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Banking & Finance

Venture Capital Partner Talks Latest $750M Fund, Future Of Fintech

By Audrey Elsberry, posted Dec 7, 2023
Neil Underwood
Canapi Ventures, a financial technology startup venture capital firm, is expanding its focus from fintech services, its general partner Neil Underwood said on Thursday.
 
The firm ​announced its second fund, which raised $750 million on Wednesday. The new capital raise expands the firm’s scope of business to include AI governance, cybersecurity and climate technology. Canapi was founded in 2020 by Live Oak Bancshares and Center Harbor Advisors. 
 
Underwood is a founder of financial technology company nCino and former president of Live Oak Bancshares. Underwood said the expanded focus of this second fundraising effort, also called Fund II, is a function of the times.
 
Given the innovation this year has seen in terms of generative AI, now is the time for banks to invest in cutting-edge technology, he said on Thursday. Banks are under pressure to perform after what industry members refer to as 2023’s March Madness — not the collegiate basketball tournament but the collapse of several banks including California's Silicon Valley Bank, which handled $209 trillion in assets.
 
Now, banks are looking for new ways to automate and give trust back to consumers, Underwood said, and AI seems to be the way to go.
 
Banks have been using AI and machine learning models long before Chat GPT’s release last year, Underwood said. The technology can help automate processes like underwriting a loan, something that is very rules-based and formulaic. The technology creates more access to capital, allowing banks to say yes to loans more often, he said.
 
As financial services become an increasingly digital industry, applicable industries like AI, cybersecurity and cloud-based tools become necessary investments, Underwood said. Canapi does not invest in companies solely for the benefit of banks, but the company has an inclination to invest in the financial services industry, he said. Industries like AI and cybersecurity are good for banks but offer potential growth in other areas, too.
 
Canapi is also helping banks get access to tax credits associated with the Inflation Reduction Act. With a recent investment in startup Crux using Fund II capital, Canapi is taking advantage of billions of federal incentives for renewable energy projects. Crux helps banks, buyers and developers manage tax credits through a digital portal.
 
None of Fund I’s capital went to Wilmington startups, but Underwood said Canapi tries to convince its startups to open satellite offices in the Wilmington area. He said several companies with Canapi investment are from the Southeast, but none are headquartered in Wilmington.
 
As two-thirds of Canapi’s initial $545 million fund was invested, Underwood said the firm began thinking about its next capital raise, Fund II. He said the firm saw its thesis working, and the companies it was investing in were closing their own funding rounds.
 
When Canapi’s partners floated the idea of another fund to the firm’s limited partners, or those supplying money to the funds, 90% were willing to invest more, Underwood said. In addition, Canapi added more banks to its Canapi Alliance as word spread about the firm’s business model and focus on financial services.
 
Although Canapi is expanding its focus, its interest in fintech innovations remains strong.
 
“This is just the beginning,” Underwood said.
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