Fintech investor Simon Wu discusses the rising reputation of the secondary exit technique, and staying disciplined amid the AI frenzy
Simon Wu is a Associate at Cathay Innovation, a ten-year-old enterprise offshoot of Paris-based Cathay Capital. With $2.5 billion in property below administration (AUM) throughout three funds, Cathay Innovation focuses on fintech, digital healthcare, client, and vertical SaaS. Wu was Cathay’s first San Francisco rent and has helped construct out the group’s US funding presence. Wu was the Collection B lead for manufacturers like Chime, Sidecar Well being, and Ghost.
Going through an uptick in private- and public-market fintech exercise—and with Chime ready within the IPO wings, Fintech Nexus hopped on a name with Wu to glean his perspective on market volatility and prospects, investor diligence, and capital’s coalescing round an AI-deterministic thesis.
The next has been edited for size and readability.
You’re three funds in. How a lot has your thesis modified over that point?
I believe the observe file and being a part of these class game-changing corporations early on clearly helps, not simply from a branding and advertising and marketing perspective but additionally as a lesson-share for our founders right this moment. We most not too long ago invested in Vary, which is an AI wealth tech firm, the following Constancy LPL. There have been many classes we have now from Chime, which have been: personal as a lot tech as you possibly can, construct an incredible model, distribute nicely–that playbook.
Then, are there corporations in our portfolio and Fund I probably disrupted by AI right this moment? And the way that will play out? I believe that these founders are tremendous resilient. I’d say the learnings from every geography are shared amongst one another.
To what extent are you taking a look at present market volatility as a variable that can have an effect on the timing and the outcomes of a few of these IPOs?
If we’re speaking about near-term particular IPOs,that’s one reply. There’s the Hey, how does that have an effect on my day after day job? query of, Ought to we be paying 100x for all these corporations? That’s one other reply. We aren’t development traders, however I believe for our founders who’re asking, Ought to we go increase the general public spherical? There’s additionally the power to boost these large rounds within the personal market; secondary markets present liquidity and have gone by many evolutions since we began.
The general public markets proper now are freaking down and freaking bearish, to say it frankly. After which the VC world has seen the craziest quantity of deployment within the final six months, proper? And that has continued into Q1; the tempo I’m at this quarter is even quicker. We’re costlier within the value we’re paying for every of the dangers we’re taking up. And there are simply extra founders going out proper now.
Lots of people sat on their funds, and so they realized, Shoot, I advised them a four-year funding interval. I sat by ‘21 and ‘22 … I gotta catch up and simply deploy, deploy, deploy. And so I’ve acquired to go increase my subsequent one as a result of that’s how our enterprise works. The opposite half is I believe the non-AI corporations proper now are getting near AI-like multiples due to the thrill and enthusiasm. So I believe you will notice numerous issues being introduced, however I wouldn’t be shocked if we had a lull as a result of the private and non-private [markets] should merge sooner or later.
So both President Trump goes to say, See, I did it once more, despite the fact that I precipitated the mess within the first place, or we’re going to go take a look at the personal markets like, Whoa, there’s no development investor within the subsequent markup, so shoot, what can we do? Proper again to 2021. It’s like we by no means realized something. This quarter, we’ve been very disciplined. I’d say we’re seeing the ridiculousness of it andwe advised our founders, It’s nice to be in an organization proper now, as a result of they’re all getting preempted like loopy, so we’ll all take the markups, however like, they perceive this music might finish once more, which is what we noticed two years in the past.
Secondaries are starting to dominate the exits for VCs. How would possibly this influence enterprise funding over time?
Secondaries are not a stopgap: They’re changing into a structural pillar of enterprise liquidity. We realized in 2021 that promoting right into a sizzling market requires each self-discipline and entry, and secondaries provide that chance. They’re set to play an more and more central function in how enterprise capital operates — reshaping how funds return capital, how startups handle their cap tables, and the way long-term worth is unlocked. However secondaries aren’t for everybody. In sectors like cybersecurity, the place exits are sometimes barbell between $200 million to $500 million or Wiz-like vary, the secondary market will be shallow until you’re holding a name-brand firm like SpaceX or Stripe that has numerous liquidity. Not each fund can take benefit, because it’s opportunity-dependent, however these that may, ought to.
Slightly than devoting your consideration to only what’s within the highlight, it sounds as if you’re nonetheless pursuing fairly a little bit of bread-and-butter investments like Vary. I’m questioning how a lot of your time you’re devoting to that extra tried-and-true path and whether or not you see the valuations there additionally staying comparatively extra disciplined.
Self-discipline is, I’d say, thrown out the window proper now. There’s no self-discipline, interval. I believe the argument for why there’s much less self-discipline on verticals is that horizontal could be very ephemeral now. There are such a lot of incremental use instances everybody can go after, and so the endurance is debatable. Persons are rationalizing verticals as a result of if it is extremely sticky, if an SMB chooses you in logistics, then you possibly can construct round that information and that workflow, such that now, in the event that they do select and at last purchase you… you’ve gotten caught onto a mousetrap. Subsequently I’m prepared to pay up now right this moment as a result of I consider that is the proper workforce to execute that. That’s the type of inside baseball logic of the way you stroll your self up for paying twice as a lot as you thought you’ll.
Tying issues again to fintech, we predict we’re an AI-native period in fintech, which implies that all the things is rethought by first rules. We’ve this new expertise now. How do you be sure to thought of it on day one? I take into consideration the bread-and-butter together with the hype, as a result of, in the end, you’re not saying I want a net-new use case; it’s solely a labor downside that we’re fixing or the demand downside we’re fixing. And so vertical SaaS assembly fintech plus AI is best now due to rebundling, and so you possibly can really get extra LTV. Stablecoins can even turn into rails now as a result of there’s extra consolation in it; what cool apps are you able to construct on high with AI now that you may type of do all that? That’s the higher-level theme, if you’ll, after which we are able to work our manner right down to level options flowing into it.
How a lot have you ever seen this kind of speculation really pan out already?
I believe there are chips being positioned. If you consider the variety of stablecoin corporations, and even search the time period proper now for the reason that Bridge acquisition, for instance, it’s been by the roof. Do we’d like seven Smart rivals or Western Union rivals, choosing totally different corridors, identical to they did in 2016? No, however we’ll see what this time brings out.
There are a bunch of vertical SaaS corporations proper now which have a voice agent on high that may reply a e-book name or possibly do a transaction for you, issues like that. So do you exchange the front-office receptionist of your favourite med spa or your favourite development, GC, or issues like that, up for debate, proper? However I believe there’s cash being put in there with everybody hoping that’s the case. There are going to be numerous rounds being introduced later this yr. You possibly can hear some skepticism in my voice whether or not you possibly can actually get there, however a minimum of the image has been painted.