How AI and Stablecoins Are Rewiring the Future of Fintech

execution needs strategy for practice.

It has never been more true. If you're

trying to build without AI, you are just shooting yourself in the foot on day one. It's foolish at this point. This is

one. It's foolish at this point. This is

still a highly volatile environment and therefore when you have to act with a strategic thought, but the action is still very very fast. We have never seen this level of volatility in macro and that has really translated into how

companies are built, how companies are.

[music] >> We seeing a a seismic shift 50 years it stayed in this sort of classical era.

Finally, we're starting to address fundamental issue and this is not just consumer to consumer crossber payments.

This is the B2B flows.

>> Global trade is being reset.

>> So ladies and gentlemen, welcome to today's episode of Couchomics with Arjun. Uh joining me all the way from

Arjun. Uh joining me all the way from the Bay Area. I'm excited we have another I guess American guest um uh on the show is Sundep Patil. Sundep is a

partner with QED and a little bit more on QED in a bit but he heads Asia Pacific. Um earlier this year I had the

Pacific. Um earlier this year I had the opportunity to meet him in Asia to Japan to be specific. Uh so I kind of pinned him down and I said you've got to come on my show. He was kind enough to accept

the offer. Uh Sep welcome to the show.

the offer. Uh Sep welcome to the show.

>> Thank you for having me. Always fun to talk with you Arjun. So

>> pleasure. I thought maybe I'll give a bit of a context on QED for people who don't know and correct me if I've got this wrong. Right. So you're a fintech

this wrong. Right. So you're a fintech focused fund. Uh you are headquartered

focused fund. Uh you are headquartered in the US. Um you have 4 billion asset under management, 250 portfolio companies. But what blows my mind is

companies. But what blows my mind is that you've got 30 unicorns within that.

>> So the hit rate is crazy. You've had

some of the best known sort of fintexs in the world um uh within your portfolio whether that's New Bank, CLA, SoFi, Credit Karma and others. Um, and what I

loved was your sort of your tagline which is operators backing operators.

That's kind of my tagline in consulting where I say I'm not a consultant. I'm an

operator who's consulting. But have I got that right?

>> That is correct. That is correct. Arjun

bunch of us come from Capital One. So

our managing partner Nigel is was co-founder of Capital One. I myself was at Capital One back in 2002 2006. U a

good chunk of our partners are the same way. they spent half a decade, couple of

way. they spent half a decade, couple of decades in uh in Capital One. So,

Fintech is and I would argue that Capital One is the first fintech. It was

data, it was technology focused and it was customer first, um digital distribution, strong analytical background to do underwriting uh and everything concerned with the account

management. So, so we built uh Capital

management. So, so we built uh Capital One up and then our thesis was if we can do this for credit cards in the United States, why don't we try to do this

across financial services across the world and so we have gradually uh US was obviously our home market then we expanded into LATAM. Funny story is new

bank was our first check into into LATAM and the rest is history. Um UK always was a spiritual second home. Nigel is

British. Bunch of us have worked in Britain for a while. I'm myself a British passport holder. Uh spent 15 years there. So, so Britain we have

years there. So, so Britain we have invested in and then from 2020 onwards we started expanding um east of Europe right. So we uh uh India was the next

right. So we uh uh India was the next big next big place. Over last 5 years we have invested about 225 odd million in

Asia Pacific. uh that's across funds

Asia Pacific. uh that's across funds six, seven and eight and uh SPVS that we have raised and our expectation is that we'll probably invest another 250 or 300

million in the region over the next 5 years. So we see this as a fast growing

years. So we see this as a fast growing region in the world and one of the key geographies for us going forward. So

it's awesome. So you've given me a lot to sort of talk about. I think that that frames it up. I've got two questions. A

visa is going to disagree with you being the first fintech but we'll take that conversation another day. The secondly,

were you working in the offices in Richmond?

>> Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. So,

Broad Street >> visit I visited them quite a lot because I used to drive down from Washington DC to to University of Virginia and Richmond used to be a stop. I I think I I must I must have been to your offices

a few time but I guess our paths didn't cross.

>> Yeah. Yeah. It was

>> So, here's my first question Cindi state of the fintech nation but I've got two other questions to put to you along along with that one. Are we really done

with the reset or not? And secondly,

where do you really see value coming out of fintech in the next sort of three to five years?

>> Yeah. Um, so look, I think are we really done with the reset? That is an evolving question because the question itself gets reset with uh the kind of macro disruptions that we are seeing, macro

changes that we are seeing, right? Um I

think uh 2022 23 24 probably were definitely the down uh down cycle globally. Uh certain markets did well as

globally. Uh certain markets did well as you know India did well during that time. 23 24 is terrific time for IPOs in

time. 23 24 is terrific time for IPOs in India. 25 from the looks of it looks to

India. 25 from the looks of it looks to surpass it. Middle East UA in particular

surpass it. Middle East UA in particular has been doing phenomenal. I mean the capital flows in the region are fantastic. We have seen a tremendous

fantastic. We have seen a tremendous amount of energy in startups in the region as well. Um there are aspects of US that are doing really well. Stable

coins has taken off in a big well.

