Fintech Through an Investment Lens with Devon Kirk of Portage

From a tech perspective, solving a big enough problem for banks and insurers is crucial. In this episode of PayPod, host Jacob Hollabaugh sits down with Devon Kirk of Portage to discuss how they back founders who have a strong understanding of scaling and change. Portage is a global investment platform focused on fintech and financial services. Watch this episode for a fun and interesting dive into this latest development in payments and fintech. 

Payments & Fintech Insights In This Episode

Today’s Guest

Devon Kirk : Portage

Portage is a global investment platform focused on fintech and financial services. Their team partners with ambitious companies across all stages, providing flexible capital and deliver a global network of investors, commercial partners, advisors and value creation experts. With deep industry knowledge and entrepreneurial experience, Portage is committed to supporting the leaders who are reshaping financial services.

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About PayPod

PayPod is the leading voice in the payments and fintech industry, covering payments, risk management and new technology. Host Jacob Hollabaugh interviews leaders who are shaping the payments and fintech world, as they discuss the latest developments in the payments and fintech industry.

Episode Transcript

Jacob: Welcome to PayPod, the Payments Industry podcast. Each week we’ll bring you in depth conversations with leaders who are shaping the payments and fintech world from payment processing to risk management and from new technology to entirely new payment types. If you want to know what’s happening in the world of fintech and payments, you’re in the right place. Hello, everyone. Welcome to PayPod. I’m your host, Jacob Hollabaugh. And today on the show, we’re looking, as always, at the fintech landscape. But today we’ll be doing so through the lens of an investor hoping to get some clarity around what kinds of companies, what kinds of leaders, what kinds of ideas are worth investing in today’s fintech world? We’ve got an exceptionally qualified guest joining us to tackle some of those questions. As I am joined by Devon Kirk, partner and co-head of Portage Capital Solutions, the investment firm committed to supporting the leaders who are reshaping financial services. Devon, welcome to the show. Thank you so much for being here.

Devon: Thanks for having me. Jacob.

Jacob: Pleasure is all mine. Before we get into some of those big questions and topics I’ve outlined and that I’m really excited to ask you about, let’s all learn a bit about you in Portage itself. So if you can give us kind of the lay of the land, who is Portage Capital Solutions? Can you give me just kind of overview of who you are, what you do, who you work with?

Devon: Sure it sounds great. So Portage is a global investment platform focused on fintech and financial services. That’s all we do every day. And we invest from seed stage to mature businesses across our various strategies, always as a minority partner to management teams. And we really look to leverage sector expertise, resources network to be differentiated partners with the teams that we invest alongside. So one example is we have a fantastic track record of initiating new commercial relationships for our portfolio companies. It’s something we really pride ourselves in.

Jacob: Wonderful. And you mentioned the size there is there, So it sounds like you’re looking for pretty much anyone, or is there a kind of certain stage of business that you’re most keen to work with or most able to help?

Devon: Yeah. So Portage as a whole will go seed stage to mature for my strategy. In particular Portage Capital solutions. We’re focused on later stage opportunities that really for us means companies that have a proven product market fit. Typically that means about $20 million of revenue, strong unit economics and a clear path to profitability in the next two years if they’re not there already. We typically write checks in the 40 to $150 Million plus range. So reasonably sizable companies.

Jacob: Yeah. And what is it kind of about that point of entry that makes it your target? Is it just having had enough of a track record, you can feel really comfortable in the path they’re going on and they just simply need that last bit of funding to get there? Or what is it about that kind of target that makes it your target?

Devon: Yeah, I mean, we’ve got a fantastic venture strategy. We love that part of the market. But we do see a really interesting opportunity for later stage businesses as well. And particularly right now where there’s a real supply demand imbalance of capital in that part of the market. We think there’s a lot of fantastic companies in the sector that are looking for capital expertise, partners to help them get to that next level. And maybe our thinking about an IPO, but it’s gotten pushed out by a little bit relative to what they might have thought a few years ago, given what the markets look like over the last year. So we love partnering with companies that, as you say, have real traction, but also real opportunities still in front of them.

Jacob: Yeah, it makes perfect sense. What are then some of the key characteristics when you’re looking at these companies, either in the founders, possibly maybe the company itself, the product, what are kind of the key things stand out that you’re looking for to make you feel confident in the probably of success?

