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Visa Ventures Excited About Fintech-Centric Investment Opportunities | Kevin Jacques, Vice President & Global Head | Q&A

by trusted insight posted 2weeks ago 1665 views
Kevin Jacques is the vice president and global head of Visa Ventures. He is also an advisor at 71lbs, an online service providing free, fast, and automatic parcel shipping audits and refunds. Previously, he led the corporate development & investment team at Intuit. Prior to that, he was a partner at Sevin Rosen Funds and Palomar Ventures. Kevin holds an MBA from Wharton and a B.S. in industrial engineering from Stanford University.

In this interview, he tells us about his role at one of the most prominent corporate venture capital groups in the U.S.; how Visa Ventures invests in areas that support their overall corporate strategy; and the excitement around the rapidly evolving fintech sector.

Kevin Jacques was named on Trusted Insight's 2020 Top 30 Corporate Venture Capital Investors

Trusted Insight: Tell us about Visa Ventures and your role as vice president and global head of its venture unit.

Kevin Jacques: I manage a relatively small team of seven, including me. We are, as we like to say, a “strategic first” investor that thinks like a financial investor. The strategic part means we're almost always making investments into companies that are Visa partners. We invest in service to achieving stronger or enhanced terms for Visa in the commercial partnership agreement.

 

"If you were to contrast [Visa Ventures] with many other CVC units or corporate investors, we have what would seem like a more narrow mandate."


We're very careful to tell companies that we invest in conjunction with the partnership, not in advance of partnership. We aim to get the commercial and investment agreements signed together. We need a sponsor internally, who typically owns and manages that commercial partnership. They commit to manage the partnership to achieve the strategic benefits that form the basis of the investment thesis. If you were to contrast us with many other CVC units or corporate investors, we have what would seem like a more narrow mandate. In practice, we closed roughly 14 investments last year. Turns out, there's a very broad set of people that are excited and eager to partner with Visa.

On the financial side, we invest “from balance sheet” which means we are investing our shareholders' capital. We seek opportunities that can realistically deliver strong, risk adjusted returns. Once we find the right strategic and financial fit, we then want to put a fair deal in place between our shareholders and the stakeholders in these key partners. This means that in the majority of deals, we are a follower versus a lead investor. We can then honestly then say to auditors or outside parties that the market and these independent investors have set a fair price and terms.

 

"We think about every investment through the lens of how does this accelerate a key overall corporate strategy or one of my business unit sponsor’s key strategies?"


Occasionally, for strategic reasons, we do lead, but it's not our preference. We have co-invested with a very broad range of other financial and strategic investors. We work hard to be value added investor and a good syndicate partner once we have invested. We can play well with a very broad set of other investors.

Trusted Insight: How has your time at Intuit influenced your approach now at Visa? How will Visa Ventures continue to evolve under your leadership?

Kevin Jacques: In my previous role leading M&A and investments at Intuit, we employed a process that was very tied to alignment and acceleration of our sponsors’ strategies. We follow a very similar process here at Visa Ventures. We think about every investment through the lens of “how does this accelerate a key overall corporate strategy or one of my business unit sponsor’s key strategies?”

We regularly meet with a set of 25 senior Visa leaders, typically senior product and partnership leaders, who are potential investment sponsors. We talk with them every two to three months to make sure that we are up to date in understanding their strategy. We make sure that we know what things are going very well with their “organic” efforts. We seek their input on areas where there's potential for partners to provide more acceleration, or where they’re facing “pain points”, where achieving organic progress is proving harder than we thought. These then become focus areas where Ventures can help find valuable partners to provide distribution or the desired capabilities.

My team and I also try to do a pressure test when they bring us a potential partner seeking investment. We ask,
  • Is this truly a partner that meets one of their strategic priorities? 
  • Is the partner truly willing, in return for that equity investment and extra support, to give us a meaningfully better commercial deal? 
  • Does the opportunity present reasonable financial return opportunity, on a risk-adjusted basis, for Visa shareholders?
The methodology very much has its roots in what I learned at Intuit managing M&A. It seeks to work from the ground up, strategy back, to focus on the strategic priorities of the investment sponsors.

 

"The underlying macro trend is that as cell phones and digital devices proliferate around the world, banking and payments are extending everywhere the devices are going... There are opportunities to extend Visa rails to all those places."


Another point I'd make, and this would be applicable to both corporate and independent VC investors, is something that I learned while running Intuit’s M&A team. I had been a partner at two venture firms for 12 years combined and now I look back and say, “My partners and I prepared our portfolio companies for exit all wrong." My old partners used to say, "Build a good business and it will take care of itself." That's an oversimplified view of how the world actually works. Something like 4,000 companies are funded every year. In a good year, less than a hundred will IPO. For the rest that have exits, the exit and liquidity will through M&A.

