By PETER RUDEGEAIR for The Wall Street Journal
Nyca Partners, a venture-capital firm founded by veteran banker and LendingClub Corp. Chairman Hans Morris, announced Friday that it raised a new $125 million fund to invest in financial-technology startups.
Nyca Investment Fund, LP will be one of the largest fintech-focused funds to launch following a humbling year for the nascent sector. Venture investment into private fintech companies fell 42% to $3.5 billion in 2016 and was even slightly below 2014 levels in terms of dollars invested and number of deals, according to Dow Jones VentureSource.
“It’s a very different market from a few years ago when pretty much anything got funded,” Mr. Morris said in an interview.
Online lenders in particular fell out of fashion with investors following concerns about rising loan delinquencies, funding constraints and governance breakdowns. As chairman of online marketplace LendingClub, Mr. Morris had a close look at the change in investor sentiment, which intensified for the company after it forced out its chief executive last May.
“LendingClub certainly went through a period of stress. But because of its diversification and capital resources, I think it emerged better and stronger,” Mr. Morris said in an email.
Despite the sector’s setbacks, the new technologies of many fintech firms are opening banks up to the idea of collaborating with the upstarts. An October survey of bank executives by the law firm Manatt, Phelps & Phillips, LLP found that 88% believed that partnerships with fintech firms will define their industry over the next decade.
Mr. Morris and the Nyca team are looking to play the role of matchmaker between the two camps. All of the capital Nyca raised came from individuals or institutions with histories on either Wall Street or Silicon Valley.
Such contacts are often committed to assisting portfolio companies with strategic advice or introductions to the right decision makers.
Nyca investors include Brian Finn, former president of Credit Suisse First Boston; Tom Miglis, former chief information officer of hedge-fund firm Citadel LLC; and Neal Wolin, former deputy secretary of the U.S. Treasury. Corporate investors in the fund include the Royal Bank of Canada, Northwestern Mutual Life Insurance Co. and Intuit Inc.
In early 2015, Nyca invested in Artivest Holdings Inc., a startup that operates a platform that enables high-net-worth individuals and their wealth managers to invest directly in hedge funds and private-equity funds. Chief Executive James Waldinger said Mr. Morris and Mr. Finn urged him to focus less on potential clients who handled all of their own investments and instead focus more on financial advisers.
Nyca “helped us get our heads out of the world of rebellious startup wunderkind mind-set of let’s-shake-this-all-up,” said Mr. Waldinger. Mr. Morris and Nyca’s investors “have a certain understanding of how Wall Street is built because they were building it,” he added.
To be sure, it will take years to determine how successful the new fund is. Nyca primarily invests in early-stage fintech companies that are typically a long way from an initial public offering or acquisition. One investment has borne fruit is money-transfer company Payoneer Inc., which was valued at around $200 million around the time of Nyca’s investment in 2014, according to industry tracker Pitchbook Data Inc. Last October, an $180 million investment led by Technology Crossover Ventures valued Payoneer at $880 million, according to Pitchbook.
And Nyca isn’t alone among venture-capital firms looking at fintech. QED Investors announced a deal last week to provide Fifth Third Bancorp with advice on fintech technologies to adopt or startups with which it should collaborate. In activist investing, former J.P. Morgan Chase & Co. executive Douglas Braunstein rolled out a similar fund in 2015.
First appeared at The Wall Street Journal