FTF and FTF News have chosen Maria Gotsch, president and CEO of the Partnership Fund for New York City, as the 2020 recipient of the Editor’s Choice award for her achievements via the FinTech Innovation Lab.
(FTF and FTF News are proud to announce that Maria Gotsch has been chosen for the Editor’s Choice award, which is part of the FTF News Technology Innovation Awards for 2020. Gotsch is the president and CEO of the Partnership Fund for New York City, the $170 million investment arm of the Partnership for New York City. Gotsch oversees the FinTech Innovation Lab, which she helped launch in 2010. The highly competitive, 12-week program pairs early- to growth-stage enterprise technology companies with key officials from major financial service firms to foster mentoring relationships that advance financial technology. Over the past decade, the effort has raised $1 billion, helped create 1,200+ jobs, and spurred 241 proof of concept explorations. Since its launch via New York City, the innovation lab has been replicated in London and Hong Kong. The Partnership Fund and Accenture serve as executive sponsors. FTF News recently got time with Gotsch to talk about the first decade of the innovation lab and more.)
Q: What from your past, including your time as managing director at BT Wolfensohn, helped you prepare for your role at the Partnership Fund for New York City?
A: I think probably the most important thing was that I learned how the financial markets work. At the end of the day, we are an investment fund and we make decisions about how to deploy capital.
We deploy capital in a broader range of projects than typically a venture fund or private equity fund would do because we invest in low-income neighborhoods, and we invest in non-profit social businesses.
But, fundamentally, it is the same set of tools that you need to use. We start with a for-profit investors’ format for evaluating a business. We look at management, we look at the competitive landscape, and we look at how they are thinking about scaling the business.
We also ask: ‘What are the benefits for New York of this project, either for a low-income population or for the city at large?’ We factor that into our decision.
And then we also understand where we are taking more risks than we are getting compensated for because of the benefits for New York.
The fundamental base of understanding how investment decisions are made — having made them in the for-profit world — was probably the most useful thing in coming to this role.
Q: What made you want to launch the FinTech Innovation Lab?
A: Coming out of the financial crisis of 2008, obviously New York took a big hit and we were faced with an economy that was in a recession.
Part of our mandate is to look for new industries that can create new sectors and growth to have jobs and economic activity. We are the financial capital of the U.S. — one of the leading ones in the world. But that sector was badly hit after 2008.
At the same time, we were hearing about some new investments in the tech sector. We were hearing about a lot of activity starting to happen on the West Coast and we put the two pieces together. And, whenever there is a new field emerging — I would say it was FinTech 2.0 — we want to make sure that if it makes sense for New York, that we are a part of it.
There was a little of a ‘Hey, there’s a lot happening on the West Coast, and not enough in New York, so we need to fix that.’
At the same time, we focused on enterprise FinTech as opposed to b-to-c [business to consumer] because we thought our competitive advantage was that we had an existing financial services sector. The lab came together to really pull those two things together — to make sure that New York had a place at the table and was positioned to become a leader in FinTech.
We also wanted to make sure that our existing financial services sector remained strong and competitive, and they needed the innovation to compete with these new rising FinTechs. Hence, those two pieces came together.
What really solidified it was a meeting with the CIOs [chief information officers] of six of the major banks in New York. We asked a very simple question: ‘Where do you look for new technology?’
And to a person, they all said, ‘Oh, California, Boston.’ Nobody was looking in New York.
That for us was a challenge and really solidified that this was the right area for us to be spending some resources on.
Q: What do you think are the factors that have made the lab a success over the past decade?
A: Two things.
We have had great commitment from our financial institution partners. When we set the lab up in 2010, we were really the first one to explicitly bring large corporates around the table to meet with startups. Now, everybody’s doing that. But back then, we were really the first to explicitly bring those two pieces together.
The key distinguishing feature of the lab is the decision about who gets into the program, and one of the key benefits of the program is access to senior executives at the financial services firms. So, they select the class and they do the mentoring.
The fact that we have had excellent engagement year after year by these executives and by these institutions that remain committed to the program is our key differentiator.
As a young company coming in, you’re talking to the people who are potentially your customers. But you’re doing it in a way where they’re on your side. They’re helping you make sure your product is at the point where it could be used by big banks. Then, after the program, you can sell it to them. But during the program, they are helping you.
The second factor is that we run this as a civic program.
We’re not running this to make money for ourselves and we do not charge the banks. We take a de minimis warrant coverage, which will maybe cover our expenses.
