Panel: Scott Galit (Payoneer), Assaf Wand (Hippo) & Eyal Shinar (Fundbox)

For those that don't know me, my name is Omry Ben David and I'm a partner at Viola Ventures, the early stage investment part of the Viola group. Next on the agenda is a much-awaited, at least on my end, conversation with panelists that I don't think need much introduction. They have built and run global fintech unicorns and it's a pleasure to have them join us. So we have Assaf Vand, co-founder and CEO of Hippo Insurance; Aal Shinar, co-founder and CEO of Fundbox who was recently appointed as chairman as well; and Scott Galit, CEO of Payoneer. Thank you guys for joining. We have lots to talk about. Obviously an interesting time for the fintech industry and your companies in particular. So let's jump right into it. I think one of the things we saw on the Startup Nation Central report was while funding is growing and is very sizable in Israel and definitely globally, we see a decline in fintech funding in the early stage. I wanted to get your opinion. What are the implications for the sector and what do you guys see as opportunities in fintech that you would encourage entrepreneurs to pursue? Maybe we start with you.

Sorry, had to unmute. I think there's a lot of demand. I'm just trying to summarize the report that we've seen. There is a shift to what I would call more of a safety to the bigger rounds rather than the smaller rounds. But when I was prepping for this panel, one of the things I was thinking about is that if you look at the companies that are doing well and are raising the big rounds, they're focused on as big a market as they can and actually touching the customer at the end of the line, as opposed to being an enterprise software company that is focused on the financial institutions, which is still bucketed under fintech. But most of the companies that you see that actually raise a lot of money are the ones that have differentiating product as well as the customer experience. And this would be something I would really, really focus on if I were to start something in fintech today.

Thank you. Great. Aal, anything you'd want to add to these observations?

I think I have touched most of it. I would add, generally speaking, you see more, regardless of fintech or not, you see more and more investments trying to chase the latest stage opportunities. It's a trend that started a while ago and you see it now becoming more evident, especially when there's a lot of risk and uncertainty going forward for obvious reasons. More than usual, the later stage companies, especially those doing okay, plus during COVID, they get a premium from the more institutional investors. So you see that trend only becoming stronger. Being more of a contrarian, I would say if I were on the investment side, I wouldn't rule out early stage investments in fintech. Obviously, mortality rate would be higher there by definition, but I think there's a lot to innovate. And fintech now is a very big word, it's almost like saying tech company, right? It's covering almost every aspect of tech. So I would not discount the opportunities in the early stage.

Great. Encouraging. Scott, anything to add?

Yeah. And you know, I share the positive sentiment around fintech and early stage, obviously out of position as well. But you know, COVID is all around us. SNC mentioned it in their report, you guys mentioned it in your answers, at least some of you. So let's switch gears and talk a little bit about the implications. What adjustments have you guys made, and I would say in the kind of short, medium term to your businesses and in the potentially longer term, and I'm talking about strategic, financial, operational, if you can talk to us a little bit about those different time horizons. So maybe Aal, I'll start with you on this one.

Yeah, so on the personal level, I don't enjoy COVID too much. I'm kind of getting, I need the change of scenery. And that's an easy problem to have. I think if you actually know people that are sick, it's becoming much more personal and emotional. From a business perspective, it's an interesting time for me at least since we started the company, just because there are really big shifts very quickly. It's like the time is being compressed into a few weeks. One week you could be in a mode of we need to save the business, we're all going to die, and two weeks later like, whoa, how are we going to be the number one player in this market. So I would divide it to very roughly speaking, adjustment to the different timeline and speed of things that are going on. Moving quickly from a traditional office type of company, we have three offices, to everything online. And I think companies that have few offices are in advantage. We were lucky. We, I think even today, which is not the height of the peak of COVID hopefully, at least not the initial panic, we are still functioning in better efficiencies than we were before COVID, which is an interesting data point. But stuff that was originally we predicted going to take a few months, it's taking a few weeks. So how do you run the organization in a more efficient way and that's something that you need to plan ahead. It's not going to be over by the end of the year. So are we going to move to completely remote or semi-remote type of work distribution? And then more the strategic thing that we're going to do, initiate was more of a defense, especially for companies in fintech that have exposure, whether it's balance sheet exposure or payment exposure, and how do you move from the defense to an offense. And that's exactly where we are now. It's a different landscape, meaning we see much less competition and much more demand for the product. So how do you do it in a way that captures this rare opportunity in time? On the other hand, how do you make sure that you do it in the right timing because this is the second wave and there's also elections in the US, how the economy is going to shape up at the end of this year. Very interesting strategically speaking and what are the big decisions and bets that you're taking because you can make a lot of mistakes now and it feels to me that mistakes during COVID could be much more meaningful to your business than during peace time. So we divide it to how the organization is working, what are the strategic bets and how do you go all in on them.

