Fintech investor Simon Wu discusses the rising recognition of the secondary exit technique, and staying disciplined amid the AI frenzy
Simon Wu is a Companion at Cathay Innovation, a ten-year-old enterprise offshoot of Paris-based Cathay Capital. With $2.5 billion in belongings underneath administration (AUM) throughout three funds, Cathay Innovation focuses on fintech, digital healthcare, client, and vertical SaaS. Wu was Cathay’s first San Francisco rent and has helped construct out the group’s US funding presence. Wu was the Collection B lead for manufacturers like Chime, Sidecar Well being, and Ghost.
Going through an uptick in private- and public-market fintech exercise—and with Chime ready within the IPO wings, Fintech Nexus hopped on a name with Wu to glean his perspective on market volatility and prospects, investor diligence, and capital’s coalescing round an AI-deterministic thesis.
The next has been edited for size and readability.
You’re three funds in. How a lot has your thesis modified over that point?
I believe the observe document and being a part of these class game-changing corporations early on clearly helps, not simply from a branding and advertising perspective but additionally as a lesson-share for our founders at present. We most lately invested in Vary, which is an AI wealth tech firm, the subsequent Constancy LPL. There have been many classes we’ve from Chime, which had been: personal as a lot tech as you’ll be able to, construct an incredible model, distribute effectively–that playbook.
Then, are there corporations in our portfolio and Fund I probably disrupted by AI at present? And the way that will play out? I believe that these founders are tremendous resilient. I’d say the learnings from every geography are shared amongst one another.
To what extent are you present market volatility as a variable that can have an effect on the timing and the outcomes of a few of these IPOs?
If we’re speaking about near-term particular IPOs,that’s one reply. There’s the Hey, how does that have an effect on my each day job? query of, Ought to we be paying 100x for all these corporations? That’s one other reply. We’re not development traders, however I believe for our founders who’re asking, Ought to we go increase the general public spherical? There’s additionally the power to lift these huge rounds within the personal market; secondary markets present liquidity and have gone by way of many evolutions since we began.
The general public markets proper now are freaking down and freaking bearish, to say it frankly. After which the VC world has seen the craziest quantity of deployment within the final six months, proper? And that has continued into Q1; the tempo I’m at this quarter is even quicker. We’re costlier within the value we’re paying for every of the dangers we’re taking up. And there are simply extra founders going out proper now.
Lots of people sat on their funds, they usually realized, Shoot, I instructed them a four-year funding interval. I sat by way of ‘21 and ‘22 … I gotta catch up and simply deploy, deploy, deploy. And so I’ve acquired to go increase my subsequent one as a result of that’s how our enterprise works. The opposite half is I believe the non-AI corporations proper now are getting near AI-like multiples due to the joy and enthusiasm. So I believe you will note plenty of issues being introduced, however I wouldn’t be stunned if we had a lull as a result of the private and non-private [markets] should merge in some unspecified time in the future.
So both President Trump goes to say, See, I did it once more, although I brought on the mess within the first place, or we’re going to go take a look at the personal markets like, Whoa, there’s no development investor within the subsequent markup, so shoot, what can we do? Proper again to 2021. It’s like we by no means realized something. This quarter, we’ve been very disciplined. I’d say we’re seeing the ridiculousness of it andwe instructed our founders, It’s nice to be in an organization proper now, as a result of they’re all getting preempted like loopy, so we’ll all take the markups, however like, they perceive this music might finish once more, which is what we noticed two years in the past.
Secondaries are starting to dominate the exits for VCs. How may this influence enterprise funding over time?
Secondaries are not a stopgap: They’re turning into a structural pillar of enterprise liquidity. We realized in 2021 that promoting right into a scorching market requires each self-discipline and entry, and secondaries supply that chance. They’re set to play an more and more central position in how enterprise capital operates — reshaping how funds return capital, how startups handle their cap tables, and the way long-term worth is unlocked. However secondaries aren’t for everybody. In sectors like cybersecurity, the place exits are usually barbell between $200 million to $500 million or Wiz-like vary, the secondary market may be shallow until you’re holding a name-brand firm like SpaceX or Stripe that has plenty of liquidity. Not each fund can take benefit, because it’s opportunity-dependent, however these that may, ought to.
Quite than devoting your consideration to simply what’s within the highlight, it sounds as if you’re nonetheless pursuing fairly a little bit of bread-and-butter investments like Vary. I’m questioning how a lot of your time you’re devoting to that extra tried-and-true path and whether or not you see the valuations there additionally staying comparatively extra disciplined.
Self-discipline is, I’d say, thrown out the window proper now. There’s no self-discipline, interval. I believe the argument for why there’s much less self-discipline on verticals is that horizontal may be very ephemeral now. There are such a lot of incremental use circumstances everybody can go after, and so the endurance is debatable. Individuals are rationalizing verticals as a result of if it is rather sticky, if an SMB chooses you in logistics, then you’ll be able to construct round that knowledge and that workflow, such that now, in the event that they do select and at last purchase you… you could have caught onto a mousetrap. Due to this fact I’m keen to pay up now at present as a result of I consider that is the suitable staff to execute that. That’s the form of inside baseball logic of the way you stroll your self up for paying twice as a lot as you thought you’d.
Tying issues again to fintech, we predict we’re an AI-native period in fintech, which signifies that the whole lot is rethought by first ideas. We now have this new know-how now. How do you be sure you thought of it on day one? I take into consideration the bread-and-butter together with the hype, as a result of, in the end, you’re not saying I would like a net-new use case; it’s solely a labor drawback that we’re fixing or the demand drawback we’re fixing. And so vertical SaaS assembly fintech plus AI is healthier now due to rebundling, and so you’ll be able to truly get extra LTV. Stablecoins can even change into rails now as a result of there’s extra consolation in it; what cool apps are you able to construct on high with AI now you could form of do all that? That’s the higher-level theme, if you’ll, after which we will work our approach all the way down to level options flowing into it.
How a lot have you ever seen this type of speculation truly pan out already?
I believe there are chips being positioned. If you consider the variety of stablecoin corporations, and even search the time period proper now because the Bridge acquisition, for instance, it’s been by way of the roof. Do we want seven Sensible rivals or Western Union rivals, selecting totally different corridors, similar to they did in 2016? No, however we’ll see what this time brings out.
There are a bunch of vertical SaaS corporations proper now which have a voice agent on high that may reply a e book name or perhaps do a transaction for you, issues like that. So do you exchange the front-office receptionist of your favourite med spa or your favourite building, GC, or issues like that, up for debate, proper? However I believe there’s cash being put in there with everybody hoping that’s the case. There are going to be plenty of rounds being introduced later this yr. You possibly can hear some skepticism in my voice whether or not you’ll be able to actually get there, however no less than the image has been painted.