Circle IPO certainly was a catalyst there but stable coins as a theme has taken off in a big well big way. Um in

lat we have seen increased activity uh for parts of that region. But what we haven't seen is a wholesale recovery of the vertical globally, right? Uh I would

like to think a lot of it is also tied down to the interest rate cycles because lending at the heart of it is probably 50 60% of profitability and so even if uh a fintech is has doesn't do lending

directly, they might have sort of their clause into it and might be anchored to it, right? Um so I think probably we are

it, right? Um so I think probably we are closer to the uh to the recovery than we were probably 6 months a year ago when we met in Japan. Uh but we are not there

yet. I think there is another probably 6

yet. I think there is another probably 6 months a year to go before the cycle recovers and that's assuming no other big disruptions. Of course there's lot

big disruptions. Of course there's lot going on around the world as you know.

So that that might change change all of this.

>> And where do you see value coming in the next two three years from your perspective? So look I think globally if

perspective? So look I think globally if I look at it stable coins is a big thing that we are going after. We we think it will be quite disrupt it is already being quite disruptive in crossber

payments uh in how global elites use their wealth such as yourself people who are geographically mobile spend in multiple geographies hold assets in multiple geographies for all of them. I

think stablecoin becomes a magical uh magical tool. Uh so we see that theme

magical tool. Uh so we see that theme grow growing uh pretty well. I think

some of our peers uh my old peers and your current peers have put the number as like half a billion uh people using stable coins over next two to five years. Uh one wonders how anchored that

years. Uh one wonders how anchored that figure is but regardless I think it's going to be huge. It's going to be very very significant. Um and with Genius Act

very significant. Um and with Genius Act coming in and the regulation in Europe coming in Genius is more forward-looking. uh but u with that

forward-looking. uh but u with that coming in I think the the impetus is definitely behind it. Um from a from a global tailwind perspective um AI has

been a very transformative theme and so far we have seen chat bots and sort of generic purpose uh artificial intelligence. I was actually talking to

intelligence. I was actually talking to CTO of Google uh the search search side of it uh day before yesterday. Um and

even there the sense is that LLM as a generic tool is one thing but what we really would start seeing are specialist artificial intelligence tools which will

solve specific problems. So um reinforced learning could be one of them. There are other tools that can go

them. There are other tools that can go in which will help solve specific problems. And so in uh in fintech in particular, underwriting is a big place where you have structured large data

sets that honestly have not been tackled in a very significant way since what we saw back when you used to visit Richmond office, right? Like decision trees and

office, right? Like decision trees and sort of um uh regression models. Uh we

haven't seen the next big breakthrough in terms of risk isolation and I expect that to happen at some point. Uh that

can be a big driver of value. I think on the other side distribution [clears throat] of fintech can be really disrupted by AI. Uh people are moving away from searches. Google has some

funny like very uh compelling statistics uh about it. We have seen open AI penetration also. India is not the

penetration also. India is not the biggest market for open AI or close to biggest market for open AI. So

distribution of financial services products among other products will also change. uh what AI does is it drives a

change. uh what AI does is it drives a lot of trust even in the first engagement and trust is a big driver for the buying decision in financial services because this is about money right so people do want to trust who

they're parking their money with who they're borrowing their money with from and so and so forth so I think AI will actually disrupt fintech distribution in a big way and we should see the next set

of distribution companies come out in financial services um those are the main themes I think u if you talk about regionally then I I think global trade

is being reset um in an unprecedented way. Probably we haven't seen such a

way. Probably we haven't seen such a reset in 50 years if not 100 years uh before and that will continue to be a theme. Dubai, UAE where you are sitting

theme. Dubai, UAE where you are sitting is is at the heart of it in many ways. I

think a lot of trade flows already intersect at Dubai but I expect that to only increase over the next five years or so uh as the the glo global trade

gets reset. Um we expect cross-ell also

gets reset. Um we expect cross-ell also uh sorry crossber payments to get reset as a result as well. Uh not just businesses but also consumer um there'll be there might be dislocate not

dislocation but I should say relocation of populations and all of that and that always comes with uh a start of redistribution of wealth. Um I used to live in London till last year. I just

moved to Bay Area. Um, and mine was not in inspired by this, but I've seen some statistics about how many millionaires have left London recently. Um, and UAE is actually one of the big destinations for that.

>> Yeah. I think we've been the we've been the biggest gainers.

>> Yeah. Yeah. And I think that kind of uh relocation right would would continue. I

think there is lot that's h that's happening not just in terms of taxation but sort of the the political geopolitical uh social alignment in lot

of geographies and that will uh that will create some some movement um so so I expect that to be a big driver of value um and again it anchors a little bit on the stable coin theme that we

talked about earlier but there are interesting nuances to this in terms of how do you become a bank to people like Arjun who are globally mobile right and so how do to serve you specifically. I

think there's a big value on coming there.

