Tech Buzzwords Don’t Cut It as Skeptical Investors Assess Payment Startups

Moderating a panel of three investment executives who put money into startup payments firms and other financial-technology companies, Frank Young, senior vice president of innovation at merchant processor Global Payments Inc., noticed well into the Strategic Leadership Forum session Thursday that no one had mentioned artificial intelligence, machine learning, the Internet of Things, or the blockchain.

Young asked them why, which triggered a round of comments about how these oft-used words, some would say buzzwords, currently don’t mean much to many investors. But they added that today’s skepticism doesn’t mean the new technologies don’t hold promise.

For Matt Harris, managing director at Bain Capital Ventures in New York City, some entrepreneurs develop solutions before any problems their technology supposedly could solve are identified.

“‘I got myself a blockchain, what problem can I solve?’” Harris quipped at the forum in Dana Point, Calif., that was sponsored by the Electronic Transactions Association. “I think that’s just a terrible way to build a company.”

To attract investors, new technology should be aimed squarely at clearly defined problems, according to Harris. “Who has real pain, how do we quantify that pain?” Only after that’s done should companies start choosing “what is the most appropriate solution to solve that problem,” he said.

Dan Rosen, general partner at San Francisco-based Commerce Ventures, added that some new technology is just “waiting for people to show up” and use it. One he cited is the blockchain, an electronic ledger for tracking transactions administered on a decentralized basis. Variants on the blockchain are offered by countless tech startups, but Rosen isn’t yet convinced of their value.

“I’m still trying to figure out how we can justify investing in this,” he said. “A wholesale migration to a new platform just because it’s cool just seems silly, so we’re kind of waiting for some of the greenfield use cases to take hold and reach scale.”

Schwark Satyavolu, a former Mastercard Inc. executive who is general partner at  Menlo Park, Calif.-based Trinity Ventures, said “fundamental things are made possible by things like blockchain, but it’s so early in its lifecycle that most of the stuff that we’re looking at right now is mostly hype and very little substance.”

On a related note, Satyavolu said initial coin offerings, a form of crowdfunding used by tech startups as an alternative to conventional venture finance, currently are a “craze” that are “almost doing the same thing for the blockchain that I think the dot-com bubble did for the Internet back in the mid-‘90s.” At the time, many companies built on then-new Internet technology attracted huge investment capital and saw their stocks zoom upward, but collapsed when the bubble burst in 2001.

Yet Satyavolu added that the blockchain technology may just need time to mature. “I do expect over the next 10 years that we’ll see interesting things come out of that platform,” he said.

The other investors also indicated that the new payments technologies that generate so much talk today some day could have clear business cases. But Harris also said it could take as long as 10 years.