Michele Schueli, Founder of Armyn Capital, on Bringing Innovation to Traditional Finance, and the Future of Investments
Michele Schueli is a fintech expert and investor who strives to bridge the gap between the worlds of traditional and digital finance. He works with various investment managers and has a long history of successful investments in venture capital. In our interview he shares his expertise in promoting technological innovation in traditional finance and his views on the future of FinTech in global private investment markets.
You’ve been working at the intersection of technology and finance for a while already. When did you realize it was something that fascinated you?
Well I’m Swiss so they start teaching us private wealth management in preschool. Jokes aside, I became obsessed with computers as a kid and picked up my first programming language at age 12. After graduating from university, I began my career in traditional finance as a financial analyst.
In my first role I was involved in the setup of a new bank and an asset management company which allowed me to see how antiquated the systems were — some banking CRMs had not been changed since the 80s. I think the moment that inspired my current career happened when I was encouraged to automate my job. Something clicked in my head, and I could see a world of possibility.
There are more surprising facts in your biography — you speak 4 languages and lived in 10 countries. Could you share some observations from different parts of the global fintech world, particularly when it comes to innovation?
When I arrived in China in 2012, people in my native Switzerland were still heavily relying on cash. In China you’d be made fun of and quickly recognized as a ‘laowai’ (foreigner) for using cash. China was already a mobile-first country with payment services embedded in the super app WeChat. It took a few years to have a glimpse of something comparable in Europe.
I find that emerging economies are more likely to embrace various aspects of fintech. Their establishments are less rigid and are used to change. In countries such as the U.S., the currency and relevant regulatory bodies have been stable for so long that things like crypto initially were viewed as nothing more than the whims of the Wild West of the Internet.
In your work you do a lot to help traditional finance companies go digital, including innovation seminars for finance operators. How do you do that and what are some of the most common misconceptions about digital finance among traditional companies?
Innovation seminars are the first step in the process. At these seminars I demystify concepts that seem hard to understand when they are really not. Without the appropriate knowledge of how technologies work and why they are important it’s impossible to even begin to think about adopting them.
I like to start with innovation seminars because they help me to understand whether there is willingness to change on the client’s part. It’s also about levelling the playing field with the client by making sure everyone understands what we are doing and why.
A lot of the traditional operators have a sour taste from the dot-com bubble and think that new technologies are just hype that will come crashing down again. Most of the concerns revolve around the safety of deposits, best execution, and legality of business models. Some of these concerns are legitimate, and traditional operators are able to see through the flashy branding of certain tech companies. On the other hand, most traditional operators are not familiar with the Silicon Valley innovation model of ‘move fast and break things.’ They are used to a much slower type of business environment that does not nurture innovation, so it’s hard for them to understand and embrace it.
You founded Armyn Capital, an investment company leveraging and investing in fintech. Could you explain your investment strategy and why alternative financing and investment methods, especially digital ones, excite you?
We deploy a mix of direct and indirect investments, with investments in SPVs and secondaries being the two areas where we allocate most capital. We are very excited about digital investment platforms because we are leveraging them ourselves. We are quite active on Angellist and took part in various syndicates on the platform. It’s exciting because in addition to your regular direct deal flow you get access to deals regardless of where you are based and without having to travel and meet anyone. Deals with the same terms as tier 1 VCs land directly in your email inbox without requiring you to lead the round or invest millions of dollars.
Venture Capital has traditionally been a very exclusive and self-contained industry; while it dominated the market for financing innovation, not much innovation came from within, with most VCs structured as traditional GP-LP partnerships. The argument VCs often give is that investments in tech follow power laws and you need a lot of capital to be able to diversify and capture outliers; thus such investments should be reserved for professional investors who are able to do so.
However, thanks to recent innovations in regulation and products developed by companies such as Angellist, it is now possible to allocate capital to startups regardless of whether you are a retail or an accredited investor, a VC, or simply a curious investor. We are very enthusiastic about these kinds of developments and look forward to participating in the development of such innovative solutions.
What are the key promises of digital investments and digital fundraising?
The overarching promise is to democratize the private capital markets by making them accessible virtually to anyone from anywhere in the world. That goes not only for tech startups but also for infrastructure projects, traditional businesses, real estate or even venture capital funds.