>> No, I I I think I you know I'm I'm it's it's it's a show where I'm here to ask the questions, not necessarily give the answers. Um but I I I do think we are

answers. Um but I I I do think we are seeing a you know a seismic shift towards finance coming on chain right and yes stable coin is sort of the poster child that you know most people

talk about it but it's going to format.

I think it's very correct that you've talked about you know global trade and trade finance 50 years it stayed in this sort of classical era. I think there's definitely seeing some disruption crossber payments. Finally, we're

crossber payments. Finally, we're starting to address uh you know the fundamental issue and this is not just consumer to consumer crossber payments.

This is the B2B flows. I think that's which will get disrupted. One sector

that I'll throw in I don't know if you have a point of view in this is and and for me it's a bit of a given as we start to see greater agentic commerce right so you know the Amazons and the Walmarts of

the platform move to sort of an agentic based platform I think financial services finds a way to embed itself deeper right and and I think there we

should see potentially an emergence of a whole host of newer players who are what I call the next generation of the embedded pay you know embedded finance players. So I guess the next generation

players. So I guess the next generation of the Claras or in our part of the world the Tabies of the world, right? I

think that that'll be terribly exciting.

Before I get to AI and do have a very specific question for it, are a few sectors completely falling out of fashion which have been quite popular in the recent past.

>> Yeah. Yeah. Yeah. Yeah. There are a few sectors that are definitely I think >> Do you want to call them out?

>> Um, sure. No, I mean look I think um um uh the traditional finance right if you say um a lot of kind of uh underwriting focus that we had seen in

insurance for example seems to be waning um and it's a function of both things I think risks have increased um and so that sector is going through a downturn in in some shape or form we have a couple of companies that are doing

really well but uh that's those are more exceptions than than than the norm for the vertical I think regulation is also evolving on that vertical a lot. Um and

so we are being cautious of that. Uh how

how deep we go. Um India I can call out in particular um regulators actually said that they are not looking to give out manufacturing licenses to fintex. Um

and so that becomes a sector that one would be one would be cautious about. Um

look I think otherwise broadly in fintech um uh to the extent that you're focused on sort of middle of the pyramid and top of the pyramid I think the tailwinds are

enormous right as much as we don't want to accept uh the income disparity is increasing in the world and that concentrates profit pools and revenue pools upwards right and to that extent

then impact investing and sort of focusing on bottom of pyramid it becomes more and more difficult the most interesting outcome there that I've seen uh that gives me hope and excitement. We

don't tend to invest in that part of the market given given our focus and sort of focus. we have a sister fund that goes

focus. we have a sister fund that goes more on the impact side of it but uh is uh two things right one uh innovations like UPI um so when I compare UPI and

pix and I know we talked about it in Japan also if I remember um in UPI the uh the regulators have kept the MDR to be minimal it's very very incremental

MDR that they're giving out as a result what has happened is on a per transaction basis UP is the lowest cost system I've seen across the phenomenally low cost execution, right?

So to that extent it is bringing financial vitality to the masses to the bottom of the pyramid. And so if lowc cost solutions large scale lowc cost solutions continue to become global that

is a big hope that you can actually spread financial vitality through the through the the bottom of the pyramid.

The second thing I genuinely believe because we have seen this happen in semiconductors for example a lot is the cost per query in AI I think will drop dramatically. It will continue to drop

dramatically. It will continue to drop dramatically. And when I say

dramatically. And when I say dramatically it's not a factor of five or 10. I'm talking factor of thousand

or 10. I'm talking factor of thousand right and when that happens then we would be able to bring health care we'll be able to bring education to the masses. So that can really even if we as

masses. So that can really even if we as investors are not focused on it, it won't generate the the best financial return. I think there are companies

return. I think there are companies being built with that frame of mind where you will just uplift the masses uh provide them the right tools to uplift themselves right uh to empower them to

uplift themselves. That gives me a lot

uplift themselves. That gives me a lot of hope that impact will continue to be a big theme in the world to come. Uh

>> no and I totally agree with you AI. So

every fintech is today an AI fintech now.

>> Yeah.

>> Yeah. Every every AI. So I think they've refreshed their websites, their apps, everything. Right. So so here's the

everything. Right. So so here's the question, right? In my view, there is

question, right? In my view, there is there is tremendous, if I may use, AI washing going on, right? From an

investor's perspective and seasoned operator, you know, investors, what are the telltale signs there that someone's AI washing? Ah let me ask answer the

AI washing? Ah let me ask answer the other side of the question right so I'm less controversial which is what are the telltel signs that's a truly AI company right that started with AI first so look

initially when we started on this journey I'll start with a little joke then it'll go into reality our cut off was that if it's more than two years old and calls itself AI then washed up right um so that was the joke within the IC

that we used to at least internally with couple of partners we used to share uh because everyone just start had a class last name uh extension and then then then the rest is history. But look, I

think the where AI comes in, right, with the way we think about AI, especially from a fintech perspective, we think of it as a tool, right? And so what does AI

act on? AI acts on large data sets,

act on? AI acts on large data sets, large customer sets where there is value in improving the genie coefficient, right? Where you can really separate

right? Where you can really separate something out. That's one aspect of it.

something out. That's one aspect of it.

