Why every bank’s a technology company too now

FusionWire, March 2016.

Screen Shot 2016-03-10 at 10.59.14Is the Capital One 360 Café the future of banking?

Is it a bank, or is it a café? The Capital One 360 Café in San Francisco is financial innovation in practice, says Jacob Mullins, as we spoke with the Exitround co-founder about why major corporations are branching out to invest in tech companies and run cafés.

From the street, the Capital One 360 Café in San Francisco’s Financial District looks like any other big city bank branch. But once you’re inside, things quickly become a lot less clear. Is this actually a bank? The bright, sunny room looks more like a coworking space – the free wifi is excellent, and there’s communal tables with plentiful plug sockets where people sit and work all day. Adding to the startup vibe is sustenance provided by Bay Area coffee chain Peet’s, with a sign next to the stacked beans: “Are you ready for retirement?” Also, your drink is 50% off if you have a Capital One credit or debit card.

The space at Post and Montgomery in San Francisco is one of eight Capital One 360 Cafés around the US. The bank describes it as a “reimagined banking experience”, delivered by a financial organisation “built on digital tools and human connection”. It’s an interesting take on where the the bank branch of the future may be headed, now that people are increasingly going online for their basic banking needs. The San Francisco outlet has no cash tellers, just people in Capital One shirts milling about with iPads, reflecting how the bank branch is increasingly about expert advice. Considering how Capital One 360 is an online-only bank, this is a clever way to create a point of contact for customers, not to mention a fresh take on marketing in a digital age.

The case for looking beyond your industry
The Capital One 360 Café isn’t the bank’s only effort to make a name for itself as an innovative financial services company. Last year, Capital One acquired Monsoon, a company specialising in design, development and marketing. This follows the bank’s 2014 acquisition of another design firm, Adaptive Path, shortly after making waves by hiring Dan Makoski, the so-called “pirate” designer known for pushing boundaries as head of Google’s Advanced Technology and Projects team.

At the time, even Adaptive Path co-founder Jesse James Garrett acknowledged the choice to go to Capital One was “weird” for a design company: “No one here was more skeptical than I was. I simply could not imagine that a huge bank would be able to foster an environment of creativity in which we could truly flourish. But honestly, when it comes to truly human-centered thinking, Capital One is among the top tier of all the organisations I have worked with in 15 years of consulting.”

Because banks need great design too, and corporations from every single industry increasingly need great technology. Capital One is not alone in reaching beyond previously rigid industry boundaries to make acquisitions that reflect this fact, says Jacob Mullins, CEO and co-founder of Exitround, the private marketplace for buyers and sellers of technology companies:

“Over the past five years there’s been a huge trend of large companies, which are not traditionally software companies, as they’re starting to realise: ‘Oh actually, we are software companies!’ So Coca-Cola makes drinks, but they need to reach their users in a brand experience through mobile apps. Home Depot need to be selling products through online channels. [Sports clothing company] Under Armour spent $560 million last year buying mobile apps for athletics. They realise that’s how you build a brand, and that’s how you actually build loyal customers.”

Exitround’s matchmaking engine
Mullins co-founded Exitround in 2013 with a wish to create a more efficient way of pairing people looking to buy companies, with those looking to sell. Mullins would facilitate deals as part of his job at Shasta Ventures, but it was a slow process based on personal networks: “Goldman Sachs and Merrill Lynch have armies of associates churning away at finding the right buyer or seller, and that’s incredibly resource intensive. The fees are stratospheric. … I was thinking, there’s got to be a bigger opportunity here. So how do you connect more people for the purpose of fundraising or M&A? Through software.”

Mullins and I have met in Exitround’s office in San Francisco’s SoMa district, where the company is operating in classic startup style: no sign on the door (Is it a business, or a storage unit?), the mandatory ping pong table, and the still-present machinery from the space’s previous occupant – a butcher – down to a meeting room that used to be a meat freezer. Capital One is one of Exitround’s clients, alongside the 4,000 sellers and 30,000 buyers currently using the platform to find acquisitions, make strategic investments, or form other kinds of partnerships.

By creating a data solution that matches companies based on what each party is looking for, Exitround has taken away some of the need to know the right people in the right places in order to make connections. But like any good matchmaker, Exitround only steers you in the direction of what you’re looking for – the parties then have to meet and see if there’s chemistry: “Actually meeting, and starting to build a relationship? That’s a human process.”

Exitround operates as a closed marketplace, where buyers and sellers create anonymous profiles with their characteristics, financial data and team experience. Exitround’s custom-built matching algorithm then does the work of determining who’s worth a closer look. “It enables that company to get inbound interest from potential buyers or investors, which can then turn into a conversation. It’s not one-click shopping. It’s a relationship-building network,” says Mullins. To ensure the platform maintains a certain quality, Exitround rejects about half companies looking to become sellers. Right now there’s 90 million potential connections between buyers and sellers, says Mullins, but nobody’s identities are revealed until both parties have opted in.

Buying a culture of innovation
This kind of matchmaking is especially valuable when a corporation is looking to invest beyond its core industry, which arguably means going outside your personal network. Asked why a company such as Capital One would buy a business that’s outside their traditional focus area, rather than just hire in that service, Mullins thinks this is a result of trial and error. Many large corporations have attempted to build in-house developer teams, only to realise this isn’t that easy: “It’s difficult to build a culture of technology and innovation in a company that may sell insurance, lumber or clothing. The easiest way to do this is actually to buy a company that’s been very successful with what they’re doing, and who happens to fit into your particular industry space.” Google and Yahoo! pioneered this model, adds Mullins, and it’s now being adapted by non-tech companies.

The Capital One 360 Café is a great example of how this trend work in a practical setting, says Mullins: “It’s a free innovation space, right? It’s so unique. Capital One is a bank, but they’ve been very acquisitive. Now they’re creating a culture of innovation in that café, bringing people in, trying to get the lion’s share.”

The plan for Exitround going forward is to create a window into private capital markets, something that’s lacking today, says Mullins. “How do you raise money? You pick up the phone and ask your friend to introduce you to some people. If you’re both interested and they decide to invest, great. But how do you know the price of a company? … Whether it’s an investment or a sale, there’s zero insight into the valuations for deals.” Exitround won’t share specific deal prices, but Mullins says the company is able to share deal pricing trends based on types and sectors.

Exitround may also be able to help businesses operating outside the Silicon Valley startup hub to gain access to this supercharged investment environment: “We have companies in Africa, Asia and Europe getting visibility to buyers from all over the world, who otherwise would have had to pay a banker an extortionate amount in order to get access to those buyers.” 80% of Exitround’s operations are still US-centric, but the UK segment is growing, says Mullins, adding they have a number of London-based companies looking to attract investors or buyers. “There’s still less venture capital going into the market [in the UK], so there’s less ability to build venture-backed companies. But that’s the case everywhere else in the world too – there’s just an unusually high amount of activity here [in the Bay Area].”

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