Blockchain Founders Must Remain Product-Focused: An Interview with Sam Endacott
Interview with Sam Endacott, Investor at firstminute capital.
firstminute capital is a $100m early-stage venture fund backed by 30 unicorn founders. For the past two years, Sam has been a seed investor and board member on a raft of firstminute investments, particularly in the crypto/blockchain, enterprise and SaaS sectors. He works with companies including Argent, Ramp, Skew, Risk Ledger, Compose, New Vector, Storyblok and n8n.
firstminute capital was founded 3 years ago and co-founder Brent Hoberman stood for something very specific in the market way back in the first incarnation of the web. How does that heritage affect your investment strategy?
Brent’s been doing this for over 20 years, and he’s got an amazing track record as an entrepreneur. He built lastminute.com at the height of the dotcom bubble, sold it after the market crash and then set up a second business, made.com. So he’s seen everything from seed to IPO to an M&A exit at over a billion dollars.
He’s also been investing for a long time, initially in an angel portfolio, but as a VC for over a decade too [before firstminute, Brent co-founded PROfounders]. Brent is great at assessing the calibre of founders – he’s seen the types of personalities that have succeeded and failed and knows just how hard it is to build an enduring company. This is an incredibly valuable asset.
Most VCs say that they are in some way founder-focused. What are you looking for?
It’s dependent on the industry. We’re a generalist fund, so we back companies in consumer, robotics, open source, productivity tools, fintech, blockchain, crypto, synthetic biology and more. In some areas, deep domain expertise can be really important, in others it is less important.
Seeing the big picture – having the vision – but then also being able to dig down to the micro level and knowing how to execute to get there is always important. You can’t just be a visionary and then not know how to execute; especially from seed: building out the infrastructure, firing up great people, those are all big challenges and demand effort from founders.
Ultimately, I think building a great product is the focus and understanding your users. My areas are financial services, open source/developer-first tools and SaaS products. All these different sectors have different users, but invariably the start-ups who are doing well are the ones building a product which users simply don’t have today, or are providing an infinitely better experience.
Invariably the start-ups who are doing well are the ones building a product which users simply don’t have today, or are providing an infinitely better experience.
You’re a blockchain investor. The companies you work with – Ramp, Skew, Argent – seem to be building a blockchain parallel to the existing financial services industry. Is that the plan?
I think you’re right – we’re focusing on building out the ecosystem and all the building blocks that will be needed to get more user adoption of blockchain. We don’t know how the space will play out – anyone who says that they know how this space will develop is either a genius or it will turn out very differently to what they predict.
We don’t know which underlying protocol is going to win – Bitcoin, Ethereum, Tezos or something else we haven’t heard of yet? None of the key concepts – security tokens, utility tokens, stablecoins – have truly taken off.
We haven’t been making underlying bets at the protocol layer or anything that’s dependent on one type of ecosystem. We just want to build out the infrastructure on top that will be required no matter what direction the sector takes; and that’s what we’ve done over the past two years.
Obviously, a key element is to have an interface between the fiat world and the crypto/digital asset world. That’s why we backed Argent – they’re trying to become the best wallet for crypto users, with the best products and the best user experience to make it as simple as possible to get from traditional fiat currency into crypto and thus access and democratise the ecosystem. Their aim is to provide the first-class product experience of a mobile-first bank, but accessing digital assets.
The same philosophy is true with Ramp. One of the key pieces of infrastructure is getting from pounds or Euro into crypto like Ethereum and Bitcoin. They are building what we believe is the easiest on-ramp into cryptocurrencies using Open Banking APIs and smart contracts.
The other thing we believe is necessary in crypto financial services is risk management and this includes derivatives and other structured products. We backed Skew at seed stage. They’re building a data product for derivatives in crypto, a space which is still early. Crypto derivatives remain a bit of a Wild West: there are only a few players, and they’re not particularly institutionally friendly or regulated.
The endgame for us is that digital assets make sense in a world where finance increasingly becomes automated and transactions become less dependent on intermediaries. It makes sense for money to be driven by smart contracts, so we think that all the infrastructure to support that vision is needed. I think that if we can solve issues with scalability, and if we can build great products which have digital assets at their core, those great products will be relevant and necessary. It could take five years or even 20 years to prove its value to people; so maybe we’re still early, but that’s the goal.