The second aspect of it is the cost reduction and efficiency improvement. So

every engineer worth a salt has a copilot now right everyone in customer support customer success has an AI tool that handles and where jurisdictions or

verticals enable you already see kind of computer uh algorithms taking the call at least the L1 calls rather than the support systems. So I think those are efficiency improvements that we see

across the board. Um each one of my portfolio companies is doing AI in some shape or form. Some of them have really specific experiments. Others are doing

specific experiments. Others are doing it more broadly. Some have hired CTOs or who are AIled. Others have created sort

of um what do you say focus uh focus teams to drive AI horizontally.

Some have kind of drafted people into each of the squad to who can who are more AI first. So everyone is driving towards AI in a in a certain shape or form. What really distinguishes AI first

form. What really distinguishes AI first companies are people where this tool can be used to deliver the alpha. It's not

about beta, it's about the alpha. Right?

So if you're really data intensive, if you're doing underwriting and can show us a differential because you have cracked not LLM used on languages but um other learning models that can that can

drive it. That's very very interesting.

drive it. That's very very interesting.

Um I won't name the company but we had a CEO conference couple of weeks ago and one of the founders I was talking to.

They have now started configuring user offers on the fly using AI right where kind of when a customer calls in based on the initial service. So if you recall right back in the credit card days that paper application used to be filled out

there's a certain offer that was mentioned up front and that's the offer you offer that you give to the customer.

So it becomes a static decision in today's world of like specific data points being observed and you decide based on it. Here it's sort of generative, right? Like a customer calls

generative, right? Like a customer calls in and says, "Hey, I can't pay my card uh because I'm uh what I lost my job."

And then he he or she reveals more details about when they'll be able to repay. So the repayment offer gets

repay. So the repayment offer gets configured on the fly on the call and then the agent gets prompted that hey you can make this offer to this customer and that is more likely to to be

accepted right and if the customer wants to think about it or uh is hesitant to take the offer then the AI prompts further that maybe we can have another call in this much time at this time when

you have this income coming in all of that right so fairly intelligent but still augmented distribution uh through humans uh of offers things like that that those are true true AI moments

right um >> true agreed that and you you you and you're confident that more and more of them are actually doing the right thing

>> I think um so when I went to my undergrad okay I'll give you a story and then the stories are very interesting right um that's what chats are made of so when I was thinking of going into undergrad um the big decision becomes

and you have you you've been lived in India right like you either become an engineer or doctor back in my generation in your generation and if you choose to become an engineer then the only significant decision you make is are you going to do computer science or

electrical engineering or mechanical engineering and I was very I could take all three but I was very keen on mechanical and so I spoke to uh some retired some professors actually to

understand which one should I take and one of them I forget his name he he had a pen in his hand he said look a computer is like this pen you know are you going to become a pen engineer or are you going to become an engineer what

the pen really sketches right And for the impression of a 16 year old the fate was sealed that I'm going to become mechanical engineer because the application of computer science will come to mechanical engineering and

credit to him my undergrad actually bore that out like I did my major thesis was in like a huge Java code and software simulation of something in mechanical engineering so I would use the same

analogy right AI parts aspects of it are becoming like a tool we will all use AI right it's just that's just a given at this point and therefore all companies

would have an aspect of AI for sure, right? It's about can you harness the

right? It's about can you harness the precision of AI to generate an alpha. If

your business model allows you to do that and if it doesn't allow it, I'm sure there are other things that you can leverage, right? Go build a great

leverage, right? Go build a great company. But if you're trying to build

company. But if you're trying to build without AI, you are just shooting yourself in the foot on day one, right?

Your opex is going to be higher, your CAC is going to be higher, your turnaround time on code is going to be higher. Therefore, your future your

higher. Therefore, your future your feature velocity is going to be slower, right? Your product is not going to be

right? Your product is not going to be as customer friendly, as customer sensitive uh going forward. So, not

building with AI is is is foolish at this point.

>> Okay. So, so this leads me to a very interesting question, right? As a as an investor, right? what has moved from

investor, right? what has moved from nice to have to a must-have when you're looking at when you're looking at and assessing companies >> right um I'll give you a nontraditional

answer first right so I think the thing I've realized really uh is especially in fintech awareness of regulation awareness of what's happening in financial services has never been more

important >> in last three four years if you look at outcomes here in the United States in Middle East and Africa in India in Australia and Japan, how much macro has

shaped the micro is truly phenomenal. We

have never seen this level of volatility in macro, right? Um, and that has really translated into how companies are built, how companies are growing, right? So,

that's one capability that explicitly watch out for for a founder uh that can he uh can he or she actually uh have that lens, right? and at least have a perspective on it on whatever is

happening in the world and how it affects their their business and how do they bring it constantly uh because she is really at the top of the the funnel and so uh whatever she sees is is going

to filter down into the company um second thing is velocity is paramount right uh um I think there's uh I think

Peter Ducker said it someone said it right strategy eats execution eat strategy for breakfast >> yeah I think it was Ducker Yeah. Um but

um it has never be more true. Uh and the reason for it is because execution has become so fast. By the time you have a strategic moment and you take the depth and you have that board meeting and 3D

offsite and all of that, the world has moved on, right? It doesn't take away the value of all those things. I think

this is still a highly volatile environment and therefore when you have to act with a strategic thought, but the action has to be very very fast. Right?