Maybe as a follow-up question before I turn to Scott with a similar question. Can you maybe double click on your specific space, you know, SMB lending, what type of impact have you seen? How do we think about underwriting frameworks? Balance sheet, if you can touch on that a little bit.

Sure. So as I think most of you, all of you know, small businesses really were the first line of COVID even before the lockdowns, at least in the US, people just stopped going to restaurants, stopped going to a coffee shop. And I would divide the small business ecosystem to B2C businesses and B2B businesses. B2C obviously being those businesses that service us, consumers, directly. So restaurants, hair salons, spas, coffee shops, they very quickly suffered pretty much an annihilation, like you see a bunch of restaurants just out of business. And this is even in the Bay Area where people are willing to pay pretty high margin for the services and products they get. The B2B businesses are businesses that are selling to other businesses. So think about another small business that's selling to that restaurant or another small business that's selling to Target or Walmart. And luckily, and a little bit by design, but not because of COVID, Fundbox focused mostly on B2B businesses, and we didn't get as hit as bad as we could have if we were focusing on B2C businesses. So you see in the market maybe 20 different traditional and more of a fintech 2.0 lenders that have more exposure to B2C businesses and they are pretty much either completely out of the game or they're in the game but they're going back three or four years because their warehouse provider pulled away the line. Those are usually the businesses that have more exposure to B2B businesses. And for Fundbox specifically what it creates is opportunity. Now I wouldn't go and try to acquire more B2C customers at this point just because I don't think COVID is over and also part of our strategy is to focus where we call it the dark side of the economy or the dark side of the moon. You have much more, 67% of US businesses are B2B businesses but because they are less visible they get less innovation, less investment. So for us it's a strategy. But overall the landscape of small businesses got hit very bad and I think that's part of the reason why you see less funding to new startups in the space and the companies that survive, some another layer of compliance and regulation which strengthens the moat around the businesses at a little bit later stage. So it creates a lot of opportunities but it also makes it much harder for earlier stage startups in the space to grow.

Yeah, I appreciate it. Scott, over to you. Can you talk about the adjustments you guys have made at Payoneer, you know, short, medium-term, and sort of things that are longer term?

Perfect. Appreciate it. Assaf, over to you maybe from the insurance side and then we'll have to talk about Lemonade IPO as a follow-up question. So I'm preparing you for that, but let's start with kind of your observations on the adjustments you guys have made.

