Author: Hannah Tolan, BRV Fund Manager
Hannah: Hi Max! Thank you so much for taking the time to connect with me about your journey to VC. I can’t wait to here about your experience and hear about your perspective generally.
Max: Yes, looking forward to connecting!
Hannah: Could you share a bit about your career journey to becoming a principal at Nyca partners and working in the venture capital space? What led you to VC?
Max: I started my career doing a Fulbright fellowship in Mexico. The particular Fulbright that I was doing (called the “Binational Business program”) sends Americans to work at businesses in Mexico, and I ended up working at a LatAm-focused VC firm in Mexico City called Angel Ventures. During my year working there, I learned the ropes of VC—what diligence looks like, how to interact with founders, the components of an investment memo, and so forth. It turns out that the fundamentals are not very different in Latin America versus the US. I subsequently returned home to New York and spent a few years doing economics research at JPMorgan, mostly focused on Consumer Finance research. When I moved to San Francisco in 2021 and wanted to get into a more business facing job again, returning to VC with a focus on fintech made a lot of sense.
Hannah: Did you always know you wanted to work in the venture capital industry? What drew you to the industry?
Max: Not at all. I have thought for a long time that journalism is one of the coolest jobs in the world, and VC seemed quite similar to journalism when I was contemplating my next career move in 2021. As a journalist, your job is basically to go out into the world, learn about interesting things, and develop a deep enough understanding of those things (from talking to experts, reading reports, etc.) so that you can ultimately write stories explaining important events and trends to the public. VC seemed pretty similar: in VC, you need to have a nose for interesting technology trends, talk to experts and founders to learn about those trends, and then you ultimately write about what you’ve learned in memos (and perhaps also blog posts). VC, of course, has one additional step that is not a part of journalism: you have to make an investment at the end of the process. (I should say, by the way, that when I first came up with this journalism-VC analogy in my mind, I had never heard of Michael Moritz; but it is no surprise that one of the greatest VCs of all time initially had a very successful career in journalism.)
Hannah: Are there any trends or ideas you’re excited about in the fintech space?
Max: The entire team at Nyca is excited about a whole suite of opportunities in Fintech. A few that I would highlight: (1) we are excited about the continued modernization of financial advice, which requires both better consumer-facing technology as well as better back-end tech tools (e.g., consistent data on alternative assets, automating complex tax accounting). At Nyca we call this “the efficient frontier of humans & machines in Wealth Management,” recognizing that human advice is not going away anytime soon, but technology will make human advice more effective. (2) The transition of assets from banks to non-banks is a major trend in the capital markets, probably most visible through the growth of private credit. This requires more standardized data and analytics around private assets (especially private credit). (3) Combatting fraud is a perennial issue that is only growing. Fraudsters and other bad actors are getting more sophisticated, and tools that detect fraud and money laundering, can effectively perform KYC checks when a customer onboards, and that can identify activity across both fiat and crypto rails (fraudsters operate on both) are essential. Some of our portfolio companies like SentiLink and Sardine, as well as Alterya (which was just acquired Chainalysis) have gotten a lot of attention because they address these fraud and risk challenges in really novel ways. As for AI, my feeling is that AI will permeate through everything, so it is more of an enabler than a stand-alone theme in most of Fintech.
Hannah: How do you determine if a startup idea is worth pursuing due diligence if you believe a corporation has the capability, budget, and ability to make the product or service faster and better?
Max: I’m not sure there is any one answer to this, but I would say that the startups I tend to get excited by usually start off solving a fairly narrow problem for a specific set of customers. The problem space might be too small to warrant attention from big established companies; but if you believe that the problem will be growing (ie, there are secular tailwinds), or that the product can easily expand to other sets of customers beyond the ICP, then you can convince yourself that the opportunity is big enough to warrant an investment. At this point, there is a long enough history of startups driving major innovations that I’m not overly concerned with big corporates simply eating startups’ lunch across the board.
Hannah: Could you opine on the slowdown of venture capital deployment in fintech companies after 2022? Are there conditions in 2025 that may help promote greater venture capital deployment within fintech?
Max: VC has always been an extremely cyclical industry. This is true if you look at dollars invested per year, and also if you look at the public benchmarks for returns data by vintage; the cyclicality is really remarkable. We certainly saw a slowdown in 2022, and to some extent 2023, but from what I see, things seem to be coming back. I do think that more optimism about exits in 2025—see the recent reports about potential IPOs on the horizon, like Klarna and Chime—will make investors feel more comfortable deploying capital.
Hannah: According to Lloyd’s Banking Group, the fintech landscape is set for significant transformation in 2025 driven by advancements in digital identity, artificial intelligence, cybersecurity, embedded finance, tokenization and payment innovations. Do you agree or think there are other drivers of the fintech landscape that may drive VC activity in the industry?
Max: I agree with this general outlook. Another area that I remain excited about is insurtech. Insurance is a huge industry, and has probably the least modern tech of any area of financial services. I think there are interesting opportunities for AI to improve underwriting, to modernize insurance payments (something like half of claims are still paid via paper check!), to further automate claims management, and so forth. Even if “tech-enabled insurance carriers” (or MGAs, which are often how tech-enabled insurance carriers start) have not proven to be the best businesses in the public markets, I am still excited about software for insurance companies.
Hannah: Could you provide your perspective on the role of security in fintech and how that may shape how VC’s might want to invest in the space?
Max: We invest in a lot of enterprise-facing businesses at Nyca, and they usually need to meet various security standards—whether it is SOC II compliance, or PCI DSS standards in the case of credit card payments, or complying with data privacy rules like GDPR and CCPA—as a prerequisite for signing customer contracts. We spend a lot of time coaching our founders on the enterprise sales process, and this is a big part of it. In fact, one of our portfolio companies, Thoropass, provides a platform for companies to certify their compliance with these sorts of frameworks and do audits. So security is a key topic for us, both in diligence and as an investment theme.
Hannah: What might you look for in a target company when it’s pre-revenue?
Max: What is the founder’s track record? If they are a second-time founder, trying to understand the full story of their first company is key; if they are a first time founder, hopefully there is some evidence of entrepreneurial side-projects or experience really influencing the trajectory of another startup where the founder previously worked. Does the founder have deep understanding of the market they are building in? Even if there is no revenue, are there design partners? Can you tell a story where the product’s unit economics are attractive? These are some of the questions that I ask.
Hannah: How do you mitigate risk and take into consideration risk when it comes to potential investments?
Max: There is no way to get rid of the risk in VC; in fact, one thing I’ve had to work on as a somewhat risk-averse person is accepting that there is risk in every investment. Ideally you can identify what the risks are and do your best to manage them. For example, if there is risk of a new product outright not working, you need to pilot it with just one or two customers to start, and hopefully have human intervention on-hand that can deal with any breakdown of the product in real-time. In other cases, such as when we invest in companies that lend money or process payments, risk is an inherent part of the business itself, and so the company has a risk function—and this is something we would investigate in diligence.
Hannah: When looking at target companies to invest in what key things do you look for in regards to burn rate and runway?
Max: We like to see that a company has a path to cashflow breakeven, ideally with the funds from the round that we are investing in, or perhaps with one more fundraise round. Even if the company chooses to prioritize growth—in which case it might continue to burn cash for far longer than just one more round of fundraising—we like to invest in companies that would be able to start cash flowing if they hit some reasonable amount of additional growth beyond the point where we invest.
Hannah: Thank you so much for taking the time to connect, Max! Hearing about your journey and getting your perspective has been great!