So thing I look for in founders is how quickly can they iterate not just on their product features but on their customer understanding their product understanding where they're positioning themselves across segment how they're

orienting their uh organization and how fast can their organization really execute right uh and going back to AI going back to stable coins in fact as well the execution velocity is really

fast now in the underlying uh in the undercurrent right so I expect the founders also to move to both of us.

>> So I'm going to I'm going to have to ask you this question. Right? So five. So

these are both fundamentally sensible criterias or assessment, evaluation, whatever you want want to call them, right?

>> Why five years ago or six years ago when VCs were throwing money left, right, and center, why were these virtuous ideas not there in the consideration? You

know, I I I just explain. I I struggle.

>> Yeah.

>> Maybe maybe I just don't get it.

>> No, no. Look, I think 5 years ago, we were in a different reality. We were in a different universe. We were in the universe of I'm going to name a company.

I hold them in high regard. I own their stock as well. Uh so actually I'm a believer in it. But we were in the world of where Uber would enter a city and start operating their taxi service and

then expect that as they scale up massively, the regulation would contort to them to to to suit them. Right? We

were in a world where Facebook and Mark had actually said it, right? that we are in a world where you break break things fast and build them again. Something

like that, right? Like we are in a world where uh the traction was the driver of regulation catching up to it,

right? Um we were in a world where micro

right? Um we were in a world where micro could shape the macro and I lived in London at that time and I actually saw how taxi laws were reshaped and shaped so that Uber could be accommodated. So I

saw it firsthand happening in my everyday experience, right? Um so we were in a world where micro and some thoughts could drive sort of things so fast and so far that everything else

would conform to them.

Yes, today also big thoughts can drive things but I think macro has become so much more important right um I don't want to overplay the theme but you can

have sort of administration regulation just come down and thumb down on things uh which don't contort to conform to the direction they are they're driving towards. So regulation is always

towards. So regulation is always important especially in fintech it was always important but there was a case to be made that hey if this thing really takes off then then we could really chase something and other things shall

shall fall in place that no longer seems to be true always right that that >> so so let's double click on regulation a little bit right so so I think you're very critical in in in in the view you

know I've heard things and I do prescribe to these ideas one is you know uh regulation as an accelerant Right. So

you can actually and and you're seeing bits of bits and pieces of that, right?

The regulation comes across, you know, if you're well placed, you can accelerate. Others have said, let's use

accelerate. Others have said, let's use regulation as a as a moat. Right now,

what do you as an early stage investor advise, guide, steer your founders to do that? That sort of mindset or that sort

that? That sort of mindset or that sort of way of thinking can be go beyond just awareness and be actually embedded into their business models. What do you look

for? what you suggest how do you kind of

for? what you suggest how do you kind of make it a bit more real?

>> Yeah. So look where we operate like the state we operate at and so we go series A onwards right it's still companies are quite early at that stage

>> um they may or may not have explicit um a head of regulation chief legal officer someone in charge who's actually thinking about these things uh in a in a

full-time capacity right so for me the asset test really becomes the founders um and I would in the assessment process if I get serious with you uh I would

assess uh deeper about how you think about regulation. How much do you know

about regulation. How much do you know about it? How important do you think

about it? How important do you think regulation is? Um and if you don't if

regulation is? Um and if you don't if there's no regulation affecting your business right now, tell me what would affect it. Right? I don't want you to

affect it. Right? I don't want you to stay awake at night thinking about regulation. But when you're awake in the

regulation. But when you're awake in the morning, you should give a thought to it. You should think about whatever news

it. You should think about whatever news is coming out. How does that affect you?

Right? U if we had recorded this podcast a year ago, even then we would not have predicted Genius Act, right? U we knew that crypto and stable coins were about to come uh mainstream. But the

acceleration that we have seen in last one year is unprecedented and had genius not happened, it would not have been this accelerated, right? So regulation

is that's a case in example uh case in point of what you are saying that regulation is an accelerant, right? Um

and so you want founders who can think about it because if it's a rapidly evolving world where you can have mass accelerance then the the person who's

who has thought about it who has a frame of reference to it can build for it very quickly right um if I as I said I we invest from series A all the way to

preipo so if it's a later stage like a series D series E company 3 years two years from IPO then we expect them to have the forks right then they would have of policy version of of things of

how regulation affects them. Probably

would have put thoughts into what it means to have a public relations person.

uh what agenda that person is driving what aspects do they engage in with the administration with the regulators on thinking about uh uh about the impact on their business especially in regul in

jurisdictions where regulation can have big impacts right uh and that truly is global now but uh yeah uh if you're operating in Europe things will affect you for sure uh here in United States we

have seen that regulation is a big excellent in India has been a big excellent um on in Middle East and in Singapore uh we have seen the other side also where regulation has actually

pushed growth and pushed innovation in a very dramatic way and again they're having the right um connect and the right awareness is is very important to building a a successful startup.