Devon: When we think about the leaders we want to back for this later stage strategy. I think one of the key characteristics is really having a strong understanding of both what needs to be preserved as the company scales and what’s going to need to change to really help the company get to the next level. I think founders that have that awareness and are open to getting the help they need when they need it is a really important success. Driver In terms of the companies, we really believe that having very satisfied customers and defensible differentiation are really important at this stage. You are at a point in your maturity where you should have figured out how to really delight your customers, and that’s going to be critical for your escape velocity going forward and then having that real difference in the market that is sustainable, not just timing advantage, but something that will allow you to kind of stay ahead over the longer term.

Jacob: Yeah. And you use the term that I have not heard before but loved the moment you said it, of defensible differentiation. And that term really struck me as an interesting way to look at that. You do want to be different, have something that you’re doing different, but the idea of it being defensible, it’s not just to be different, but there’s actually a reason behind it. So if I can kind of join that in with the kind of favorite question I have to ask investors like yourself, a background on what you mean exactly by that term, but it might go hand in hand with this question. I, in speaking to some other investors on this podcast, have come to place different fintechs in one of three groups as far as the type of business or the type of product or service where there’s your disruptors that are completely and utterly changing what is being done in the industry. There’s kind of gap fillers, as I call them, that are there’s one little thing missing. We’re just going to fill that. And there’s Bridge Builders, which is the third group that I like to think of. There’s these people over here and there’s the thing they need exists. They just aren’t they’re not connected. And we’re going to connect those two. So when thinking about like the types of companies or the types of services you’re looking to back, are you specific to maybe one of those types of groups and I’m guessing maybe not the disruptor 100% based on your use of the defensible differentiation?

Devon: It’s interesting. I haven’t thought about it in those buckets. We’re mostly focused on moneymakers as our as our category bucket.

Jacob: To be in.

Devon: Yeah, but I would definitely say we do look for disruptors. Disruptors look different at the growth stage than they do at the seed stage. But there’s certainly lots of growth stage businesses, especially in FinTech, that are looking to be disruptive or are doing radical innovation, and we think those businesses are exciting. I definitely think those bridge building models are also really exciting. We see some ways it can be de-risked when you’ve seen a model work well in another context and the technology proven out in another context. And there can still be a very large upside by applying it to a different customer base or or vertical. So I think those businesses are also really attractive gap fillers. I can see some businesses like the work. You just have to figure out whether there’s enough of a pie there to really create a scaled high profit business over time. Another way of thinking about it is, is the problem that you’re trying to solve big enough, particularly when you’re selling to banks and insurance companies that have notoriously long sales cycles and a lot of competing priorities. From a tech perspective, I think that making sure that the problem that you’re solving is important enough for you to overcome that is critical.

Jacob: Yeah, makes perfect sense. Let’s use a recent example to kind of highlight some of everything we’ve been talking about here. You had some exciting news recently when you contributed 40 million to the company P97 in an equity finance deal. Can you tell me a bit about what P97 does so we know who we’re talking about here and then what specifically you saw maybe in their product or their team that made you move forward with that recent investment?

Devon: Yeah, for sure. I mean, we think vertical payments is a really interesting part of the market right now. And P97 plays in that theme, let’s call it, and stood out within it really because of the incredible value it provides to its customers. What the business does is it has very unique technology that enables customers of gas stations and EV charging stations and other similar business models to pay through the company’s app or through in-vehicle assistants like Siri or Alexa, for example. So if you’ve ever gone to a gas station worried about identity theft, when you swipe your card in the in the in order to dispense the gas, it’s an incredible feature and convenience for consumers, but it’s also very strategic for the businesses using this technology because it drives engagement, it drives loyalty and upsell through those apps. And P97 had a really dominant market position in North America, and we had conviction. Speaking of bridge builders, we had conviction that this technology was relevant internationally, that we could help them really expand their customer base globally and also some really interesting opportunities from a product roadmap standpoint. As you think about loyalty and the future of loyalty more holistically.

Jacob: Yeah. And I want to that’s one of the to kind of follow ups I want to have on that is they do play very heavily in the loyalty space a bit and loyalty programs and just kind of how loyalty and points and everything else has been a pretty reoccurring topic on this very payments focused podcast in the past. And we’ve had a couple specific guests recently leading loyalty based companies and startups. Do you have any thoughts just in general, whether it’s related to P97, what they’re doing or not, just overall thoughts on the loyalty space and how merchants and consumers can continue to be more and more connected?

Devon: I think it’s an interesting opportunity set for I certainly in terms of how you get closer to your customer or drive more tailored experiences for customers. I think as everyone focuses on loyalty, customers can have a little bit of loyalty on me around some of these different programs. And so really figuring out what’s valuable to customers and I think P97 is a great example of that of you’re probably not going to download a Chevron app unless there’s a really good reason to. And if it allows you to save money every time you go to the pump and not have to go outside when it’s cold, then that might be a difference maker.

