E256: What Fintech Will Look Like in 5 Years - Steve McLaughlin (FT Partners)

Welcome back to the podcast. Great to be back, David.
Good to see you down in Miami recently as well. So, for those that don't know, tell me about the FT Partners' origin story.

I was at Goldman Sachs for a bunch of years. I was in their FIG group from 95 to 02.
That was sort of the whole dot-com run-up, run down.

In 02, I had moved out to San Francisco with Goldman, was doing very well there. And I was spending 100% of my time on FinTech, but FinTech was dead.
The world was dead.

The world was melting down from the dot-com, 9-11, the war. You know, so it was, you know, it was not a great time to be at a place like Colman Sex.
They weren't paying very well.

And they don't, you know, to, you know, do so when the market's down, which they, which they shouldn't.

So I left, started FT Partners, and the theory was that a bunch of my clients would follow me to FT Partners. And it turns out they didn't.

You know, I had to sort of start from scratch.

You know, because when you're working out of your apartment with no money, no brand, and, you know, no employees, it's, it's not easy. So, but the origin story, that's part of the origin story.

It's like I had to kind of build it up from scratch and hire people from day one with my own money. Didn't have any partners, didn't have any,

you know, capital coming in, no debt, nothing.

So really just bootstrapped it from day one and literally worked out of my apartment in San Francisco for a year before we got our first, you know, couple deals.

I was 32 when I incorporated the business. Actually, incorporated it on companycorporation.com for $99, bought a used laptop and got $10 business cards at Kinko's back in the day.

So it was pretty humble beginning. And what scale are you guys at today? We are coming up on probably 250 people.
We're San Francisco, New York, London.

I happen to be sitting in Miami, but the firm's really global at the moment. We've got clients on pretty much every major continent.

We just did a deal in Japan not long ago, did a deal in Australia. We got a lot of big deals going on, Latam, and just, you know, flying all over the world constantly.

I'm preparing for my interview with Bill Ackman, and I've been studying his investment in Valion and how it basically torpedoed him. And I just keep on seeing this over and over.

These great business leaders go through these difficult times. And I'm starting to wonder, is that actually the source of their power? Look, I started it during the dot-com bust.

So I know what it's like to be in a bad economy. And we did really well at that time.
We actually did really well during the global financial crisis as well.

So, you know, we're seeing Bear Stern blow up over here, Merrill Lynch blow up over there.

Lehman get destroyed over there. And we're just like working 100 hours a week on 20 deals.

You know, FinTech wasn't booming, but we were small and super busy. We all, the whole industry had a pretty big bull run from call it, I don't know, 2012 to 2021, early 22.

And then,

you know, the market really took a turn, particularly in FinTech. I think FinTech was probably the hardest hit sector.
There was a lot of negativity around FinTech.

People had overpaid for a lot of assets. And I think people thought, well, because everything had been invented, it could have been invented.
And, you know, it is what it is.

And there was the the hype kind of went away a little bit and shifted over to you know AI and crypto and crypto really is fintech.

I think I said to my team 20 different times during the last three years prior to things bouncing back really hard in 25, what we do as a firm, fintech, investment banking, high-end, elite, deep client service, you know, that's never, ever, ever going out of style.

So even during those three years, we made money, you know, kept the team together.

And, you know, I think we're seeing today, like, there was massive layoffs across the street in 22, 23, 24, and losses. All the big boutiques were losing money.

And, you know, we kept all our people, our key people. And the big banks are now super strapped for resources.
One of my clients has a motto, never die.

And it's not really my motto, but I like the idea of just

be there, be consistent, whether it's playing basketball or, you know, a sport or any other sport

or banking. You just got to show up to work every day and keep doing grinding and good things happen.
You mentioned one of your rules, don't die in venture.

Oftentimes, it's only three to six months every decade where investors make the crazy returns. And there's really only two models there.

One is you could pick those correctly, which is incredibly difficult, if not impossible. Two is you could be there for a decade.

That's the hard part, being there for a decade, being there for 20 years, and continuing to be consistent so that you get that asymmetry in the market

when things get better. Yeah, this business is not meant to be like smooth, right?

You're building up your deal flow, you're building up your backlog, your pipeline, your credibility, your friends, you know, your employee base.

