused acceleration of open banking in the US, as the dissemination of PPP loans exposed the inability to gain easy access to personal banking data.
What do you think are some of the most overrated/underrated areas in fintech right now?
Blumberg Capital’s primary focus within fintech are companies that foster virtual financial services, create tech-enabled solutions and leverage blockchain and digital currencies.
Moving forward, we’re excited by new, up-and-coming solutions that are deploying marketplace platforms or utilizing deep underlying technology such as artificial intelligence, machine learning and robotic process automation to improve operations, deliver better services and increase efficiency. Another promising trend we’re observing is embedded fintech solutions in other traditional enterprise software applications and vertical domains.
What do you see happening in the space over the next 12-18 months?
A few specific trends on the horizon include embedded finance as mentioned, quantum computing, neobanks and an increased demand for identity and anti-fraud solutions. Each of these new developments has the power to transform fintech as we know it.
In 2021, I expect we will continue to see more partnerships form between fintech startups and large financial institutions
We can also expect an influx of capital in fintech startups next year, as widespread fintech growth continues amid consumers relying on fintech solutions to adapt to rapidly changing demands in their lives.
Over the past decade, fintech has proved to be an industry burgeoning with innovation and one that is able to onboard new customers with relative ease. If history is any indicator, the fintech sector is poised to generate new and transformative solutions for years to come.
You recently were among the wave of people moving to Miami. I’d love to hear how that’s going and your thoughts on the future of remote work in general.
The biggest issue that started hitting companies decades ago and especially in California and in the New York area is cost of living for the employee – specifically the middle and lower-level employees, which really are being squeezed because there’s been an imbalance in big urban centers, increased demand for housing and limitations on supply.
And so now a lot of people have realized they really can be productive and can work from anywhere. It helps with the balance of life issues. I think that’s been an opening of the mind. I also think that the new network of remote work is termed the dawn of the virtual enterprise IT. This heralds a more flexible work environment that is less risky than a single point of failure. God forbid there be an earthquake in the San Francisco Bay Area. There are many companies that would be very very gravely affected. However, if their employees are in multiple places around the world, there’s more resilience.
As for Blumberg Capital, we’re a moderate-sized venture capital firm with teams in Israel, San Francisco, New York and now, Miami. It shows that people are not tied to a desk as much anymore as different areas of the world have different strengths and weaknesses. We’ve done just as many deals as ever.
The fact that I was at home in San Francisco working rather than in an office and now in Miami and working from home hasn’t really tilted the balance much at all. In terms of new networks, that has actually improved. The fact that I’m already well established in San Francisco, New York Tel Aviv, London in Chicago in L.A. – well, I don’t lose that network. I get to add a new one, which is Miami, where one can very easily hop to all parts of South America and Central America and the Caribbean. So, just being here we’re starting to see a whole new set of interesting deals in logistics in healthcare and international trade. And I think that’s going to continue. My predictions that the Miami area is not going to be only a center for investors, but that technology firms will start to follow here. I think the investors are leading the way here. But talent and energy will soon follow. There’s a whole crowd of us now.
Our distributed team also shows that just as we rebalance the portfolio, we can rebalance our workforce. And we probably come out better since we’re not overly dependent on any one factor, including geography. Because, for example, if you’re only sourcing software employees in the Bay Area, we know that you’ll be paying a lot, they’ll be probably less loyal, and they’re gonna be harder to find because of the competition there. If on the other hand, you’re trying to also source in Dallas, and in Miami, and in Boston well then you’ve already reduced some of that risk, some of that cost, and some of that rigidity. Some economists called that risk brittleness. We want to be anti-brittle.