Jacob: Yeah, certainly the other part of what they do that I thought very interesting and makes sense and again kind of gets to one of the trends. A lot of the guests we’ve had recently are talking to is just kind of the mobility to meet the customer where they want to make a payment or where they feel the best. And as you said there, technology takes the ability to like you’re traditionally used to doing it here in this one way when you go to this place. But now we’re offering you these other avenues and being mobile and willing to move where you want to make the payment. Do you see that kind of mobility of payment solution, that meeting the customer where they want to make the payment as kind of a key trend to be getting ahead of?

Devon: Yeah, I think mobility generally and convenience are going to be important differentiators. I also think relevance. So it’s one of the advantages P97 has is it can, you know, through those apps you can provide targeting, marketing and couponing around events. So if you know that somebody is going to get gas right now and it’s 10:00 in the morning and that convenience store right beside them is offering breakfast sandwiches, you can do something very targeted there in a way that a lot of those loyalty programs are much more generic, certainly.

Jacob: Let’s turn to some other kind of news and trends of the year so far, really in the industry. And I’ve got a few things I’d love to get your opinion on, starting first with probably still at this point, the biggest news event we’ve had this year in the financial sector, which was the crash at Silicon Valley Bank earlier this year. Did what happened there have any impact on your firm at all or how you viewed the financial market in general or just kind of did it end up reaffirming things you already knew?

Devon: We definitely saw that in the wake of SVB. A lot of fun. Step back from the market. We saw that as well last year around that it did create a bit of a freeze in the market and obviously other market dynamics over the last year have also contributed to that. I think particularly we saw a lot of generalist funds stepping back from fintech, and I think that’s perhaps partly because of challenges within their existing fintech portfolio, but also just a perception of risk When you have large events like like SVB happening. I think the dynamic of those investors stepping back definitely caused companies to put capital raising plans on hold for a while. But we’re really seeing that changing over the last few months and we expect that to just accelerate over the back half of the year with more and more companies coming to market. I think on the Portage side, we remain incredibly excited about the secular opportunity in fintech and are very much looking to deploy capital in the sector. So it’s great to see that velocity kind of coming back into the market.

Jacob: Post SVB Have you seen the velocity also of the kind of the generalist firms getting back into the space too? Or is it there’s more companies looking for funding again, but it’s more just the specialists like yourself that are still the ones giving most of that funding.

Devon: I think there’s generalist funds supporting existing portfolio companies from time to time where it’s needed, where they’re high quality companies within their portfolio. But I think the appetite of generalist funds for fintech is definitely diminished relative to where it was a few years ago.

Jacob: Yeah, makes sense. Well, I would guess though, in a in a way that maybe is a bit of an advantage for you and I’m didn’t ask this at the start, but I’ll go ahead and do it now. Was there a reason when I don’t know how long the company and the firm’s been around, but a reason why you are specialized in? We invest in fintech very specifically beyond some of the obvious benefits of, you know, you end up knowing the industry incredibly well versus having to have teams of people on each different one. But is there a reason behind why that’s the industry you want to be specialized in? And am I right in saying as much as times might be a little tougher right now, having some of those generalist out of the picture only increases the opportunity for you?

Devon: I think that’s certainly right in terms of the opportunity set for folks who can bring that expertise and commitment to the sector and who have ability to help companies navigate some of the risks effectively. I think in terms of what gets us excited about fintech and financials, our leadership team all has significant experience across the ecosystem. So we have spent enough time in more traditional financial services businesses to really have conviction on the opportunity to drive improvements through the use of technology and also spend enough time with technology companies to have conviction in their ability to deliver on that opportunity. So I think that’s really what excites us, delivering better experiences for consumers and businesses. Financials are such an important part of the economy and helping those companies operate in a more 21st century way is something we’re all really excited about.

Jacob: Yeah, certainly. And we make the joke fairly often on this podcast that there’s no better industry to be in than the financial one because it’s the only one that you can guarantee is never going anywhere because we’re always going to need everything else is going to require this one to operate. So it’s a good one to be in and it’s well, specialized in fintech. Fintech is very broad. It’s a huge category. There’s lots of sub industries. There’s lots of different things going on within it. Are there any specific areas of this world that stick out as kind of the most ripe to you for change or improvement right now? Or maybe viewed a different way, an area where you’re being pitched by the most new companies coming in and saying it’s this type of payments, it’s this type of that one specific thing that you’re hearing most common right now.