And then when the good things happen, the tidal wave of business, the tidal wave of profits comes. That's what we're seeing.
That's what others, I think, are hopefully seeing.

But that's kind of what it's been for us. I mean, there's been sort of slower periods and busier periods, but you kind of been around long enough, you know, that the big, big wins are going to come.

And so that's what's happening now. And I see that over the next year.
I think our backlog has something to be publicized. It's at least two, three billion dollars.

of revenue of like signed clients that if they did their deal tomorrow it'd be billions of dollars of revenue so we've never had that in the history of the firm.

So, you know, it's, it's a, it's a good time to be infinite.

How would you differentiate your talent strategy versus the Morgan Stanleys of Goldman Sachs? Our world is more the people that don't want to work at the big banks, right?

So like, how do you differentiate Sequoia employees from, you know, Goldman Sachs?

If you are really good at what you do and you're the obviously best, you want to go off and do it on a smaller platform and, you know, prove to yourself, prove to the world that you can do things better than the big platform.

So, you know, how does a 200-person, person, 250 person firm beat Goldman Sachs Morning State Jay been working in all the time? It's a teamwork and the elite team that we have and the results.

It's all, it's all in the results driven. You know, we're, we're a very results driven place.

And, you know, we kind of figured, you know, whatever the big banks are doing, we need to do something differently, right?

And so that's the whole reason I left Goldman Sachs, you know, was I just didn't see the kind of work getting done that I would do for myself if I was a client, right?

So, you know, we started doing things very differently from day one, and we've doubled down on it over the course of time. And our team needs to kind of understand that.

A lot of times, what we've hired people from big banks and occasions, they say, Well, why are you guys doing 500-page decks or 500-page decks for a company?

And why are the models so deep and so detailed and so long-dated? And why are you guys, you know, paying McKinsey a million dollars out of your own pocket? Why did you develop a data science team?

Why do you have sort of a mini Ncinsey inside the firm? Why, you know, why, why, why? You're doing all this extra stuff.

All you have to do is throw, you know, a 40-page deck together and start working the firm. And I'm like, that's just not the right way to do it.

You know, so we're, we're, you know, we're throwing a lot of money at the team, a lot of money at innovating things in this space. So we've always been an innovator in the way we do things.

All this isn't public yet, although it might be by the time this podcast goes out, but we just invested $25 million in a company that's basically the leader in AI for.

financial services and investment banking. So a company called Model ML.
So we were the lead investor in a $75 million round that many of the Silicon Valley elite were trying to lead.

So we broke in and took that lead role there.

And so we're going to be AI all over the firm, whether that's looking for buyers, looking for investors, talking to investors, doing analytics, doing deeper data science work, using and applying AI to every single thing that we do as an investment bank, and then giving that AI to our clients.

So for example, right now, it hasn't happened yet, but these AI tools can today, and they will certainly tomorrow, be ripping through thousands of documents and data rooms, and financial spreadsheets, and audits, and

historical legal documents, and being able to basically tear all that down in a matter of minutes and create multi-hundred-page reports.

So, you know, we're going to be arming our clients on the sales side with that kind of

deal diligence and defensibility. So, if someone's going to come and look at your data room with 1,500 AI agents, you better be prepared on your side to make sure you've done that work ahead of time.

So, yeah, $25 million dollars back into the business actually into model ml for the support of our clients and so so we're just constantly adding many many many elements of fact we just we were in vegas at money 2020 um had an amazing time there and we decided to do our off-site you know a couple days before money 2020 and the theme was f1 racing so it was kind of like you know we want to be like the fastest f1 team in the world and it's not just the driver or the brand of the car but it's all the people around the car all the people around the brand all the people around if you're going to be better than everyone else in the world and getting better every single year, you need that elite team and you got to glorify and thank and love every single person on that team at F1.

Yeah, sure. Max for Stappens, the guy in the car, and he's great, but without the car, without the brand, without the team, he's sitting in a go-kart, you know, on a little track somewhere.

So I feel like we've got, you know, a great team, a great, you know, amount of innovation, and everyone works together, kind of like a proverbial F1 team.

And look, when you're in a big firm, you know, it just doesn't work that way. You don't have all those tools.

