We’re fintech investors, but here’s why we’ll never be based in Silicon Valley
In 1934, Willie Sutton was asked by FBI agents “why do you rob banks, Willie?”. Sutton replied dryly, “because that's where the money is”.
We create rather than rob banks, so why did we set up outside of Silicon Valley, where the tech money is? Because that’s where the banks are.
Anthemis is in London, New York and Geneva, three hubs in the financial services ecosystem, which is distributed and global. This mirrors the fundamental premise of the way Anthemis is structured and operates. We are built for an era where the network you are part of is more important than the things under local control.
Read more: The four things which could tip the scales in favour of fintech over banks
Our network connections to Silicon Valley are strong, in fact many of our investments and relationships are on the West Coast. But we aren’t based there for three reasons:
1. Wishful thinking unicorn hunters
Silicon Valley is dominated by the equivalent of the major Hollywood studios in its heyday – the tier one VCs and platform companies.
Just as in Hollywood’s heyday, where every barman was an aspiring actor, so today, the Bay Area is filled with wishful thinking, unicorn hunters. But the ecosystem is mature and successful investment is dominated by a handful of the most prominent VCs and a small number of investments in stars. The opposite of this small network of insiders with a very wide remit is a thematic focus and global network. This is the Anthemis approach and we believe is the biggest untapped opportunity.
2. The network effect
Silicon Valley is Becoming a Network. Its ecosystem will eventually become geographically distributed, much like Hollywood has become today.
Today, Hollywood is a network, a distributed ecosystem, where actors live in New York and films are made in London and Vancouver. The same is happening in technology. Silicon Valley won’t cease to be the world’s most important technology center – of course not, but some of the biggest opportunities will be elsewhere.
3. Lack of rules
Financial services is a highly regulated industry that has a very small footprint on the West Coast of the US.
A regulated industry is dangerous to tackle head on with the hubris that says rules don’t matter. If regulatory arbitrage has been the model that has propelled Uber and Airbnb, it stops at healthcare and it stops at banking.
Just as the Apple Watch steered clear of health monitoring – possibly the one use case that defined it as a viable new form factor – the same might apply to lending. An Apple of banking might have financial services DNA at its core.
But…
Ah, but you say, there’s Paypal. Paypal is bigger than Barclays, bigger than Credit Suisse, and twice the size of RBS, which was briefly the world’s biggest bank less than a decade ago. And Paypal is a Silicon Valley company.
But Paypal was the beginning rather than the endgame for fintech, or its co-founder Max Levchin wouldn’t be doing a fintech startup today. The scale of today’s fintech opportunity is bigger than Paypal, and therefore bigger than some of the world’s biggest banks.
What positions entrepreneurs and investors for the Apple-scale opportunity isn’t a street address: it’s the right network and intimate understanding of how financial services works.