Sure. I think the adjustment, I don't have too much to add what Scott have said, working remotely and all of that kind of stuff. What I want to touch on the adjustment that I'm seeing from a company standpoint. The first one is I think a lot of people actually that are used to work remotely seeing that productivity hardly being impacted. There's less travel. People are getting settled. So that's not an issue. Where I do see that something is hurt is the creativity. There's no corridor discussions. There's no intermingling. People are starting to work a lot more vertically in their silo. So the engineers are working with their engineers and delivering but there's a lot less discussion with the insurance people, with the marketing people and I'm trying to have these like coffee chats and people talking amongst themselves. This is where I'm seeing some of the damage that happened from the COVID that I don't really like. Insurance-wise it's actually really interesting, you know, there's this word insurance but it's such a diverse world. There is so, health insurance is one side, life insurance and P&C, each one other than having the word insurance in the back of it are very, very different businesses and even within them there's very, very different changes. So life insurance you would think they're going to be hurt significantly by COVID but there's actually been less mortality because people are, you know, at the beginning the first two to three months, cars, there were a lot of less things that happened. But on the flip side, interest rate went down and that crashed the life insurance industry a lot more than COVID. Health insurance, there weren't a lot of elected procedures. Hence the cost went down. But on the flip side, in the US system, maybe the health insurers are still making some money, but the hospitals and all of that kind of stuff, some of them are close to bankruptcy. On the P&C side which is where I'm focused on, I would break it into the two kind of big buckets which is commercial P&C and basically direct or the simpler lines. And what you're seeing is that on the commercial there has been a lot of blood on the street. There's bankruptcies, there's questions on should insurance companies even pay for the pandemic, which has a very clear no on that but it's a political topic. But on the personal lines when you see it, auto insurance had the best time of their life in the first two to three months, nobody were driving the cars, loss ratio that you file is 70 to 75% and if you don't have any claims then they were raking money, hence why they started to give money back to customers and things of that sort. On the home side, it's as close to a beta of zero as you can find. So I'm not saying there hasn't been changes, but overall they were almost insignificant. People were staying at home. As long as you have a home and you pay a mortgage, then you're going to need to have your insurance. So there hasn't been too much, if at all, higher rate of delinquencies and stuff like that. A couple of things that did change were, one, what you did see is that frequency on some components of the claims has changed because equipment breakdown and things of that sort increased but breaking and entry decreased. People are staying at home. So the shift of claims have changed and our homes were not used to have people cooking three times a day for five people, having 15 showers and all of that, we're just not set up. So you see a lot of breakdowns of a lot of small components. But on the flip side, the severity has declined because if there's a small leak, you capture it on the point and you're not coming home after eight hours at work and then you see that there was a full flood in the house. Severity has went down overall, but it's not that impactful for us specifically. I would say there was a bit of a shift in channels. So direct to consumer increased. And but the customer base has changed, a lot less new customers that are new home purchases and more switches because one of the first things that happened, people looked at how can they save money and they stood in front of their computer and they want to make sure that they have enough money and now there's an easy availability to actually get a quote and bind really, really easily and we also help them basically cancel their policy and let the mortgage provider know. What you did see is that some of these, there was a shift. So some companies that we work with that are basically mortgage originators, because the interest rate was so low there was a lot of refi and we were doing very well on that side. But some of the other channels, companies like Zillow, has been a decline. March and June were actually very strong home buying months in the US. Everybody stayed enough time in their home and then when they became more settled then you're seeing, oh what I really need is another home office. What I really need is a backyard and there was a pent up demand of a lot of people that actually doing either projects to kind of fix their home or buy a home. So overall it's close to a beta zero. This is what we're seeing. Hasn't been impacted. Hence as a company we haven't let go of anybody. We haven't reduced salaries. We just recalibrated the projects that what we're working on. One last point, I do think that for fintech, it sped up the world by two to three years to the move to online distribution. I think people that were not used or didn't want to take a loan or didn't want to take insurance are feeling a lot more comfortable doing now digitally.

Great. So I mentioned it earlier. Let's talk about Lemonade for a second. Obviously, a big story in Israel, a big story for the audience, a big success story, if I may add. A big comp for Hippo. You know, priced its IPO on Wednesday. Thursday traded 140% up. Last I checked, today about 30% up. Can you give us your views on the IPO story, the trading characteristics? How do you sort of see this phenomenon?