If Goldman Sachs, if somebody goldman sach said or morgan stanley jp morgan bammel whatever said hey you know ft's got that great data science team and they're like taking all the data cubes and running you know two days worth of analysis overnight to run their models and to prove out their their clients data you know we should do that across all of our groups but they'd have to add a billion dollars of cost you know or something like that to get all these people on board but then it's not going to do that you know someone said let's go hire a mini let's go build a mini consulting group for every single niche within goldman sachs to provide that extra layer of service.

They would just never do that, right? I remember when I was at Goldman Sachs, I even pitched my boss, Peter Krauss, that we should go buy McKinsey.

That didn't go over too well, but it would have been a great idea to some extent. So, you know, that's always been in my mindset either from a young age to provide the best of the best service.

And I guess there's two ways to look at traditional bulge bracket banks. One is that all the people are short-term focused, focused on the deal, over-promising, under-delivering.

But then there's also a second aspect of that, which is the firms have no loyalty either.

They'll pay you based on not on future performance, not on past performance, but future performance, all these things that large banks have.

Large banks are then incentivized to quarter versus in the long term.

So I'm still trying to wrap my hands around about how you create a different system, because these are the default operating principles in banking. Why is FD Partners different?

What upstream decision did you make to make a difference? There's a few things I talk about, which

to new employees and new team members. And I think about every day, it's like we chose to be in a highly in a high-growth sector with companies that are largely not public, right?

I mean, there's a number of public companies, obviously, but most of the market cap is in the private world. And these companies are generally high-growing.

They're usually not at their full EBITDA margins. They're usually losing money or breaking even.
They're

changing their business,

changing the business models every couple of years. They're altering the landscape and financial services and they're hard to value.

So what I figured out was that the skill set of being able to value properly and actually attain proper value for highly opaque assets is the

best job in all of investment banking, right?

If you're at Goldman Sachs, and I say Goldman Sachs Alexis because I work there and I have massive respect for Goldman Sachs, but at the end of the day, if you're one of these big banks, you know, and you're working on, let's say, an IPO, first of all, you're one of five or six or seven or eight firms working on the IPO.

And second of all, you're one of maybe 50 people on the meat grinding process on the IPO just at one firm, right?

You got the bankers, the ECM, you've got, you know, equity sales, equity research, you got back office, you've got, you know, stabilization people. And it's this whole entire process.

And it's very hard as an individual banker or as anyone on the team or even any one of the banks to sort of claim credit for, oh, I was the one or our team was the one that added all the value to this particular deal.

As a matter of fact, you take a debt deal it's like is it really adding that much value to wire someone out 500 million dollars do a bunch of credit work and hope to get it back sure that's value add but it's like you're you're giving someone 500 million dollars and and charging you in the library it's commoditized it's somewhat commoditized right and then if you're working on very large you know um m a it's generally seen as these companies typically trade at you know uh 25 30 premium to market that's the average over many many many deals so you go in there there's already 10 20 hours covering the stock So there's no mystery there.

They've been public for how many years, how many quarters? Everyone knows that market premium is 25 to 35%. So if you get 25 to 35%, you're, you're basically doing an average shop, right?

There's no, there's no glory in it. You didn't add that much value.
You've got to be administering and processing the deal. If on the buy side, you know, you're not really creating a lot of value.

You may be trying to compress value and maybe getting a deal over the hump.

You know, but most of the time, you know, bankers are paid very little for the buy side because they're not really doing a lot of work.

They don't really get in the weeds and understand the fundamentals of the company and decide, is this company worth buying or not.

They're doing more or less back of the envelope work to figure out whether the company might be worth X or Y and the increase might be worth A or B and might be A or B.

And so, but it turns out all those things are like administrative roles, right? And you deserve to be paid administrative fees for administrative roles. And like, there's nothing wrong with that.

The Golden Sachs is an amazing place. They had a huge market share.
And same with Morgan Salem.

Nothing wrong with their model for the kind of deals that they do.

But if you're a smaller, elite firm, you can pick one or two things on earth to do those will be capital raising and sell-aside MA in the private markets where valuations are highly opaque.

The clients don't really know the buyers that well, they don't know the investors that well, and we can kind of be a

network between the buyers and the investors and the companies and help get things done

in a high-class way. Like I said before, another other, even maybe your podcast, like it's not always about maximizing the value.
It's finding the right fit.