So you’re being very speculative – you know the infrastructure will be required, but it’s a long game…
Yes, but there’s security in backing entrepreneurs who are suited to building these products. For example, the team behind Argent previously built and sold a gaming business. Product and user experience was their expertise but they are also highly technical and have built out a team with deep domain expertise in cryptography. They have the breadth of security and product experience to give us confidence in their ability to execute.
The team at Skew were previously derivatives traders in traditional financial services and at Blockchain.com At Ramp, one founder was a lawyer, the other a physicist. The legal experience is incredibly important when you’re working with all the different Open Banking regulations. There is huge inherent value in finding the right entrepreneurs, building in their area of expertise with the right skill sets.
What is the direction of travel for blockchain and financial services? Crypto has given us far more negative stories than positive, and it has not been meaningfully consumerised. The user experience remains shambolic. Are we on the brink of something better?
We’ve spent a lot of time looking at enterprise blockchain but we haven’t deployed much into that space. The use cases make sense on the surface; it’s beneficial for cutting costs and barriers to participation. It feels positive, and you’ll often see press releases about a bank originating a loan on the blockchain, or writing on the block etc. But I’m always a little sceptical. It’s a good PR strategy for many companies to show that they’re innovative and nurturing new technology but it’s often hard to understand whether there’s any substance to these proofs of concept. I think we’re still very early in the enterprise blockchain market.
Again, there are still serious scaling problems with some of the blockchains; and we’re early on the protocol layer there. If you look at the projects with major traction, they are the exchanges, wallets and on-ramps. I think that’s probably a reflection of the fact that crypto is still a tool for speculation but that can change in time. We’re starting to see products being built around digital assets rather than the assets just being available to own, which is exciting; but we’re still right at the beginning of the curve it feels.
That said, the reasons I got excited about blockchain remain: the open-source element and the community around it. I think those issues are going to be really important in the coming years as you move from early adopters to mainstream. This is how the internet developed.
Beyond just blockchain, I am spending a lot of time on open source – it’s an amazing distribution model and there are many ways to monetise and build sustainable business whilst maintaining your community – through cloud services, SaaS and premium features.
I envisage a world where eventually I won’t really need to interact with my financial services products. And I don’t know if I really want to – I think I’d prefer a world where I set up an account and things just happen in the background and pop up when I need to make a decision.
Fintech is changing fast and not every neo-bank is going to succeed not by any stretch. What gets you excited in fintech at the moment?
We’ve stayed away from consumer fintech because, as you say, it’s tricky. Customer acquisition is hard to get right and will only get harder with more competing products in the market. We’ve focused on the infrastructure side of things; and the trends that I’m spending time on are things like identity, compliance and fraud, and payments.
PSD2 legislation has created many exciting projects and I’m looking forward to seeing what subsequent PSD regimes might look like: will that bring the same API-driven infrastructure to insurance, wealth management or pensions?
I think the mortgage market in the UK also still has a long way to go. I just purchased a property and getting my mortgage was incredibly painful, both in terms of the search but also just the lack of a digital process. And once I’ve got my mortgage, there’s no interaction with the product. So I think new types of underwriters and originators in the mortgage market are an opportunity; in fact that’s probably the area on the consumer side that I would most expect to see disruption.
Fundamentally, the core themes remain – can you build a product which is providing a service not currently being offered or making the existing service sufficiently better.
Of all the things you’ve mentioned, especially on the B2B / back-end side, it seems that finance is still offering lots of room for genuine disruption…
I think that’s probably right. I envisage a world where eventually I won’t really need to interact with my financial services products. And I don’t know if I really want to – I think I’d prefer a world where I set up an account and things just happen in the background and pop up when I need to make a decision. Today, I’ll use my Virgin Atlantic credit card or my British Airways credit card in one place, but I’ll use my Revolut card when I’m taking an Uber in Paris, and when I’m in London I’ll use something else. Automation in the background makes sense. So maybe our interface with financial services will change.