John San Filippo
CMFG Ventures: Connecting CUs and Fintechs
By John San Filippo
To the extent that it invests in a wide range of fintechs, CMFG Ventures is much like other venture capital firms active in this space. Since its inception in 2016, CMFG Ventures has invested in more than 50 fintechs – acquiring a handful of them – and deployed nearly $300 million in capital.
However, as the venture capital arm of CUNA Mutual Group, CMFG Ventures also serves a second purpose not shared by other VCs: bringing fintechs together with credit unions to create a complete ecosystem and further the technology interests of credit unions across the country.
As part of this mission, the company held its annual Fintech Summit Sept. 14-15 in Madison, Wisc. The in-person event attracted 125 credit union leaders from 78 credit unions, 60 fintech leaders from 30 fintech companies, 20 industry partners, and 10 leagues and associations, as well as hundreds more credit union executives who attended the event virtually.
To recap the event and to get a closer look at what CMFG Ventures has to offer credit unions, Finopotamus spoke with company President and Managing Director Brian Kaas.
What Is CMFG Ventures?
“We created CMFG Ventures back in 2016 in response to a lot of advancements in technology that we thought could be both disruptive and also very impactful on the credit union industry,” said Kaas. “We wanted to get a seat at the table in terms of looking at early-stage technologies and investing in companies that we believe can help credit unions address their technology needs or better serve their members with relevant products and solutions.”
Kaas said that although the goal is to benefit credit unions, the companies CMFG Ventures invests in don’t necessarily have a credit union focus. “We really look at whether there is an opportunity either at the time of investment or at some time further down the road to introduce credit unions to this fintech company,” he said. He estimated that about two-thirds of CMFG Ventures’ portfolio companies had existing credit union relationships in place at the time of investment.
If there is an exceptionally good fit, CMFG Ventures may acquire a company outright. Kaas offered Compliance Systems and CuneXus as two such examples, noting that the firm originally invested in CuneXus in 2016, then acquired that organization in 2020.
The Fintech Summit
“Our mission is to do more than just investing in fintech,” said Kaas. “We want to create an ecosystem that can bring credit unions and fintechs together. One way that we've done that is through the Fintech Summit. The event was really designed to create a lot of networking opportunities.”
This year’s Summit included what Kaas described as a “speed dating” session, as well as a Shark Tank-style session where portfolio companies were allowed to present seven-minute product demos. He added that there were also presentations by several thought leaders, such as Lamont Black.
Speaking to the purpose of the Fintech Summit, Kaas said, “We really want to open [the credit union’s] eyes to the scope of opportunities that exist for credit unions to partner with fintechs, to hear some success stories of credit unions that are maybe further along in the journey of fintech partnerships, and to create an opportunity for credit unions to meet one-on-one with some of these companies.” He added that it was important to present a wide range of technologies because “what's relevant and important to one credit union may look very different to another credit union.”
Noting that many legacy technology providers now call themselves fintechs, Finopotamus asked Kaas to provide his definition of the term.
“I occasionally Google the term to see how it’s being defined now because it has evolved and there's probably a hundred different variations,” he joked, adding, “The way I use it focuses on companies that in most cases probably have been around for at most 10 to 12 years – companies that are in that higher growth stage.” When talking with credit unions, he considers fintechs to be “non-traditional financial technology companies that are newer to the market.”
Kaas noted that a few years ago, many fintechs launched as direct-to-consumer services, but now there’s much more interest on the part of the fintechs in partnering with financial institutions. He said that while direct to consumer companies like Lending Club and SoFi were among the first to coin the term fintech, many of these early fintechs are now pivoting into business-to-business-to-consumer (B2B2C) business models.
“A lot of those fintech companies, especially some that were a bit later to the game, have found that it's really tough to build a brand and very expensive to build a brand going direct to consumer,” explained Kaas. “Even some of our portfolio companies started as direct to consumer and are now looking to create B2B2C channels through credit unions for the products and solutions they offer.”
For credit unions that are just starting to explore fintechs, Kaas said it’s important to focus first on the needs of the credit union. “Look at the strategy of your credit union and what challenges you’re looking to prioritize,” Kaas continued. “For example, we have a low loan to share ratio and we really need to find opportunities to add more loans onto our books. Maybe it's obvious, but prioritize fintech partnerships that align with your strategy versus pursuing fintech partnerships because they were the first opportunity presented to your credit union.”
Kaas summed up potential credit union and fintech partnerships this way: “Don't chase the shiny object. Stick to your strategy, then look for ways for fintechs to help accelerate or execute on that strategy.”