None of my clients wants to maximize, maximize value. They'd rather find a good partner and a quick deal that made sense for all sides.
So that's actually even harder to do.

It's actually fairly easy if you want to just maximize value. This one function, maximize value.
You don't care who the buyer is, you don't care what the timing is, you don't care about anything.

But when you're trying to think about, you know, speed and certainty and quality partner and what happens the employees, and you know, you want, you want the buyer to be happy with the transaction as well.

So, you know, there's, or the investor for that matter. So it's a, that matchmaking game is you can add an enormous amount of value in that equation.
And, And you can get paid for that, right?

You know, we have a deal right now. We have a lot of our deals that are, you know, we get, you know, X percent up to say 500 million and Y percent above that and Z percent above that.

And, you know, we just got a, this is not public. I'll make it public here for you, but we just got $167 million fee on one transaction,

which is the largest fee in the entire year.

There's been two articles in the Wall Street Journal that Goldman Sachs got a $110 million fee on this deal, the largest deal in the firm's history, and Merrill Kinch got a $137 million deal.

And those were on like $40, $50 billion deals, right? You know, or even bigger, quite frankly. I think

the BAM one was even a bigger fee on a big, a smaller fee that was on a much, much larger deal. But we came in and we actually added billions of dollars of value to

a company. And so we got paid a good fee for that.
So we kind of figured out how to turn, you know,

basically, you know, get paid on a value-added model as opposed to an administrative model. And that's really what we do.
So

it's a, you know, how do you get paid for adding value versus being an administrator of a transaction?

And it's, it's very similar to, you know, if you're, you know, managing treasuries, you're not going to make as much money as Sequoia makes adding value to its portfolio of companies and it's its investors LP's money.

They're making 35% of everything over X par, right? Because they're adding value to that X, right? They're quadrupling that X. They should get 30, 35% of it.

I always say, why don't bankers get 10, 20, 30% of everything they get

that they help achieve over a certain benchmark? And the reason is that bankers don't have any track record of doing so.

In PEBC, there's a perfect track record of who added value and who didn't, right? You know exactly what your money, money, returns. You know exactly what your ROI is.

You know exactly what your IRR is, I should say.

And everyone knows it. It's completely 100% provable.
There's not a banker on the planet that has anything like a track record of adding actual economic value. And we do, right?

Because that's the only thing that we're known for outside of fintech and selling companies is that everyone sort of says, you guys have really served your clients well and your loyalty is the clients and you've actually gotten them great outcomes over the course of time.

And it's been really consistent over 20 something years, right? It's not just, oh, there was this one deal that was a high valuation that, you know, maybe you got lucky on that deal.

Tell me about the best practices when it comes to structuring these kinds of deals. What are some things to do? What are some things to avoid?

The thing about the business is we are very flexible in terms of what the client wants.

So we're happy and interested in working on really early stage companies, and we're really excited about working on much larger companies too.

So we have clients that are $500 billion in market value, half a trillion. And we have clients that have no revenue, right? So we'll be advising, for example,

Model ML, which is in the sort of lower end of the revenue spectrum and one of the probably hopefully fastest growing AI companies out there. But that's a client of ours.

And we've got clients that are 40 billion, 50 billion, et cetera,

many hundreds of billions as well.

So we're really able to be very wide on that spectrum.

And a lot of times, if the company's super early, we're sort of well known for sometimes going in and saying, look, if you want us to be your banker between now and when you ultimately exit, we can do that.

If you want to do by the drink and it's $6 million capital raise, that's just not something we can do bandwidth-wise, right?

So, we have to work on fairly higher ROI things, but the ROI could be stretched out over 15 years or it could be, you know, 15 weeks. You know, we're very flexible.

So, a lot of times we'll let the client sort of set the terms. So, we've had clients where, you know, for example, amazing story, right?

We, we got hired in 2009 by a great little company at the time called Abbott Exchange. It was worth $20 million, give their metrics away, but they were raising money for $20 million.

And they wanted us to come in and help them raise, say, six or seven million dollars because they were buying a company for $3 million.

He sort of famously said, I'm like, he's too small, we can't really do it.