Yeah, I'll try less about the company because I do find quite a lot of interesting things with that. Firstly, massive kudos and I think it's really, really good for the entire industry, fintech and Insurtech as a whole. It's a different thing and I think it helps Lemonade build a proper franchise and kudos for them on that. What I do see, I just want to point several interesting things. First, I think it's an horrific outcome by the bankers. They basically left according to the day stock price, I don't know, $500 million on the table. That's not a very good outcome and that's a really, really big problem that they should ask themselves. But a lot of the questions is why and what you're seeing in the market because we can have a five-hour discussion about the separation of Wall Street and Main Street which is happening now in the world. How companies like Tesla is worth more than the rest of the car companies and how Impossible Foods is worth more than General Mills together, there's a lot of disparity in this thing which I think is really interesting. There is a rise of retail investors, the Robinhood investors, which is really, really interesting as well. There's no gambling or a lot less gambling, there's no sports and people are shifting to the online market and they're trying to go to brands that they acknowledge and stuff like that. This is something that Lemonade did a phenomenal, like a really, really good job on branding, on storytelling, on creating a loved brand in insurance and this is something I think is really, really interesting. They built a millennial brand which I think resonates and has a very high correlation to the retail investors that are investing now. So this is something that I find also interesting. I think one of the interesting questions that I'm asking myself when I'm looking at the Lemonade story is the following question. The question that I'm asking is, is it better for Hippo to be covered by the insurance analyst of Wall Street or by the consumer internet guys on Wall Street. Lemonade clearly took a path of retail, basically consumer internet, their benchmark that they presented to the market were Netflix and Wix and things of that sort and not the insurance side of the business. Clearly it works, so there's no question, although it's on the retail side and less on the institutional side probably right now. What the interesting thing, and this is the kind of the weary point that I had when I was examining the market in depth and I looked at several brands that went the route of consumer internet. When the market realized that there is a risk component which insurance basically has and not a negligible one, a lot of the investors dumped them. So companies like OnDeck and LendingClub and GreenSky, a lot of them are very valid good companies but went a route of consumer internet, once the story wasn't clear enough because people didn't understand the change in the adversity that has to do with the risk, the stock tanked. So it's an interesting intellectual debate and a different point you get different signals from the market. Clearly, Lemonade took the good route. It's a crazy and amazing valuation for them. It's a good benchmark for me which I'll take any day of the week. It's still, listen, it's still something that needs to be seen and monitored closely.

Yeah, we have a lot of entrepreneurs in the audience. Do you think a successful IPO like this, and we can debate the bankers' role etc. as you said, do you think it drives more entrepreneurs to go public in Israel or abroad?

Two things. One, going public is just a path. It's not the goal. It's another way to get more funding. It has pros and cons. You need to deliver quarterly reports. You need to underpromise and overdeliver over a certain period of time. There's a lot of cost that has to do with that. You need an IR team and stuff. It's like two to three million dollars extra cost a year. So you need to really weigh whether the company is in that kind of phase that you can actually say exactly what's going to be your revenue in the next quarters or next several quarters and deliver on that. So it's not the end goal. I think for a lot of companies and especially investors going public is one of, it's like the holy grail. If people can do it and it's a valid option, they would probably do it. I don't think that having a successful IPO is something that would weigh or change. I think companies need to check whether they think they can go public. I think this is a good signal that you can probably go public way earlier than what you thought for what was the benchmark that you set for yourself before. With Aal and Scott, you can probably ask them. I am 100% certain that by looking at these comparables both of them can be a really nicely sized public company now. So they should just check themselves whether the timing is off. I do think by the way that for a long time because of availability of capital which is still out there now some companies stayed private for too long. Airbnb should have been a public company two years ago. Uber should have gone public before. There's been a shift on who's capturing value whether the public investors or the private investors and stuff like that. It's very enticing to stay private as long as possible. You can do a lot more experiments. You don't need to deliver as much. It's a very interesting shift and I do think it raises a question on the right timing to go public.

Perfect. So ML is from SNC is running a poll. We can see what others are thinking. We have about five minutes left. Maybe I'll turn over to you, Aal, be happy to kind of quickly if you can opine on does it drive more entrepreneurs to go public, yes or no, kind of your viewpoint. But I think you know each one of you has built a unicorn or successful category leader. If you can talk a little bit about an advice you'd give entrepreneurs who aspire to build such category leaders, what to do, what not to do, what you have done, you would have done differently if you started over. Would appreciate your thoughts.

