20VC: Ribbit Capital's Nick Shalek on How To Think Through Ownership and Price Sensitivity, When More Money and Pre-Emptive Rounds are Good vs Bad & Investing Lessons from Yale's David Swensen

How Ribbit Capital makes concentrated fintech bets

Ribbit Capital's Nick Shalek explains the fintech-focused firm's approach to venture. Ribbit makes concentrated, conviction-driven bets on exceptional people changing finance, re-underwrites every deal as a team, and avoids deal attribution. It stayed sector-focused as fintech went from an ignored backwater to one of tech's hottest sectors. That focus helped it act steadily when Robinhood needed a multibillion-dollar round in roughly 24 hours.

Takeaways

• Sector focus helped Ribbit ride fintech's rise. Ribbit began when fintech was ignored and stayed focused as it became one of tech's hottest sectors. PayPal surpassed Bank of America and Square surpassed Goldman Sachs, and roughly $800bn in market cap changed hands between top fintechs and banks.
• Certainty can kill a venture investor. Shalek says conviction is critical but certainty will kill you. Ribbit's early belief that digital payments were commoditising and would have declining margins cost it great returns, and he calls type-two errors more painful than type-one errors.
• Exceptional returns require contrarian pricing. Shalek has long been concerned about price. Exceptional returns require being contrarian, and the hard part is reframing a company like Stripe from a $1bn business into a $10bn or $100bn one. Buffett says time is the friend of the wonderful company more than valuation.
• Ribbit makes concentrated bets without deal attribution. Ownership matters, but Shalek says investing in the best companies should be the tail that wags the dog. Ribbit concentrates bets and re-underwrites every deal and follow-on, avoids consensus and partner-led decisions, and has no deal attribution because it lives and dies as a team.
• More money rarely makes a startup successful. Shalek says extra capital can help fintech companies when they compete with incumbents that have huge balance sheets and regulatory advantages, though the idea is often applied incorrectly. The fluidity of capital today is a challenge Ribbit can adapt to rather than an existential threat.
• Swensen taught incentives and first principles. Shalek draws lessons from David Swensen, his first boss at Yale. Get incentives and relationships right by finding remarkable people and putting yourself on the same side of the table. Approach problems from first principles, and remember that how you make people feel matters.

Robinhood's 24-hour round

1. Ribbit had known Robinhood for almost a decade and re-underwritten it seven times from Series A to Series G.
2. Vlad called about a collateral issue. Ribbit led a multibillion-dollar round and wired $500m the next day.