And after many, many, many conversations, we agreed that we would basically be their banker for the long term and they could fire us whenever they want, but they'd have to pay us for 49 years post firing, which basically means that you're not going to fire us.

So we now worked with them from 2009 to 2025.

So we just sold them this year for $2.3 billion to TPG and Corpay, so it was a private equity strategy that teamed up to buy the company for 100x what it was when we found them.

And of course, along the way, we raised a billion dollars from them. We helped them do eight acquisitions, never charging for any acquisitions, helped them go public and helped them on the sale.

And I believe it would have worked for them even if we didn't have the long-term engagement letter.

But, you know, that certainly helped. And,

you know, we're like best friends this day, Mike.

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Was it my wedding? Um, and this and that.

So we've got many, many, many of these case studies where we worked with people that were, you know, really early stage entrepreneurs and help them build, you know, many, many multi-billion dollar kind of outcomes.

So, and then, you know, we'll work on stuff like raised a billion dollars for Revolut and they pays, you know, X percent, and it's a one-time deal.

And, you know, we don't have a lifetime deal on that one.

So, so, but a lot of things we'll let the client set the terms so you know it's it's a daily thing for me to say the clients you know we love big incentives but you know you tell us how you like to incentivize this you you you probably know your fair market value you know that x is a single then this is the double triple on run grand slam bottom of the ninth lights out grand slam whatever you know and whatever you feel comfortable with um you know paying us you know we'll we'll consider that and we may want to tweak it or sometimes they set it you know in a way that doesn't make sense and we'll have to change it but but in general we're trying to let clients pick the fees.

And so that way they're just going to be happy with them. I have to say, I was a little skeptical of this model.

And then you invited me to breakfast in Miami, and we were sitting down, and you started talking to me about what structure you should put on your own home with the agent.

That's right. And right there, I knew you were a true believer.
I mean,

I believe in it, and the clients believe in it too.

The clients that have paid us the most money, and we have multiple multi-$100 million fees.

I must have gotten four referrals in the last two weeks from one of our clients who paid us a multi-hundred million dollar fee.

And, you know, for and the guys that just paid us a multi-hundred million dollar fee, like, they're our best clients, right?

They're the ones that, so it's always the clients that are a little thrifty that are, that are kind of missing the bolt and saying kind of self-fulfilling. Yeah, I mean, yes and no.

I mean, yeah, hopefully not, but, but, you know, if someone says, show me incentive, I'll show you the activity, right? So, or something like that.

So, I think, you know, would you, would you pay a private equity manager, you know, one and four, right?

I'll give you 1%, you know, to just manage my money and then I'll give you 4% of everything over a dollar. You would never hire that person because like they must not be qualified.

They must not have confidence in themselves. They must not have the motivation.
So I think that,

you know, actually giving investment bankers similar types of upside as other financial professionals in other industries like private equity, venture capital, et cetera, you know, makes a lot of sense.

Does it have to be two and twenty? No, it doesn't have to be that at all. It

could be more, it could be less, whatever. So, and I just think that that's something that will change over the course of time.
And a lot of bankers are trying to emulate what we're doing.

But the truth is, you need to build a track record first. So, if you're working on

a big buy site on Monday, a merger of two companies at no premium on a Tuesday, a big bankruptcy recovery for FTX on a Wednesday, you have a debt deal on a Thursday, IPO on a Friday, a secondary next week, and then, oh, you just got out to sell a private company, but that's like one of 15 things that you do.

You're not going to really build a track record, right?

It's like, so, you know, you really got to do the same thing in the same space, same people for a long, long, long period of time in order to have the credibility, you know, to, or the audacity, you know, to charge, you know, greater than average rates for your service.

Unless you're proven value add kind of a firm or person or team,

it's very hard to do. We've seen a lot of people try to replicate our females and they don't get it.

And pretty much every single time we get hired, people say, well, hey, we want to give you guys a really great incentive.

And it's going to be way harder than your competitors because you're the guys we think that could actually hit it, right? Or that would understand

how to make that happen. Again, there's a lot of great banks, a lot of great bankers, and we respect pretty much everybody out there.
It's just different models, different strokes for different folks.

And we're passionate about the way we do things. And it's been recognized around the world.
You've been labeled, if you Google you, it says world's richest banker.