>> Okay. So here's a yes and no question.

So are you suggesting that in the way QED now invests you have actually taken regulation far up higher in the pecking order of consideration in the overall

themes i.e. which part of the world you

themes i.e. which part of the world you go into which sectors you enter in?

>> Yeah. Yes. I think that's very true. Um

there are countries where I'm not in investing because we don't have a very um positive view of the regulation or how the regulators have acted. I would

choose not to name them. Um and then uh there are uh companies that can be evaluated in the founder assessment criteria. This is actually a very

criteria. This is actually a very important thing that that I look for.

How aware you are how aware the companies are of the regulatory and macro impacts.

>> Okay. But but here okay let let me let me because I guess I'm a consultant who in a way is the kind of the antithesis of of venture capital in a lot of ways.

Right. You give us an idea we find 10 ways not to do how not to do it. Uh so

so here's my view right if you're in a progressive sector which is itself very dynamic in terms of change right whether you take AI whether you take digital assets right the these sectors are

forming right because technology is moving so quickly and at the same time you come with this accelerating regulation right in terms of saying you know we got to be very progressive we got to be the first country to do this

you know the first country to to to launch its CBDC's XY Z right >> don't you guys get worried that there is some sort of a systemic risk that we're

running towards that there could be a U-turn down the line when you know things mature and you know the cards actually get dealt on the table

>> and and how do you guys sort of factor that into your thinking as people who are shelling you know cash >> yeah so very good question so when I think of investment when we think of

investment thesis um thematically there are two things right you're looking for things that are tailwinds that that are helping drive the investment forward and so those are there you catch on to the

velocity of things but you're also looking for things that are steady that are sort of bedrocks of that investment right and so there I would say things

like consumer behavior is a bedrock right so when we are investing in stable coin for example we are not investing because this is a stable coin company we are investing because that company is

trying to solve something that was fundamentally broken that needs to be solved And now stable coin provides a rail to solve it tomorrow. If real-time

[clears throat] payments right by some miracle becomes another rail to solve that problem. Probably the same problem

that problem. Probably the same problem can be solved. But because our company's anchored around the fundamental problem that needed to be solved, it will be able to absorb the new tool and will

still again be the first to market.

Right? So the the bedrocks have not changed. Right? You still need to have a

changed. Right? You still need to have a very strong problem statement that you're answering. You should have a

you're answering. You should have a solution set that benefits from macro and the tailwinds but the solution set should address the fundamental customer needs right like what we are talking

about like the needs of the globally mobile right this was a smaller segment in past uh back in the day HSBC expired premier probably started with this theme they have retrenched a lot city bank had

an offering that has retrenched a lot so and so forth so this need has existed for a long time it was smaller need more focused needs and existing players retrenched trench and you and I know right like there are a lot of regulation

that actually ask them to pull back this anti-money laundering KYC which pulled them back from this market. So there's

an open need here to be to be addressed.

Now if stablecoin provides a rail to address this need all for it let's go for it right but the company's anchor has to be in the customer need the segment has to exist they have to have

unmet needs our product has to meet those needs and to deliver that product you can benefit from that so that anchor has not uh has not gone away another anchor is founder right like does this

founder really know what they're building right why do they think they have the right to win tomorrow do I see them ringing the bell at NASDAQ for this company, right? Can they do I

think they stand up to the scrutiny of quarterly calls and all the investor interactions that happen for a public company? Who is a comparable uh public

company? Who is a comparable uh public founder that I can stand them next to?

Right? So founders continues to be a strong anchor. Now regulation is an

strong anchor. Now regulation is an important theme that hey, if you are a vigilant guy, then you will know that macro affects me a lot more now. So I

should keep my ears open. But that

doesn't change the founder quality, right? the market market size that

right? the market market size that you're going after that is an anchor for sure. The big change there is some

sure. The big change there is some markets are even more even harder to predict. No one 3 years ago or two years

predict. No one 3 years ago or two years ago would have said stable coin can get to half a billion number. Now that's

sort of accepted that yes it will get to half a billion number. What volume do you think will it get to? Does it really get to trillions of dollars? How many

trillions of dollars does it get to and how much of US dollar like in circulation will sit in stable coin?

That's the question people are debating.

