QED Investors Raises $1.05B for Fintech Investments

QED Investors Secures $1.05 Billion for Fintech Investments

QED Investors has announced the successful completion of fundraising for two new investment funds, totaling $1.05 billion. These funds will be allocated to support both early-stage startups and provide growth capital for more established companies.

Fund Details and Focus

The firm is launching a $550 million early-stage fund alongside a $500 million growth-stage fund. Both are strategically focused on fintech companies, with a primary geographic focus on the United States, the United Kingdom, Latin America, and Southeast Asia. The funds experienced oversubscription, as noted by QED co-founder and managing partner, Nigel Morris.

QED's Track Record and History

Founded in 2007 by Morris, previously a co-founder of Capital One Financial Services in 1994, and Frank Rotman, QED has invested in over 150 companies to date. Notably, 20 of these portfolio companies have achieved unicorn status. The firm currently manages assets exceeding $3 billion.

The increasing prominence of fintech as an investment area is largely attributed to growing consumer demand for online transactions, a trend significantly accelerated by the ongoing COVID-19 pandemic.

Early Investments and Growth

QED demonstrated foresight by investing in fintech before it gained widespread recognition. Key early investments include leading Credit Karma’s Series A round in 2009, leading Remitly’s Series A in 2014, and participating in Nubank’s Series A funding in the same year.

The firm has evolved considerably since its inception, when it initially closed a $30 million fund comprised of internal capital in 2008. Its most recent fund, totaling $400 million, was closed in 2020.

Successful Exits and Continued Focus

Over the years, QED has seen numerous portfolio companies achieve successful exits through initial public offerings (IPOs) or acquisitions. Examples include SoFi, Credit Karma, Red Ventures, and Flywire.

Given Morris’s background in launching Capital One Financial Services, it’s logical that QED’s investment strategy centers on fintech companies.

Fintech as a Cornerstone

“After 14 years… it remains our cornerstone, even though fintech has evolved from the lending and credit businesses of the early years that was a core part of our Capital One DNA,” stated Morris, QED’s managing partner.

Frank Rotman, the firm’s founding partner, characterizes fintech as QED’s “North Star.”

Emerging Fintech Verticals

“There are so many exciting financial technology verticals today that can have a meaningful and lasting impact on consumers across the world, from proptech, sustainability and earned wage access to student loan solutions and financial products that cater to those that have been long ignored by banks and financial institutions,” Rotman explained.

QED is particularly optimistic about the potential of embedded finance and companies integrating financial products into diverse industries, such as cross-border trucking logistics (Nuvocargo), car sales (Kavak), and shrimp farming (XpertSea).

Investment Strategy and Check Sizes

QED intends to invest in 40 to 50 companies through its early-stage fund, with initial investments ranging from $5 million to $15 million, alongside comparable reserve amounts. The growth fund is expected to support 20-25 investments, with average check sizes between $10 million and $40 million. One investment from the growth fund has already been made, though it hasn’t been publicly disclosed.

Limited Partner Support

According to Morris, nearly all existing Limited Partners (LPs) from QED Fund VI increased their investment allocations in the new funds. Furthermore, the firm welcomed several new LPs, including “some really well-known names,” though specific details were not revealed.

“There’s no better confirmation than when an LP doubles down in their support of what we’re doing,” Rotman added.

Strategic Approach and Competitive Advantage

Rotman emphasized that QED continues to prioritize leading deals that align with its passions. He noted the fast-paced nature of the current market, with term sheets often being issued within a day of initial meetings.

“We see firms meeting with a founder in the morning, and a term sheet issued as soon as the following day. Many VCs can offer capital. Very, very few can augment that with proven, actionable advice and insight that can help them tomorrow,” he stated.

The Value of Operational Experience

Both Morris and Rotman believe QED’s 17-person investment team, comprised of former operators, provides a significant competitive advantage.

“We’re a unique company offering unique insights in an industry in which it’s easy to perform poorly and hard to do well,” Morris asserted.

“Most fintech companies will fail. That’s just the statistical, pragmatic distribution that occurs,” he continued.

Navigating Fintech Complexities

Within the fintech sector, numerous complex challenges exist, including compliance, operations, technology, talent acquisition, credit risk, and treasury management. Morris highlighted the importance of experience in navigating these issues.

“And they take a long time for people to have enough tree rings to be able to understand them,” he explained. “Much of what we do…is help ameliorate and mitigate against those different issues by bringing to bear specific functional talent and the scars on our back of mistakes that we’ve made as operators to make sure that the young entrepreneur doesn’t make those same errors. It’s not enough to simply solve one problem. Founders need to successfully solve five, six, seven problems concurrently because if any one is not solved, the entire business will come crashing to the ground.”