Is that a double-edged sword or what is it? I mean, I'm not counting, you know, you know, and I don't really care about money, honestly. You wouldn't, you wouldn't think that from what I said, right?

But, you know,

we're trying to raise a family. We got three kids.
You know, we are, you know, trying to raise them, you know, like we got raised. It's, it's hard, you know, because we've done okay.

But, but um, you know, it's like

that's obviously the money part is keeping score and all that kind of stuff. But at the end of the day, all the money is going to go to charity someday.

So it's just trying to do good by the world at some point in time, you know, when you have the time to go do that kind of charitable work.

I'd say that people are, people are shocked when I get on the phone, right? And they're on like $100 million kind of like, what are you doing here?

You've done so many deals and this and that. I'm like, this is what I do.
I represent companies like you guys every day. I'm just grinding and having a fun time.

And it would be able to scale the company. I'm such that we've got great CFO, HR, legal clients, you know, all that stuff.
So I don't really have to do any of that kind of stuff.

I could just really be client service guy and work with the teams. And so, um, but yeah, I don't, I don't think about the money, um, you know, on a personal level.

I think about building a great franchise, building a great place for the teams that we have here, the people that we have, the families that we have for the firm to, to prosper long term.

I'm more worried about them than me. And, and I worry about the clients more than me.
The incentives sometimes are like the clients are the ones that win way more than us.

Yeah, we, we, we get a little win here and there in the fees, but you say, what's good to the goose is good to the gander. So it's like, but um, but yeah, I don't know.

I'm sure Jamie Dimon's doing okay. And uh, we'll see.
Let's talk about FinTech today. What's the most underrated trend in the market today? And where are you most bullish if you had to pick one spot?

I don't know if it's fully underrated, but I think the world of real world assets is something that really gets me excited and the tokenization, I should say, thereof.

you know, companies like digital asset holdings, tether, you know, taking a digital dollar, taking a digital mortgage or a digital stock or what have you.

And to me, that's really the future of financial services. And I don't think the traditional way is going away anytime soon.
It's more of a percentage game.

I think for a long time, a percentage of the market is going to be done just the way it's done today on NASDAQ, on NYSE,

you know, and you could trade through Robinhood or whatever, but like slowly but surely,

some portion of that market's going to go tokenized, right? And so you can be trading on the blockchain, settling instantaneously with anyone in the world.

And that's happening with stocks today.

That's happening with pretty much every asset class around the world, starting the dollars with people like Circle and Tether.

You know, Tether's now a half a trillion-dollar company. I think that that world is just going to go very big.

You know, I think in the old days of, you know, 20-something years ago, when you would electronify a sector, you'd be electronifying a piece of the sector in a small, you know, single geography.

Now, all this stuff is much, much, much more global.

So it's kind of a trend that's affecting all fintech, but the companies that are starting off being very global and can get very, very big over the course of time.

So that's, that's for better or for worse,

that's where we see things going. So yeah, digitization of real world assets is

you go to sleep tonight, you wake up in a decade and you look at the fintech market. What does it look like? in a post-AI to fintech.

A lot of the companies that are that we think of as fintech today are going to be legacy, right? And there's going to be a whole new breed of companies. So, you know, it's funny.

You look at like the Pfizer's and the First Data's and all these kind of guys. And, you know, they're growing single-digit percentages.

And Pfizer's stock was down 40, 50% the other day, you know, because they're getting eaten alive by lots and lots of smaller players. They got too big.

Founders laugh. The future, I think you're going to have some trillion-dollar companies.
You know, we've been on the record saying long before anyone.

most people heard of or knew much about Revolut that that was going to be a multi-trillion dollar company.

So I think you're going to see lots and lots of trillion dollar companies companies in 10 years. And

who's that going to be? But

nobody knows, but I would put Revolut, CloudWalk, digital asset holdings,

and anyone that's doing things that are fully global, fully disrupting the old world.

That's where we're putting our time. And again, you don't have to be a multi-trillion dollar company to get our attention at all or potential to have that.
But I think the

AI will just be commonplace at that time. It won't be disrupting anything.
I think that all the disruption will have already happened. And then

there'll be another wave of disruption. That's the thing I think about fintech and financial services is it's never going to be fully old school.