A little bit of forethought would really help the vast majority of emerging companies and the investors much better position their companies for an M&A exit, rather than saying, "Hey, grow a business and the exit will take care of itself." For the other 95% of venture-backed companies there are probably 4-6 natural potential acquirers. In my experience, few CEOs and boards do enough homework and legwork to really get to know their most likely four or six acquirers.

At Intuit, I was shocked how often investors would come to me and pitch their company as an M&A target when they had done no homework on our strategy, no homework on our tech stack, and they really didn’t know anybody at Intuit. The leaders of their portfolio companies had never bothered to build a relationship with or talk to any of our business leaders. In some cases, they had made fundamental technology platform decisions that made them a non-fit not only for Intuit, but also for the other likely acquirers as well. The lack of research translated into greatly reduced or NO exit value.

Doing just a little bit of homework, maybe just looking at the investor day slides of those four to six potential acquirers, so that when you are talking to them, you can use their language and talk about alignment to their strategies, or even researching their tech stack, which you could do in Crunchbase, could make a world of difference. Most investors and boards could do a much better job of thinking about these issues ahead of time. Starting to build relationships early with the right people at the companies that are the likely potential acquirers can greatly increase both the odds and value of a successful deal.

On the other hand, if you're in a much more horizontal situation where there are 15 or more entities that might buy you, including growth-stage private equity, you will probably benefit from hiring an investment banker. Get to know the investment bankers that really know and handle the most transactions in your segment. That's the kind of situation where bankers can add value. They know how all these bidders behave in a process, which can greatly streamline your engagement with so many potential buyers.

Trusted Insight: You’re looking at various tech sectors to invest in, but which would you say you’re most passionate or excited about?

Kevin Jacques: There are 5-6 types of investments that we make in terms of broader fintech themes, and honestly, we're excited about every one of them. The underlying macro trend is that as cell phones and digital devices proliferate around the world, banking and payments are extending everywhere the devices are going. It's happening on phones, it's going to watches, it's being embedded in cars, it's being embedded in enterprise applications. There are opportunities to extend Visa rails to all those places. It's honestly breathtaking to see the rate at which fintech investment and opportunity has expanded. If you look at the statistics, it's just staggering.
 

"We agreed to acquire Plaid to support a third theme. Plaid represents both an entry into new businesses and complementary enhancements to Visa’s existing business."


It translates into a pretty structured set of opportunities. We're a two-sided payment network, so both “expanding issuance” and “expanding acceptance” help to grow our network. Visa’s historical and very successful investments into Square, Stripe and Marqeta fit those themes. “Expanding issuance” and “expanding acceptance” are the two most common themes we see.

We just made a significant acquisition, not yet closed, of a company called Plaid, a network that makes it easy for people to securely connect their financial accounts to the apps they use to manage their financial lives. We agreed to acquire Plaid to support a third theme. Plaid represents both an entry into new businesses and complementary enhancements to Visa’s existing business. First, Plaid’s fintech-centric business opens new market opportunities for Visa both in the U.S. and internationally. Second, the combination of Visa and Plaid provides the opportunity to deliver enhanced payment capabilities and related value-added services to fintech developers. Finally, the acquisition will enable Visa to work more closely with fintechs through all stages of their development and drive growth in Visa’s core business.

We see many opportunities, both domestically and around the world in a fourth category. Partners that help us convert new payment flows into Visa network addressable payments. A fifth category are the many partners that add capabilities, richness and value to our overall ecosystem. Examples range from companies that help issuers and merchants reduce fraud using machine learning and AI, to some providing new “guaranteed fraud loss pricing models, to partners that help make it easier for issuers to offer really robust travel and reward card programs. I often think, “These are services and benefits that I really want as a Visa cardholder.”

The Payments value chain is changing as well. We don't just move money when a transaction happens. We provide risk and anti-fraud screening, we authenticate users, we capture data and appropriately share it with different parties in the payment value chain. We see a future where all of that might unbundle. National Payment schemes may gain share in some countries, in the basic movement of the money, but Visa can provide meaningful value in all of those other areas. We are working with partners to build our ability to provide value around the rest of the payment transaction.

Trusted Insight: What are your efforts and strategy when it comes to co-creation?

Kevin Jacques: Visa has a program here, but it's very unique and run by Visa’s Innovation group. It has a very, very different form and objective than other CVCs or corporate-run accelerators.
 

"Visa operates a unique set of 14 Innovation Centers around the world... We staff these Innovation Centers with a mix of people with a range of expertise: business development, UX, product development engineers and card network rules experts."


