We sat down with Spiros Margaris, Venture Capitalist at Margaris Ventures and AI Influencer to discuss the state of VC funding of AI and Fintech startups and how crazy thoughts could be the start of an AI business.
Algorithm-X: Can you tell me about your background?
I have spent most of my professional career in the hedge fund and startup world. I also founded my own startups in New York during the dotcom era, so I know what it means when things don’t go as planned, and what it can mean personally, with all the bitter consequences.
I have been primarily involved in the fintech, insurtech and AI space as an investor and advisor through my firm Margaris Ventures.
I have been a keynote speaker at major technology and banking events, where I have been fortunate to meet very interesting people and exchange thoughts and ideas.
Algorithm-X: What’s happening in the world of venture capital and AI?
There is still a strong interest in AI-related investments among VCs. We will see record investments for 2019, and I believe this will continue into 2020 since investors and companies see the value of AI and machine learning as a competitive edge in business.
I believe we will see years of smaller funding cycles in AI startup investments, but the general strong AI investment trend will remain intact for years to come.
Algorithm-X: Are we seeing too much money from VCs thrown at AI startups?
With any promising technology that attracts investors, you will see phases in their growth and investment cycles that seem, for some observers, to be hyped up, and as you said, it appears that too much money from VCs is being thrown at, for instance, AI startups.
That doesn’t mean the investments are not justified, even if most of the startups will not survive. Our business is about finding the winners and appreciating the accomplishments of the startups that go under since they often contribute directly or indirectly to important advancements in their respective industry.
And let’s not forget that real and committed entrepreneurs will come back to start a new venture after their previous venture failed. Failing is just part of the game, and we know that not many people can deal with failures and get back up again. As I say to all my startups: “You only lose if you don’t get back up again!”
Algorithm-X: What is your framework for investing in Fintech and AI startups?
Certain things need to be in place before I will get involved in a startup. Obviously, there needs to be a strong and experienced team behind it, but they must also have traction with their solution, and a lot depends on my personal view of the potential of their solution.
I never think of exit scenarios, and I also encourage startup entrepreneurs to think in the same way, since I believe the goal should be to build something special and long-lasting. Entrepreneurs should want to create something magical that they can be proud of – not like investors with an exit scenario.
I truly believe that investing in the startup world is ‘more art than science’. And since startups are often at an early stage of their development, you need, as an investor, to project far into the future to imagine its full potential of growth and possibilities.
So, by definition, if the full potential is still far off, then it doesn’t make a lot of sense to value such a startup like a mature company. Even though it sometimes feels scary investing in them, it is also very exciting at the same time.
Algorithm-X: What stages are you targeting in your investment cycle?
As I said before, I prefer startups that have traction. In other words, they have acquired clients and grown beyond the local domestic market. Of course, they also need a strong – preferably global, but not necessarily – ambition.
Again, I need to see the excitement in the team’s eyes, indicating their desire to build something special that will change their industry for the better and, in the process, serve their clients with a better solution than that which they are currently being offered by other companies.
Algorithm-X: What type of companies do you like to invest in?
I am currently invested broadly in all kinds of industries, although my main focus is in the fintech, insurtech, AI, and cybersecurity space, but I am open to opportunities that don’t fit in exactly with those mentioned, as my startup portfolio shows.
Algorithm-X: What are your thoughts on so-called challenger banks in Europe? – Will they ever gain traction? Are they really disrupting banking?
The challenger banks have already disrupted the incumbent banks through their own strong brand awareness, growing market share (although still relatively small by customer counts compared to the big banks) and customer-focused and innovative solutions that make a lot of bank offerings look outdated.
The challenger banks have forced traditional banks to innovate at a faster pace than they would have preferred.
The business and culture environment of banks is not known for fast and innovative changes, and slow movement has been subconsciously attributed to the quality of a solid business model. Needless to say, in the new technology-driven world, challenger banks have a huge advantage over the old banking business model.
So, at this point, challenger banks are disrupting big banks by forcing them to change faster than they want to, but as time passes, some of the challenger banks will be bought, some will go under and some will become big international players that will really disrupt the classical banking business model.
But let’s not forget there are also the tech giants that are likely to disrupt banks even more. This is not because they target them directly, but because their customers want some banking services in-house, such as lending, foreign exchange or payments.
That will take away business from traditional banks and make their original business model of banking less profitable, and I don’t need to draw the picture for most readers regarding what the outcome will be.
Algorithm-X: Why are AI, fintech, and blockchain so hot now? Is it the perfect storm?
I think insurtech and AI are hot, and blockchain is bouncing back from some disillusionment with its potential. I don’t think we are in a perfect storm, but in a small storm that will have some bad consequences for some players who don’t adjust quickly to a new and fast-changing environment as the storm gets wilder.
Algorithm-X: Is it inevitable that big tech guys will dominate AI?
It sure feels and looks like the tech giants will dominate many business models that were not originally operated by them. For instance, Amazon has spread its wings beyond books, as we know, and in the process, it has imbedded many solutions – for example, payments or lending – to provide its customers with a convenient platform on which to work.
That also means it took away banking solutions from banks and provided them in-house. But let’s not forget something – namely, the regulators that will step in to stop any company dominating or abusing its power, and that’s good, as it will protect the economy and its people.
Algorithm-X: What exciting companies/projects are you seeing in applied AI in the fintech/finance space?
One of the most exciting companies in the AI and cybersecurity space that I am involved in through Margaris Ventures is the startup mediastalker.ai.
Mediastalker is the global technology leader when it comes to IP media content (live sports events on pay-TV, movies, etc.) protection. They use sophisticated AI/ML algorithms to protect their content and take down illegal uploads of movies and sports events, and this is done within minutes. They currently have a controlling market share in Greece, Cyprus and, most recently, Israel (the cybersecurity nation), and are in discussions to expand further globally.
Their AI/ML solution enables them to manage a major part of the global media (movie rights and live sports events) with a team of around 10 people. That’s what I call true AI/ML implementation.
Algorithm-X: Are banks and insurance companies investing enough in AI and machine learning? And should they?
Most companies that deal with data should invest heavily in AI and machine learning solutions because if they don’t, their competitors will. AI will change the business model of most companies, and either you change your business model or someone else will, and this will likely be by someone you didn’t have on your radar.
Algorithm-X: Is there anything else you’d like to add about AI and fintech?
We are just at the beginning of what is still to come in the fintech and AI space. Think of the kindergarten stage or, for some players, a little further on, but I strongly believe we have seen nothing yet when it comes to truly innovative and convenient customer solutions, as crazy as it sounds for most.
Crazy thoughts are a good start to dream and create something big and special in this world.