It's always going to be probably 50%, you know, 50%, 60%, 70% old and 25% new. And the new choose the old and the new becomes the old.
And it just kind of keeps happening.

So when you have a product like financial services, like I said, this is fully digital.

I mean, other than credit cards and ATM machines, which are all both going away, by the way, or cash itself,

the whole space is going to be fully digital. There's not many other spaces that are like that.
Healthcare, there's hospitals, there's medicine, there's drugs, there's guerrillas.

I mean, that stuff's not going away, right? But in financial services, everything being digital, you know, you can't really imagine a world where it's perfect.

And so until things are perfect, there's going to be a lot of innovation, right?

With 30 years of fintech development, I find very few things in my life or anyone's life I know are from underbanked up to, you know, Warren Buffett, where like the financial aspect of their life is just smooth and perfect and frictionless, and all decisions are made in a highly output way.

I mean, that's where we're like 2% of the way there.

I think with AI, it's going to get a lot closer, but it's going to take a long time. So, but yeah, long live fintech.
And you referenced it, disruption. The opposite of disruption is defensibility.

What are fintech companies doing to become defensible? And is that even possible in an AI world? The best ones are arming themselves with as much AI as humanly possible.

I mean, it costs a lot of money to do that, but I think what we're seeing is people hold the line on expenses and just push everything into AI, right?

Every single function of a company has got to be completely embracing AI.

And I think if you're out there and you're not absolutely using AI in every single function of your company, you're going to be extinct or on the way to it pretty quickly over the

because the space is going to get highly efficient with a lot of new players and a lot of the old players, you know, changing their models. So it's going to be, you know, I would not want to be long.

A lot of traditional financial service companies over the next 10 years. I'd be pushing my money into fintech and,

you know, blockchain and AI-driven, you know, financial services companies. So there's going to be a lot of change coming.

Do you think AI is fully priced into the fintech market, or do you think it's mispriced? I think the market's still trying to figure it out.

There's not that many sort of really great scaled, you know, AI-first fintech companies, right?

You know, you've got a couple here and there, um, like Model ML, you know, but they're not scaled, right? It's a great company, but it's early stage and it's got to scale.

And there's a bunch of platforms like that. You know, there's some that are doing call center stuff.

It's pretty exciting, but there's what's more exciting is companies like Revolut, CloudWalk, and others using AI first in their current businesses, right?

Using AI for advertising, for fraud detection, for customer service, for onboarding, for offboarding, et cetera.

So I think those companies are the ones that are going to, I think, that are that they, they were, they were already highly innovative and they immediately caught on to the AI, you know, wave, right?

We've single-handedly gotten certain clients to just completely abandon the old ways of doing things and just push them and say, look, here's examples of six-year competitors that are doing X, Y, and Z.

So they literally just within a month changed their whole philosophy and, you know, went full-blown, you know, AI.

I mean, you know, you don't get there in a month, but you change your mindset in a month, right?

There's been CEOs of companies, you know, that have, you know, we're like writing off blockchain or writing off AI as anything that was going to really change their business.

And they're all going full, full crypto, full stable coins, full AI. So, you know, I think, yeah, people are getting religion.

I look at AI as a dragon and the only safe place is on the back of the dragon.

Although, once in a while, the dragon could look around and burn you, but it's still the safest place versus being anywhere in the village. 100%.

That's a good one. I'll use that one next time.
I try to convince a client to do AI. But, no, it's

ignorance. Ignorance is a strategy.
Said another way, not using AI itself is a strategy.

You could pretend it's not a strategy and you could pretend it's not a decision, but it's a it's a decision to not make a decision. It's not a buzzword, right? It's it's real.

You know, you've really got to lean into these things. And boy, would it be exciting to be a 25-year-old kid, you know, building the next-gen companies using AI.

You know, one of the tricky things about AI is like, can everyone just build the same company, right?

You were telling me about someone else in one of your podcasts is saying open AI is going to be dead because anyone could build a big large language model and or whatever his rationale was but you know can anyone build any of these businesses right you know and because ai can do all the building a it could copy your business model so what's really going to be the competitive differentiation in the future and that's the part that's probably got me scratching my head to some extent you know is is how you know how that's all going to come out are you going to wind up having like 50 competitors doing the same thing and therefore pricing is going to go to the point where no one can make any money and no one could differentiate company A from company B.