So the market size is really expo uh uh exploded uh there but the fundamental side that we need like a 5 billion 10

billion 20 billion market to actually anchor our thesis on that anchor point has not changed so there's some things that are fixed right and then the the water sort of flows flows on top of

>> so so let me let me let me bring you to my part of the world and Mina right you you know we we we talked about a few themes you talked about and I don't know if these are in your words infestestival themes but you know we talked about

financial vitality for the masses. You

talked about crossborder. Um you

obviously talked about rewiring of trade finance whether it's on the back of you know onchain rails which is stable coin or otherwise. Um um and and I think you

or otherwise. Um um and and I think you know you also talked about sort of AIEL uh sort of credit lending. So from a MINA perspective and and and we'd love to see a lot more of you and a lot more

of your checks here. uh uh uh but uh what are the kind of emerging investable themes that QED is is like uber excited about or uber interested about let's use the word interested um in this part of

the world >> and how about some of the themes because they are specific to region also but crosswater I think is a very important theme both on a consumer scale so crosswater trade uh sorry crosser

affluent uh wealth in that sense and crosser payments but also on the other side of it which is for B2B and as trade gets reshaped. It's a very very

gets reshaped. It's a very very important theme and not just because of the commodities coming out of the region but I think because uh the world will

increasingly need market places where buyers and sellers can meet and trade in a um for lack of better in a safe and predictable environment right and the

the Middle East especially UAE is becoming a a place for for doing business in that sense. it was

generationally ago as well and so it's not surprising to see that that reemergence happen um in some geographies like Saudi I think uh

because the middle class uh continues to become bigger and rising I think all the themes that we have seen globally right in terms of neo banking credit uh insurance will become relevant um what

we find is the regulator is far more forward-looking uh and far far more fast moving than we have seen in most geographies And uh because of the the the

commodities boom right like there is a local pool of capital that can drive innovation right uh us as kind of global investors one thing we worry about is who writes the following checks right

are there investors downstream are there public markets who are excited about this and frankly in Middle East that question doesn't arise because uh the region has enough capital to fund

companies to glory right so um so in countries with larger population Saudi being being a prime example. Um there is a you can actually have broader consumer

depth uh in that vertical. The third bit um is the population migration. I think

the the region is genuinely a big beneficiary of it. Um and so there's global banking kind of themes that become very very relevant to to that. Um

AI will become important. I think UAE released its first model if I recall two three weeks ago maybe a month ago. Yep.

I haven't looked at the scores and so on so so forth. So it's great to see a fundamental model come out. What I'm

more excited is that it's able to attract the talent pool uh to build something like this and that then is the real genesis whether whether everyone has a sovereign AI or not I think is is

fine like I don't want to go into that debate because even open- source uh AI are fantastic tools and they'll only improve right you can have proprietary

AIS which are 5x 10x ahead but it no longer feels like if you're just relying on public tools on open source tools you'll be that far behind I I think it's the execution of AI that really becomes

a significant driver and if UAE in particular is able to attract that kind of talent pool then there are great things to come in terms of all other aspects right healthcare education those

are two sectors I'm particularly excited about but but a number of those yeah >> interesting so I I think just just to add to it it was actually I think Saudi

which came up with the humane uh LLM tool yeah right but okay so I'm I'm conscious of time. I've got two questions. One more question which is

questions. One more question which is related to to I guess what we're discussing. Let's just touch on a little

discussing. Let's just touch on a little bit about ex exits and liquidity. Right.

So, so in the current environment we see we we've actually seen a little bit of a if I may say I won't use the word resurgence but sort of a number of fintexs go to uh you know go to the

public markets right you had chime we've had cla uh I think we had SoFi u and and maybe a couple of others right I forget the name right as you see today what do

you see as viable sort of attractive paths to liquidity is it all about IPOs or do you start seeing some trade sales do some consolidate Do you expect to see some consolidation or do you think

that's highly sectoral and regional? So

in fintex what we are observing is IP obviously is the preferred path and to the extent that the public markets continue to be very buoyant uh that will that that is the most attractive path

that's where you get the best valuation but also it sets the company on uh on an independent trajectory to continue to to prosper and propel forward right so so

we always prefer IPOs um and that uh that avenue has certainly expanded um the on the M&A side what we find is becoming far more prominent is fintex

buying fintex. So tech companies buying

buying fintex. So tech companies buying other tech companies. What we haven't seen as much of is for example banks buying fintex right and there are exceptions right you and I last met in

Japan that's certainly an exceptional market where traditional so companies buy fintex to gain the edge in the digital world and they understand the value of importing that talent and

importing that culture and trying to keep it like nurturing it but not suffocating it within a big organization so it continues to to grow well but I think Japan is one case study of it I

haven't seen that that prominently uh elsewhere I certainly haven't seen it in US where >> no what what we're seeing here Sundep is I think a lot of the banks are now

finally foraying into you know CVC I I don't think really anyone has kind of cracked [snorts] it right here but I think what they've realized is that outright acquisitions leads to value

destruction so their logic is let's take a CVC call let's have a blended sort of strategic financial outlay if you're able to kind of use some of this fintech for our benefits then great if not you

know it's It's a bit of a head strategy, but I think it's early days here. Um,

and you know, you you refer to that sentence where you said, right, um, uh, execution eats strategy for breakfast, right? In this part of the world, I say

right? In this part of the world, I say culture eats both strategy and execution for breakfast, lunch, and dinner and all the meals in between. So, so I think, you know, we we have to come up this sort of cultural curve, right?