But we are doing this to make sure that New York City is a leader in financial services innovation. That messaging has helped us maintain that engagement with the financial sector and has created a very collaborative, ‘We’re here to help you,’ attitude that the tech companies experience while they’re in the program.
Q: What was the biggest surprise and the biggest challenge about your position at the innovation lab?
A: I will start with the challenge.
The biggest challenge was getting it going. When we were doing this back in 2010, the technology companies did not believe that we could deliver the banks.
The program almost didn’t get launched because we said, ‘Oh, we will get you access to very senior executives. They will spend time with you, and they will mentor you.’
There was a huge amount of skepticism because anybody who has sold to large institutions knows that’s really hard.
Q: And it still is hard to sell to them.
A: It still is hard.
I think the biggest surprise about the lab was that we have maintained that senior level participation.
I thought we could get the banks to do it for one year, but they have come back year after year. I would say that’s certainly a pleasant surprise based on where we started.
Q: Among the technology providers, do you think that you have changed their perceptions of the Wall Street firms?
A: Yes. I think the companies that have gone through it have changed their perceptions.
They are all building enterprise solutions, so, at some level, there’s a fundamental belief that they’re building something that a large institution is going to want.
For the tech companies that have gone through it, we tell them about the dynamic that’s about to be created, that the banks are there to work with you, to give you advice, and to be accessible. And I think it’s a little bit like, ‘Okay, all right. I heard from somebody in last year’s class, and they said that worked.’
But only after they go through it do they recognize how powerful the network is that we’ve created.
Q: We have been in a pandemic lockdown for 2020, and I was wondering, what are the challenges of a fully virtual lab program? And how are participants meeting those challenges?
A: We were luckily able to do the selection process in person because that happened early February. We were able to be in the room with potential applicants. We were able to talk in person and see their demos. But, then in March, we made the decision to go virtual.
We had great continued participation by our financial partners. They were very supportive — they showed up. It was easier to get meetings with the banking and the insurance executives because they were not traveling, and they were not off at conferences.
So, the efficiency of getting the face-to-face video conference meetings was much better than we expected. But I think, as anybody would agree, you are missing something, right? We are social creatures and there is no substitute for being in the room with somebody. A different kind of relationship develops.
A certain amount of the program is about relationship building. Some of that happens in formal settings, but also a certain amount of that happens in more informal settings. It was that piece that we were not able to replicate.
There was no cocktail party launch where we had a chance to check in the participants in a more casual setting. We didn’t have the ability to just chat with somebody for 10 minutes before the meeting, while you’re waiting for the next person to come.
The efficiency of a video conference on some level pushes out the in-person relationship-building that happens through the inefficiency of meeting in person.
Q: Has the pandemic lockdown of 2020 increased the urgency among financial services firms to find useful innovation?
A: I don’t think it has increased the need. I think it shifted it to new areas.
The reason why these institutions participated all these years is that they are actively looking for innovation. There’s no question about that.
What it shifted, though, was what they were looking for. With massive shifts to everything getting closed, there was a big uptick in looking for solutions that would facilitate that. This includes everything from how do you deal with your customers in a way that is more remote to how do you deal with your employees that are working remotely.
There is also an uptick in security and fraud concerns.
Also, given the massive economic dislocation particularly for the small to medium sized firms, there was a need for more current information for underwriting. So, if you were in the small business lending area and making an underwriting decision in May 2020, the information from the fourth quarter 2019 was, in many cases, almost irrelevant.
Q: So, do you think that the pandemic has caused any permanent changes in the way that the lab is organized and managed? Will you be doing things differently?
Certainly, if we are all still virtual, we will be.
We are going to change how we do the selection process. Normally, we get 20 people in a room with the financial institutions, and they’re having conversations with each other. That is a key part of the decision process. We’re obviously not going to be able to do that unless there’s a miracle on the vaccine front.
I think as soon as we can get back together in person, we’re going to go back to the in-person gathering.
The permanent change, though, is that we found you had the same quality of interaction in the video conference meetings in many cases as during in-person meetings.
Once the companies are onboarded, I think it’s likely that we’ll probably keep some element of video conferencing during the program because that seemed to work well and was efficient for everybody’s time.
Q: Do you think New York City is now considered a hub for FinTech innovation?
A: Oh, absolutely. We are the second largest tech sector in the world and FinTech is a key part of that. And I think particularly in enterprise, because you can pull in deep domain experts and pair them with technologists.