And the minute company B comes up with a good idea, company company a copies it so it's it's going to be i think it's ultimately going to be very good for consumers that the products are going to be very good the prices are going to be very low you know there's all this question about will there be enough jobs for everybody and robots start you know taking over and you know it's funny we're doing a lot of studying about robots these days and one of our clients is investing in robotics companies and becoming the payment rails for these robots and things like that so There's just some wild stuff going on out there with AI.

And the robots are coming. So only a matter of time.
And using FinTech. What's a big thing that you've changed your mind on in the past six months? Six months.
Wow. It's a short period of time.

Usually I say a year, but with AI,

you have to break it down to six months. I don't know.
I mean, maybe it's just leaning heavy into it in my own business, right?

I think, again, not to keep harping on this investment in model ML, thinking through, you know, can you really revolutionize what we do?

It's a high-end craft business at the end of the day, Apprentice. You're cranking spreadsheets, you're writing memos, you're reading data rooms.

And you would think that I don't want a machine doing this stuff. But it turns out a lot of that work can be done a lot quicker, a lot more streamlined.

And even if you're doing a lot of it manually, it can be checked by these agents, right? You know, a lot of the backup stuff that we do, that was kind of exciting.

But then I started realizing that this could really benefit the execution of transactions.

There's one thing an investment makes to just save money on, you know, cheaper costs of building spreadsheets or, you know, building decks and things like that.

That's not something that gets me that excited. It's nice, but to me, what gets me more excited is getting to market faster for the clients, right? Getting to market in a more thorough way.

You know, a lot of times these clients that we're selling, they might only be worth $100, $200 million, right? Or $300 million, whatever the number is.

Well, it turns out that now the world is so global, the buyer could come from literally any continent, right? And you're talking about only writing a $300 million check as a buyer.

The number of buyers that could buy any given company is probably like a thousand, right?

And no banker can know a thousand companies, no banker can contact a thousand companies, no banker can analyze a thousand companies.

But with AI, you can, right?

You can sort of look at the whole entire world and look at the whole entire very, very detailed product description of what company X client does and what even small divisions of large companies or private companies that have never, you've never heard of that, you don't speak the language and you couldn't even read their website, you know, could be buyers for certain companies in the US or Australia.

So you can now sort of use today, you know, AI and not just chat GPD.

Chat GPT is going to be good for a lot of things, but I do believe that the hyper-verticalization of a space is going to be very important.

Like when we're starting to train our own models on our own ecosystem and all the deals and all the buyers and all the buyer type criteria that we think, you know, so I think it's the human side of what we do mixed in with the AI side is going to make, I think, a big difference in locating and finding buyers.

One of the things that we do as a firm is we publish a lot of reports and we get a lot of imbalance from companies all around the world that we've never heard of that want to buy companies that are in the reports, right?

And so, again, like even as good as we are, there's companies all around the world that no banker knows because they're not big enough to know, they're not on the radar, you know.

And so, we know that just even in the regular world without AI, we get a lot of imbalance from people that we don't know, looking to buy companies that we're affiliated with.

But with AI, we should be able to like significantly increase to it to an asymptotic level of perfection, like the buyer research outreach, you know, kind of process. Same thing with investors, right?

I just think that leaning into AI, leaning into automation, leading into this kind of stuff, it's very expensive, you know, but there's no bank in the world that on a pound-for-pound basis is putting more money towards the client service that we are.

And every single client I talked to is like, this is differentiated. Like what you guys are already doing is like 10x differentiated, but this is, this takes it to 11, right, or whatever, 20.
So it's,

yeah, try to be on the leading edge. So I think that's something that's got me super passionate.
And then that's got me passionate about investing in AI as well and investing in fintech.

So we're doing a lot of investing in companies on the side. It's just a fun game to be in right now.

The prevailing paradigm, at least among generalists, is that AI is about cost cutting, but it actually has this revenue expansion that's highly undervalued. Well, Steve, 23 years in.

A lot more interesting things to come for FT Partners.

Thanks for jumping on the podcast again and looking forward to continuing this conversation soon. Dave.
Thank you, buddy. Thank you, Sue.
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