The keynote was introduced and moderated by Justin Abelow, Managing Director at Houlihan Lokey.
Justin Abelow: No one is more identified with innovation in fintech than Betsy Cohen. She is viewed widely as a visionary in three broad areas: law, real estate, and banking.
A brief summary. In 1974, when Eric Clapton was singing ‘I Shot the Sherriff,’ Betsy had started a bank called Jefferson Bank, becoming the first female CEO of a bank in Pennsylvania and one of the first in the country. She took Jefferson Bank public and sold it in 1999. She then founded The Bancorp- an internet-based bank providing banking services to non-banks, which is credited with being a critical piece of the backbone supporting growth in the fintech sector.
Today, Betsy is the Chairman of Cohen Circle. Her firm has 12 SPAC vehicles and has taken five companies public via SPAC mergers. She has served on numerous corporate and nonprofit boards, including Aetna, The Asia Society, The Metropolitan Opera, and The Metropolitan Museum of Art.
While Betsy’s career is nonlinear, it has a theme of innovation throughout finance and fintech.
[The question and answer period is transcribed below.]
Justin Abelow: You first had a brief career as a lawyer where you had the trifecta of founding a law firm, clerking for a federal appeals judge, and being a law professor. You were the second female law professor on the east coast after Ruth Bader Ginsburg, who was the first. How does your legal training inform your investing perspective?
Betsy Cohen: It was enormously helpful. I could not have accomplished what I did without that background. It gave me two things – information about how things were to be done or could be done, or might not be done, and the confidence to talk with the professionals I would then hire. I make a better client than a lawyer. You need to be able to push back, to evaluate and to understand. Those were two valuable lessons.
Justin Abelow: As an innovator in fintech, what were some key insights that led you to success as an investor in the tech sector?
Betsy Cohen: My husband would tell you that I think like a computer. But that's not the full answer. I was always interested in how people thought about their money. What drove decisions, what was important to a customer or a colleague. And that led me to really look forward. In the 1990s, when we were all talking about tech before it all fell apart, it gave me the opportunity to think about what tech would look like 10 years out. One of the reasons I sold Jefferson Bank, which was the largest locally owned bank in a wide range of geographies, was that I felt that the adoption curve for the use of technology and computers was going to expand tremendously. And if we could look 10 years out, I thought about what was not being done, and how it would be done. I call this finding negative space. Spaces that are not being served today.
Driving my interest in the marriage of customer behavior, desires, and needs with the level at which technology can deliver and satisfy those needs. This has driven my investments and the identification of companies that I think will be good companies for the next 5-10 years.
Justin Abelow: Of the investment models you facilitated, are there business models you are particularly proud of or think are interesting?
Betsy Cohen: The model needs to match the vertical. I have a soft spot for recurring income. I like to see a company that not only is acquiring companies but is maintaining that relationship and finds a variety of different ways to do that. There are markers rather than business models.
Justin Abelow: There is nothing cookie cutter about your career. You identified highly varied opportunities over the years. Can you speak to the SPAC structure and what brought you there?
Betsy Cohen: Moving from structure to structure is the result of both external and internal factors. The world moves on and a particular structure is not good for all companies. You must balance the needs of companies with the needs of investors in the market. If you think about SPACs in terms of history, starting in the 1990s they provided capital to the steel industry when we were coming out of recession. Some of you who will admit it may remember the recession of 1992. There was no way for the steel companies to raise capital, so this was devised to raise capital for a company.
In 2006 to 2008 there were other capital needs to be funded and the [SPAC] model came back. In 2013 and 2014, we recognized that tech companies were growing quickly and needed additional capital and access to the public markets that the SPAC structure would give them. Part of that insight I got from starting the Bancorp in 1999 - I was a bit too early.
One of our first clients was Paypal. We were able to help them, and they remain a client. Several other small startup fintechs worked with The Bancorp. I was with Bancorp for 15 years, and when I left as CEO, we had 1,600 companies on the platform, which is like raising 1,600 children. Imagine that. Some made it, some didn’t. By the time I was thinking of moving on, some companies were mature enough to meet the criteria required of public companies, so I thought it was my opportunity to be helpful again.
Justin Abelow: Most people forget the early history of SPACs. They think SPACs emerged from the head of Zeus a few years ago. Moving on to a question about the present, I hear a lot that the IPO window is closed. Are SPACs still relevant?
Betsy Cohen: There will be a period in which SPACs will not serve the growth market in the same way, and that’s due to both internal and external factors. Every market has its opportunities. We think today’s market is a great one for companies ready to go to the public markets, it's also a wonderful time to be in venture capital, and a good time to look at new companies and think about where tech will be five to ten years from now. What are customer expectations? At Cohen Circle, we invest up and down the capital stack. We try to match that with the market as we see it and find the opportunities there.
Justin Abelow: We work with management teams often with companies looking for capital partners. When we have a team looking to partner with a SPAC sponsor, how should they think about partnership? Are all SPACs alike? What should one look for in a partner?
Betsy Cohen: I’ll give a prejudiced view. Here’s how I think about it. The difference is on the sponsor level - do you have a knowledgeable and experienced partner? One that can bring to the table fresh ideas and ways to think about investor presentations? Do they have relationships with investors? What companies have they underwritten to date and how have those companies performed in the market?