Formerly it used to be very hard for a Singapore national to invest in a Miami condo and now it is a reality, thanks to investment platforms like Republic. A fintech startup in Latin America can now get funding from multiple U.S. investors in a syndicate led by an angel investor based in London. Digital fundraising can also be used to establish venture capital partnerships. For example, there is the Weekend Fund, a fund started by Product Hunt’s founder, that raised millions of dollars from 350+ LPs.
In general, I believe digital investments will enable new forms of capital and new asset classes which will positively affect both investors and entrepreneurs. A relatively new concept is fixed income-like products tied to recurring revenue streams, such as the ones issued by Platform Pipe and accessible by institutional investors.
How is it now possible for fundraising and investment rounds to be completely digital? What’s the advantage for companies of raising capital online?
The enabling pillars are innovative security regulations, and in most jurisdictions regulatory bodies have been making an effort to keep up with times. In the U.S. the JOBS act was a major catalyst, and the SEC has been very open to discussions in recent years. In certain cases, regulation mandates the use of platforms (i.e. crowdfunding), which contributes to making platforms like Republic so popular, while raises targeting accredited investors are generally conducted behind closed doors or through syndicates hosted on Angellist.
Such platforms are the enabling infrastructure of digital fundraising, acting as intermediaries between company or syndicate leads and investors looking for access. Innovative regulations, like the aforementioned recent amendment to the JOBS act, allow capital to be formed online in a simpler way.
We live in an ownership economy where people want to be a part of a company and contribute to its success. Doing an online raise — especially in the case of consumer companies in certain sectors — helps to form a community of fans who are invested in the company’s success. The equity is the ‘skin in the game’ that aligns interests and enables the creation of network effects, similar to that of viral campaigns.
Now let’s talk about the retail investment landscape in the U.S. in particular. How did the recent changes in regulations affect it and how will they continue to shape it?
The recent changes to the Exempt Offering Framework make it easier for retail investors to invest in private securities entirely online. The most notable change the SEC implemented was to up the maximum amount a given company can fundraise through regulation crowdfunding (CF) in a 12 month period from $1.07M to $5M. It also allows CF raises to operate through special purpose vehicles, grouping investors under one entity, creating a cleaner cap table.
This is pretty big news for companies as it reduces the cost and friction of conducting online offerings and makes it worthwhile from pre-seed all the way to Series A raises. It enables founders to create a community of fans early in the development of the company, while giving fans access to company equity, aligning everyone’s interests.
I think a lot more companies — especially consumer — will consider doing a raise completely online. A little over $200M was raised through Reg CF in 2020. I believe this figure will be more than doubled in 2021. Generally, I think more companies will consider offering equity directly to consumers as opposed to going through syndicates as part of a shift towards community-driven investing in the future.
I don’t believe digital investment rounds will replace VC funding in any way in the future, however it will give founders leverage to decide which financing option is best for them at any particular stage.
Fintech is also thriving in emerging markets. Could you share some insights, preferably from your experience, about those?
I can definitely draw from experience here because I spent a lot of time in emerging markets. Personally, I am very excited about fintech in emerging markets, particularly in Africa and Latin America.
While in more established markets this might not be possible, in emerging economies there are still opportunities to go ‘from 0 to 1’ by creating products catering to problems that are currently not addressed in any way, thereby impacting a vast number of people. Since users usually don’t have access to any type of financial services, it’s natural that once a product reaches market fit, companies scale to other verticals and cross-sell to its existing user base – thereby creating powerful network effects and economies of scale.
Penetration of traditional banking and insurance services is typically low for various reasons — mostly because of physical access and cost — while mobile adoption is rapidly increasing.
The lack of solutions coupled with ease of access to unserved customers, easily reached from mobile positively, affects CAC (cost of acquisition) and LTV (lifetime value), allowing companies to scale much faster than in established markets.
The quickest growth in a company I’ve ever seen was an African mobile wallet provider that allowed users to move money freely between peers across borders. Up until the emergence of the platform, Africa was the most expensive place in the world for remittances, and there was no solution for solving that problem.
We are stoked to have had the chance to invest in fintech leaders in Africa and South America and will continue to seek exposure to such markets.