>> Right. in this part of the world, right?

Specifically with the incumbent banking sector because they've been perennially incredibly profitable, right? So there's

really not been any burning platform to kind of change and transform.

>> Yeah. Yeah. I think that's very true.

Especially Yeah. Especially in the geography. For sure. For sure. I think

geography. For sure. For sure. I think

uh yeah, last I served that region was probably 10 years ago. I was a consultant then at that time. Um and

then now we have been investing for last 5 years and what we have seen is the ROAS that banks generate in that region

are phenomenal phenomenal uh so that creates complacency to innovate um which is great right then there's more fintex to be had um I think CBC is a very

interesting angle uh to the extent that it identifies or it enables some of the banks to be more tech forward uh and actually take the leap of not just investing But actually acquiring

companies I think that could be a a very very important growth factor. uh but

seeing the profitability in the the vertical I think it's it's a fantastic hunting season right for fantastic >> it is fantastic but my problem is you you hunt and if you don't know how to

eat and digest what you hunt then it's kind of wasted carcasses as I'd say and then actually it becomes value destructive not just for the acquisition but actually for the entire industry because you potentially take a a good

player you know out of the market so I think the way I see it I'm not cynical I think you know at least they've taken this step towards CBC's. Let's see who gets it right. I've yet to see one.

There is an exception. Uh there is a Saudi bank who kind of has done I wouldn't say CVC but they've kind of done something interesting right where they've kind of carved out several businesses created them used them and

and and sort of generated u sort of incremental exponential value. But we'll

watch it. My last question sir, I'm going to really put you on the spot on this. Your views on the VC industry.

this. Your views on the VC industry.

What is systemically wrong about it?

What needs to change?

>> Oh yeah. I guess now I'm part of the problem five years in.

>> Well, I'm not I didn't say you could just turn around and tell me Arjun there is nothing wrong with the VC industry.

>> No, look, I think one thing I would call out uh in the industry is over last two years specifically, I think funding has flowed a lot to the top five, top 10 names, top 15 names, whatever you want

to pick by vertical.

>> But the uh the curve has really sharpened uh and folks are investing a lot of money out towards the top. I

would love to see a lot more distribution also because this is as much as the founders we invest in this is an industry that has grown out of innovation right uh and I go really back

to like when Sequoa was started and when Perkins was started those were not professional VCs or professional financeers coming to do financing those are operators who stepped into and identified that hey now that I have a

little bit of wealth and I have a little bit of influence I can drive more money into other operators right um and so I want to see more of that innovation come in, more of emerging managers come in

who can who who can get funded. Um that

would be the one thing I'd want to change. I have really seen that curve

change. I have really seen that curve shift over last two years, last three years where financing is focusing a lot more on the top names. Uh a little bit broader distribution is is desirable for

the vitality of this industry.

>> I get it. So and I take two takeaways on that. I think one I totally agree that I

that. I think one I totally agree that I think we should have more operators in the VC world, right? Uh one way or the other. I think the second bit is I think

other. I think the second bit is I think we should definitely diversify the the portfolio and a little less of this herd mentality where there is you know a couple of lead investors and then everybody else sort of says okay we'll

just follow the leader. So there is a I wouldn't use the pipe piper uh analogy because that's not right because the lead investor doesn't necessarily mean pike piper but then there's a lot of money just locked up with the very few

people and I guess uh it's not necessarily the long tail it's kind of the middle bit which you know which could read that scale capital never kind of gets that scale capital and doesn't

achieve it. Uh Sundep, thanks a lot. I

achieve it. Uh Sundep, thanks a lot. I

appreciate this super early start for you, right? Um I'm going to be ending my

you, right? Um I'm going to be ending my Friday evening. You'll be starting your

Friday evening. You'll be starting your last day of the week. So, uh I guess uh have a good weekend, >> right? And I really appreciate you

>> right? And I really appreciate you making it.

>> Yeah, always a pleasure talking to you, Arjun. Thank you so much for having me

Arjun. Thank you so much for having me and look forward to seeing you around the world.

>> Yeah, we I'm sure I'm sure we will catch up soon. If not if not in Singapore

up soon. If not if not in Singapore Fintech Festival, then maybe in Japan next year or wherever.

>> For sure.

>> Right. Take care. So ladies and gentlemen that was Cindle who's a partner with QED. Uh as I said QED is a

early stage uh fintech focused VC out of California. Um they've invested in some

California. Um they've invested in some of the best known startups. Uh I think this would be an interesting conversation for you to listen into irrespective of whether you're a founder

or not. So do tune in uh and I'll say

or not. So do tune in uh and I'll say goodbye and see you next week. Bye-bye.