Visa works with over 16,000 partner banks around the world. We don't directly issue cards, and we don't directly support the merchants that accept Visa cards. The 16,000 partner issuing and acquiring banks do those critical things. They are key participants in our ecosystem and network.

Visa operates a unique set of 14 Innovation Centers around the world. The Innovation Center in San Francisco has a number of simulated environments where payments might naturally take place. There's a car chassis, a mockup of a retail store, there’s a room that looks like a typical North American apartment. The counterpart Innovation Center in Singapore, instead of having a car, it has a tuk tuk. We staff these Innovation Centers with a mix of people with a range of expertise: business development, UX, product development engineers and card network rules experts. We invite our bank and non-bank partners to participate in very focused co-creation at the Innovation Centers.

Our goal is that our partners leave the Innovation Center with a prototype that leverages Visa capabilities and APIs and a clear sense of how they're going to put that into production in their own environment. It's a unique model. I have not seen others that do it quite the same way. It seems to be one that works really effectively for Visa. Hundreds of clients go through those Innovation Centers every year.

Bringing our network’s capabilities to life in front of potential clients is a really powerful tool in helping solidify and win these relationship opportunities. I recently watched a session in our Dubai Innovation Center where a team showed a prospective regional partner how their app could extend to provide payments in a taxi, a store, and a home in 15 minutes of live demo. It ended up playing a key role in closing a significant commercial deal.

Trusted Insight: Does Visa Ventures take or want to take third-party capital? Is it something that you consider?

Kevin Jacques: Today, it's not a part of our plan. We don't have a dedicated fund; we invest from the balance sheet. We're fortunate that our parent company has a very robust cash flow, but it's our shareholders' capital. That's why we think about ensuring credible financial return potential and maintaining our fiduciary duty to our shareholders.

Trusted Insight: What are some of the challenges or hurdles that you've had to deal with or that exist among your CVC investor peers?

Kevin Jacques: I'll focus on one problem. I was just at the Corporate Venture Summit where I participated in a closed session discussion CVC issues. One common problem the closed session group identified is “how can a corporate venture group ensure that the portfolio actually delivers strategic value to the parent company?”

At Visa Ventures, we seek to ensure the strategic returns by making sure that the partnership is formalized when or before we invest. Never after. At a minimum, we seek to get the commercial and investment agreements completed together. It creates an extra degree of complexity and workload for our team, since we need to make sure the commercial and investment work threads stay coordinated. I think the benefits, however, are worth the effort.

My team and I work very closely with a 65-person, global strategic partnership team within Visa we call “Digital Partnerships”. They're global but managed on a regional basis. These teams are in London, Singapore, Miami, São Paulo, and Dubai. They're often negotiating and evolving the commercial deal at the same time we are negotiating the investment agreement. It's essentially two parallel negotiations.

There are two legal teams supporting us internally and it takes extra effort to keep those teams and processes coordinated. On the investment side, we need to understand the timeline, status and progress of the commercial agreement. We need to ensure the lawyers working on both agreements understand substantively the terms on the other stream. In many cases, those agreements are cross-referencing each other. A lot of work is required to make sure that they're doing that in a thoughtful and correct way.

It also requires an extra degree of engagement with the CEO and board of the potential investment. Many other corporate investors don't have that same stringent requirement, so we need to invest extra effort to make sure they understand it. I think in almost every case, they come understand why we're doing it. Once they’ve experienced it, they actually end up feeling better off with our process. Nobody wants a dead corporate on their cap table, should the partnership never materialize.

Trusted Insight: Are there any final thoughts that should be addressed more?

Kevin Jacques: The most fundamental questions for a CVC program to get right is understanding what your objectives are before you go about launching a program, or when someone new is taking over the program. There is typically some balance between strategic and financial objectives, and what's the right balance would be different for every company. There are some CVCs, like Google Ventures, that have mostly financial return objectives. There are others like Visa that emphasize strategic returns.

If there is a large strategic component to your objectives, its important then to be clear what defines strategic? Who defines it? What can you measure or will you aspire to achieve 3-6 years out? I think it can be a mistake to leave the definition of “strategic” ambiguous. Some companies really do have a hard time creating a concise mission statement for a CVC about what is strategic.

One thing I'd like to say about my role here at Visa Ventures is that we have this fantastic simplicity. Although Visa has hundreds of different products and we operate in almost two hundred countries around the world, all of those products are designed to drive more payment volume.

At the end of the day, we have this unifying core metric or simple question – “how much payment volume does this partner or capability add to our network?” Directly or indirectly, everything my team does should drive more Visa payment volume.

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