Becoming a venture capitalist is often built on relationships and happenstance. For Brian Yee, his story at ACME Capital starts over a decade ago.
The 22-year-old was a burgeoning employee at Goldman Sachs, taking on wealth management and leading a small team. At the same time, the dot-com bubble had officially burst, leaving tech in shambles.
Despite witnessing this monumental crash, Yee saw a number of opportunities. And as he moved away from wealth management to investment banking, he met Scott Stanford.
The pair worked on deals for Facebook, LinkedIn, and Uber. As part of the journey, Yee witnessed first hand how Uber went from a Series B company with a modest office in downtown San Francisco to the ridesharing giant it is today (with all the ups and downs that occurred in between).
It was this foundation that led Yee to General Atlantic, a massive growth equity firm where Yee invested in late-stage software and Internet investments.
However, when you’re around entrepreneurs all day, there’s a bit of a pull that begins to tug at you. It’s a gnawing that many investors (and tech journalists) often can’t ignore: the desire to be a part of something that you own or can help build from the ground up.
It was that pull that eventually led Yee and Stanford to work together again. By this time, Stanford was the co-founder of ACME Capital, a somewhat small venture firm that was still finding its footing. But for Yee, that wasn’t a deterrent; in fact, it was his opportunity, and he became ACME Capital’s third partner.
Since its founding, the venture capital firm has raised four funds totalling $805 million. According to Crunchbase, it has participated in 169 venture deals. Its roster includes fintech darlings Robinhood, Clarity Money, Truebill, and Cover.
While the firm doesn’t exclusively invest in fintech, there’s no denying ACME Capital has a good eye for it. And with Yee’s time and help, we gained insight on where fintech could be going, the mettle founders need to be successful in tightly regulated environments, and what investors can do to help sherpa their portfolio companies through the process.
The interview has been edited for brevity and clarity
So tell us a bit about where your firm was and where it is at today?
We’ve been super scrappy, and it’s been gratifying to see the arc we’ve been on, and now we’re at the cusp of some material opportunities. We have four or five IPOs scheduled over the next 12 to 18 months.
We saw an early opportunity where a lot of these more regulated markets were consumerizing and creating different products and services to cater to a new set of consumers that were left behind by traditional financial services.
At the highest level, on the consumer side, we like to invest in consumer experiences that just, quite frankly, suck today and where technology can play an advantage by reducing the overall cost of the system or improving just the overall convenience, performance, or efficacy of some central variable within a vertical market.
So you’re investing in a lot of regulated industries. What qualities are you looking for in a founder that strikes the balance between being innovative and disruptive while playing by enough of the rules to not get shut down?
It’s the trickiest thing that we discuss around the investment committee when talking about healthcare and fintech. I’ll use Travis Kalanick as an example. His approach was, “Hey, let’s raise a bunch of capital, let’s race to market penetration, and we’re going to break stuff and ask for forgiveness later.”
Ridesharing wouldn’t be where it is without that gravitas—that mentality of saying: This system’s broken; I can’t rely on the regulatory environment to innovate, so I’m going to pull the customers with me and the customers are going to demand that this change happens.
You can do that in healthcare and fintech, but you need to walk a very thin line between innovation but also falling under the frameworks of the rules.
You invested in Robinhood. Did you think it would be in the position that it is in today as such an important player in democratizing stock trading?
The short answer is very few investors I think have the foresight of understanding how large these platforms can grow.
But at the heart of it, what attracted us was fundamentally the consumer product. It was an elegant and very slick application. It removed a ton of the friction, and it was the first of its kind to have such a unique and slick experience on mobile, which obviously accelerated the growth.
At the time, the company had no revenue when it was raising at a $250 million valuation, so you throw out any traditional valuation metrics. But what they did have was a half-million person waitlist even before they launched the product.
You need to walk a very thin line between innovation but also falling under the frameworks of the rules.
And going back to things that suck in consumer finance: paying $6 a trade and knowing that it is going to the bottomline for broker-dealers is absolutely absurd. And whether you’re trading 10 shares or 1,000 shares, it’s sort of the same. So the system was put in place to be sort of unfair towards retail investors, which is a key theme you observe with the GameStop situation this past year.
So it was really the product itself that was captivating, and it was an amazing customer acquisition tool of free commission trading that really resonated. And it really just grew from there.
I think one thing that I would share that was a learning moment for myself as an investor was these big platforms are always going to be expensive from an investment perspective. And trying to overanalyze the valuation and whatnot can be a mental trap, and maybe that was more my traditional background from Goldman and GA.
But the lesson that I’ll take going forward is when a true platform has escape velocity, and it is penetrating an absolutely massive market, go along for the ride because the upside is ultimately endless.
People have been sitting at home, staring at their phones and receiving stimulus checks. It’s possible that has increased risky behavior. Do you think the experiences that have been built during this time will continue post-pandemic?
Yeah, I mean, personally we call it the “five and five.” The pandemic has basically truncated five years of consumer knowledge and adoption to five months. So I think the cat is out of the bag.
There will be some reversion to the mean, and I am interested in what offline experiences will be and how retail will reshape. I think it is very easy, from a technology and venture perspective, to sort of ignore fundamental human behavior.
We are social creatures; we like to get together; we interact with the physical world.
I will say the Gen Z and millennial generation is purely digital. They are native to the digital experience. I don’t think many probably have never even walked into a bank. And so as you see sort of the rise of that Gen Z population—this whole concept of retail versus institutional—I think that spread is narrowing.
The GameStop fiasco has also showed that the knowledge these Gen Z and millennial traders have is almost equal to institutional traders. The democracy of the information that you have at your fingertips, whether it’s through YouTube, or the internet, or blog posts, is pervasive. So I think these trends will persist where retail investors are given and afforded the same opportunities as institutional investors.
One trend I’ve casually observed is that fintech seems to be doing a lot of backend work: APIs to make things move faster, open banking. Are we running out of space to improve the consumer experience, or am I way off base here?
Like anything—certainly healthcare was like this—you start with the consumer side and apply pressure to the back-end banking and institutional side. And maybe it’s not horizontal and it’s more vertical.
When a true platform has escape velocity, and it is penetrating an absolutely massive market, go along for the ride because the upside is ultimately endless.
We had a call with a company that is sort of trying to reinvent the title insurance process. It doesn’t make any sense that the average title insurance is $2,000 to $3,000 when claims rate for title insurance is less than 10%, whereas most other lines of insurance is 50 or 60 percent.
So you have a unique dynamic of massive average order values, you have a market that is controlled by four key players, and you have claims rate that are incredibly low. So the price of title insurance should absolutely come down. And it’s not as big of a market as stock trading, but this is a vertical financial product that should see widespread innovation where you’re returning value to the consumer.
Another interesting area that I’m fascinated about is it makes no sense why I can only invest in a select number of opportunities out of my 401k. I should be able to invest my real retirement assets in any way I choose.
Final question, and I think it’s a fun one: What are you most excited about when you get your vaccine?
I am so fortunate to be vaccinated, so we have started to travel a little bit more. I haven’t seen my wife’s family for over a year-and-a-half. So we went up to Washington and spent Easter with them
So just connecting with family and giving people hugs.