Justin Abelow: Your career has been very global. You started businesses in Brazil, Spain, and Hong Kong. As you look at the world today, are there regions where you see more opportunities or threats?
Betsy Cohen: When we started, the continents were separate, the theme of us moving to the markets was unified. We were looking for opportunities in our areas of expertise- finance- that had not yet been regulated. In Brazil you could be a leasing company, until the Brazilian government began requiring an application form for leasing companies. I aways look for holes - the negative space to fill with solutions.
Today we have learned from the pandemic how unified the world is. Especially with technology. There is great work going on in Singapore, in the UK. Israel is a massive market. But the US remains very rich in innovation, not just in San Francisco and New York City, but in Minnesota and Kansas too. We have opportunities to gather people globally on one screen and stimulate a cross-country discussion.
Justin Abelow: As people have gone back to work and travel, what is your philosophy on remote work? What meetings need to still be in person?
Betsy Cohen: I travel to meet people when it’s the first opportunity to meet them. Subsequently, I lean on video conferencing more than I should as it allows me to get more done in a day.
Justin Abelow: Looking at FinTech as a sector- what does the investor community get right about fintech, and what do they get wrong?
Betsy Cohen: The retail investor is a short-term one and is looking for movements in the market. They don’t have enough information to be deep in their decision making. Institutional investors are in a very different place. They look at product, they look at scale, they look at income generation, and management. That’s not always as visible as it could be. There are so many choices that if you focus on even a few you may get some of them right.
Justin Abelow: We are headed into a period of prolonged inflation and higher interest rates. What does this mean for opportunities in financial services broadly – how is it shaping investments you gravitate towards in the next few months and years?
Betsy Cohen: Stay away from companies dependent upon credit as their livelihood. With rising interest rates and narrowing spreads combined with the performance of loans that have been made in the past or credit that has been extended in the past. There are risks in every business. Yesterday’s opportunities must be overlaid with todays’ risks. There are a number of companies that serve as credit market technology is moving to the next level. There is greater capacity and understanding of clients to manipulate and adapt to doing things virtually and digitally. There’s a whole new level of expectations. In our VC portfolio, we look at companies that specialize in embedded finance. The customer does not have to wait to be redirected, and they fill an instant need as attention spans get shorter. There’s a real demand by customers to be able to enter a site and do whatever they need to do in that context without leaving.
Justin Abelow: Lots of your success is driven by correctly reading regulatory opportunities and decisions. What do regulators get right and wrong about the financial services environment?
Betsy Cohen: Just focusing on fintech, they got a lot wrong. They got it wrong because of an attitude toward risk which isn't well based. They were not prepared for technology to move banking along and by pushing back and examining banks in a way that was unrealistic, they did not have the knowledge or the staffing – which hindered the development of the banking industry in the U.S. The industry is moving from being valued and viewed to one as more dynamic and retail oriented with many more transactions, and regulators need to make a shift, which they have not made.
Justin Abelow: Are any regulators getting it right?
Betsy Cohen: The Comptroller of the Currency has a good understanding of fintech. They were the first regulators to talk about allowing a license for a bank that specializes in financial technology but does not take deposits and have been much more forward thinking. Many others may be more insurance regulated, like FDIC.
Justin Abelow: With midterm elections coming up, a question on politics: Would a Republican controlled congress change how you might view the investor landscape in fintech and financial services relative to a democratic congress?
Betsy Cohen: I won’t be speaking to politics today. There are certainly differences, but the world of finance generally goes with the flow. They [tell us] the rules and we have to figure them out.
[At this time, the discussion was open to audience questions. Alexandra Lebenthal, Senior Advisor at Houlihan Lokey, asked a question]
Alexandra Lubenthal: You’ve been in finance during a time when there were very few women, which is still true today. The SPAC market opened an interesting opportunity by asking women to be on boards. We’ve seen growth in women-led companies. Where do you see opportunities with women in that sector? How can we attract and retain women in finance in leadership positions?
Betsy Cohen: I started in law school as one of six women in a class of 200 students. That number has changed. I was on a public board during my team at the bank where I was the first woman, and the first Jew. You name it, I was the first. I’m able to look at these things from a distance. There has been progress. At Cohen Circle, we have all women boards. We want to provide as many women as possible with the opportunity to participate in and understand this space. Indeed, some have gone on and done their own transactions. We have to continue to work at it. There’s no easy answer. We all bring our baggage to the table, and if that baggage can't be changed, the progress is slower. External governmental requirements have always been helpful. They are different in Europe than in the US. In France, I think, they require one-third of boards to be made up of women. Public perception is important.
I come from so far back – there has been progress, but we may say not enough. Someone I spoke to recently did a venn diagram of funds and equity provided to women-led companies. Inside the venn diagram there was only 2.5% or so. On the positive side, more women are leading businesses today.
But the perception of risk related to any group is a prejudice that has to be overcome. It’s what led to women starting in the 1970s a series of women’s bank. Was that the right thing to do? Was it a statement that access was not available? Absolutely. That’s a lesson we can learn.
Women in the working world today, even though there’s parental leave, we need to make work rules to accommodate women and people with kids. Organizations that express their understanding of the lifecycle of a worker or a participant in the business in a constructive way will be the winner in terms of talent.
[This concludes the transcribed portion of the keynote.]