Devon: I’d say there’s definitely a lot of businesses coming across the throttle these days. There’s a lot of consumer finance businesses that are trying to pivot to B2B models, and there’s way too many KYC businesses. You see.

Jacob: I won’t respond to that because we have a lot of lovely guests. But you’re not wrong. There’s a lot of them, that is for certain.

Devon: But, you know, as we think about where we’re excited right now, as I mentioned, we’re spending a lot of time in the payments ecosystem. I think there’s some really interesting theses there with huge profit pools, lots of room for disruption. We’re also seeing some very differentiated business models and insurer tech and bank tech. Sure. Tech, I would say, has lagged broader fintech partly because of sales cycles I was talking about. It’s taken more time for those companies to kind of get to scale and figure out what their path to profitability is going to be, but a huge opportunity set there. And I think we’re starting to see some of the winners there are going to be wonderful.

Jacob: Well, final topic and question then for you. And I feel good because you’ve already mentioned it a couple of times, so I don’t feel as bad as I sometimes do. But it is 2023 means we’re obligated to talk about AI and you’ve referenced it a couple times. It’s just the topic du jour of the year. And when looking at AI machine learning, other evolving technologies, lots of them are impacting the financial world as well as the entire world and all the industries. Are there any specific things you’re looking at, specific point or two where you see that impact being felt the most within the financial services landscape? And where would you kind of say we’re at in the adoption curve as well as the kind of quote like learning how to use this stuff advantageously curve, if you will, of these new technologies?

Devon: Yeah, I think it’s still very early innings. We’ve seen a lot around kind of natural language processing models which have been around for a while, but the adoption has clearly accelerated this year and I think that is a relatively easy way for companies to sort of incorporate AI technology into their businesses. And we see it a lot in more customer facing. Tools starting to see more and internal applications and the focus there is really around driving down costs generally. Some of the bigger opportunities for financial services businesses are more around how you use AI to grow revenue or manage risks or do both. And if you think about the amount of money that we spend on compliance and risk management and how inefficient and ineffective it is, in many cases, I see lots of opportunities there. And also if you think about the amount of information that FIS have on their customers and the potential sort of revenue opportunities from offering, again, more timely, tailored products like we were talking about before with P97 that relevance, I think there’s a lot further to go in terms of the impact of AI on competitive positioning and profitability for financials. I think one of the challenges with some of those use cases is that it does require data to be in a digestible form and that’s something I struggle with. But I think there are a lot of commonalities across banks and folks are starting to figure out use cases where you can get great insights with sort of relatively discrete data sets. And I think we’ll see more of that in the relatively near term.

Jacob: Yeah. And that leads me I know I said final topic or question, but I do have one more then because we kind of referenced there some doing internal work, others new companies coming up and especially the bigger institutions that maybe would have a harder time either giving up some of the data or having the data and the infrastructure to use some of these new tools. It’s definitely been a trend, I would say, the last half decade especially. But even going back further, that the kind of as a service model has been really in vogue specialization and then integrate into the other thing that’s kind of been the name of the game for a few years going back, do you see, especially with some of these new technologies that shift of like the as a service model specializing and integrating into the bigger services, the bigger companies as a shift that’s kind of here to stay? Or do you think we may be headed for a period of more consolidation acquisition or even just internal building with all of these new types of tools?

Devon: I think both are true. As companies put increased focus on profitability, they’re going to be looking for go to market strategies that are efficient and that often will involve innovative ways of partnering with other companies. I don’t think that’s going to go away. At the same time, I do think that we’re going to see more tuck in M&A and aqua hires over the next. But all independently and stronger companies are to look to enhance their positioning opportunistically and find complementary products or tech. So I think we’ll see that more, Let’s call it consolidation of peers inevitably will happen, but I see that as a little further down the road.

Jacob: Yeah, eventually there are going to have to be some quote unquote winners in all these little smaller sub industries and spaces that have popped up that one of them is going to rise to the top as the dominant player as we’ve seen, just be the natural cycle of things in the digital age. So awesome. Well, Devon, this has been a real pleasure. For those listening who may want to follow you, learn more about Portage, keep up with all you the firm have going on. Where would be the best place for them to go to do so?

Devon: I’m on LinkedIn, so I look forward to connecting.

Jacob: Wonderful. We will link to that and more in the show notes below. Thank you so much for your time and knowledge today. I’ve greatly enjoyed the conversation and hope to speak to you again sometime soon.

Devon: Thanks so much, Jacob.

Jacob: If you enjoyed this episode and want to hear more, head on over to SoarPay.com/podcast to subscribe on your podcast listening platform of choice. That’s s o a r p a y.com/podcast.