Yeah. So first I agree with everything that Assaf said. I mean Lemonade is a hot topic. So let's talk about them a little bit. Generally speaking, if you're close to what's happening now in the public market versus real economy, it's mind-blowing to me. It feels a little bit like, I don't know if you guys follow history, but what happened in Austria and Germany back in the 20s where you had this, for other reasons, like big money printing efforts to pay debts. It's a little bit different with the US and people in the real economy were in pretty bad shape but the public markets were breaking new prices every day. And what we see here is maybe, nobody knows what's going on, but you see an inflation in the public market prices versus the CPI indices. So everything that suggests a real growth and not just multiple growth, which is namely technologies, is starting to break records and there's so much demand whether it's from the Robinhood crowd or institutional money to put your money in something that can actually create returns that every new IPO, whether it's a no-brainer IPO or just an okay IPO, you see a lot of money pouring into that. So I actually got a lot of inbound from investors, hey maybe we should go public earlier. It's a unique time. If it stays until after the election, which is a big if, it makes a lot of sense. So it's becoming a topic for entrepreneurs for sure. I know that companies that probably not ready to go public are about to go public and it may work. I mean, it worked in 98 and 99. And there was a certain window of opportunity to get liquidity for the company, liquidity for employees and investors. I don't know if it's exactly the same thing because the real economy is not having a great time at least not yet. When it goes to founders that are starting a company that hopefully would be a category leader, I think nothing changed. You're building a good company, eventually it's going to, a little bit of luck, a lot of talent and mostly hard work. That's what you need in COVID days or non-COVID days. I wouldn't even think about IPO at this point. I agree with Assaf, like I keep preaching it internally, the IPO is not a goal by itself, but it is a goal to be a self-sustainable business. So you don't have this dependence in capital markets. And once you're a self-sustainable business, you can go public or not. It's up to you, but in a point of strength. And you want to build a company that can get to that point in scale obviously. I do think if you look at the best performing, let's call it, companies' exits, whether through IPO or M&A, those that were built in time of crisis, namely 2009, were actually a very good vintage of startups. So my gut would be that in the next 12 months starting a company, not for the sake of starting a company but starting a company whether it's fintech or something else, that would be a very good time. It does depend a little bit of how the world is going to shake up, like what do you want to focus on, what do you want to solve, but there's a whole new set of problems and solutions now culturally and technology speaking. If someone is debating, I wouldn't take the IPO as a reason to start a company or that always goes and come back. It's more about do you see a problem or opportunity now that is just too powerful for you to say no to and I think it's a good timing.

Yeah. And Scott over to you. I don't know if you want to talk about IPOs as well or maybe just talk about a little bit about the journey within Payoneer. How has that sort of shifted from when the company was founded to today? What's sort of the path ahead if you can sort of talk to entrepreneurs in the audience in terms of what has changed and what sort of is the new normal in these circumstances. So maybe you'd love your parting thoughts on that.

Yeah. All right. Maybe we'll take one last question from the audience. Maybe for you, Scott, can you talk about observations that you see US and China? How do you think that's going to impact e-commerce finance? It's a question that comes from the audience. Can you talk a little bit about this?

Yeah. All right. Time flies when we're having fun. Scott, Aal, and Assaf, thank you very much for both your time and your insights. And let me turn over to Mikal just to wrap us up. Thank you.

Well, thank you very much. Thank you to all our panelists for joining us today. It's been a pleasure hearing you and hearing a little bit about your experience. And once again, have a great day because you've just woken up. For those of you that want to hear more about our fintech report, we will share the link with you in our follow-up email. And also, if there's any companies out there, we do have a final day to apply to the Making Insurance Better challenge, which is the IDI startup challenge. So, here's the link as well. Both of Viola and Startup Nation Central together with Moneta as well, a mutual attempt to get more opportunities to you startups out there. So once again, thank you for joining us today in the Israeli fintech, an outstanding year with definitely challenges ahead as speakers just mentioned. Please make sure that you follow us and Viola on our social media channels to hear more about our events and anything else that is happening in the ecosystem. Once again, thank you for joining us and we wish you a very, very good morning or evening.