QED Investors announced the closing of two new funds totaling $1.1 billion, capital that it will be using to back early-stage startups, as well as growth rounds for later-stage companies.
Specifically, today QED is announcing a $550 million early-stage fund and a $550 million growth-stage fund, both of which are aimed at backing fintech companies primarily in the U.S., the United Kingdom, Latin America and Southeast Asia. The fund was oversubscribed, according to QED co-founder and managing partner Nigel Morris.
Since its 2007 founding by Morris — who also co-founded Capital One Financial Services in 1994 — and Frank Rotman, QED has backed more than 150 companies, including 20 unicorns. It currently has over $2.6 billion under management.
While fintech has been an area of investor interest for some time, it’s safe to say the sector has exploded in recent years — largely fueled by consumer demand as more people transact online. That’s especially true as the COVID-19 pandemic continues to (sadly) rage on.
Clearly, Alexandria, Virginia-based QED was investing in fintech before fintech was “cool.” As evidence of that, the firm led Credit Karma’s Series A in 2009; led Remitly’s Series A in 2014 and participated in Nubank’s Series A in 2014.
The firm has come a long way from when it closed its first fund — $30 million of internal capital — in 2008. Its last fund — totaling $400 million — closed in 2020. Over the years, QED has backed unicorns that went on to exit either via the public markets or by acquisition, including SoFi, Credit Karma, Red Ventures and, more recently, Flywire.
As someone who also years prior had launched Capital One Financial Services, it’s no surprise that when Morris started a venture fund, it was one that focused on funding fintech companies.
“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,” said Morris, who serves as QED’s managing partner.
Frank Rotman, the firm’s founding partner, describes fintech as QED’s “North Star.”
“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,” he said.
In particular, Rotman said the firm is bullish on the future of embedded finance and on backing companies that distribute financial products in a variety of industries such as cross-border trucking logistics (such as Nuvocargo), car sales (Kavak) and shrimp farming (XpertSea).
QED plans to invest in between 40 to 50 companies out of its early-stage fund, with an initial average check size of $5 million to $15 million with similar reserves, according to Morris. The firm expects to make 20-25 investments out of its growth fund, with average check sizes between $10 million and $40 million. It has so far made one investment out of that growth fund, which has not yet been publicly announced.
“Every single” LP from QED Fund VI increased their allocation in the firm’s new funds, according to Morris. But the firm also welcomed several new LPs. While Morris declined to be more specific, he said the new LPs included “some really well-known names.”
“There’s no better confirmation than when an LP doubles down in their support of what we’re doing,” Rotman said.
In terms of strategy, Rotman notes that QED has continued to lead deals that it feels “passionate about being involved in.”
“It’s not a secret that the market’s hot, and opportunities move quickly in this type of environment,” he told TechCrunch. “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.”
Both Morris and Rotman believe the fact that QED’s 17-person investment team being made up of former operators gives it a competitive edge.
“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 said.
“Most fintech companies will fail. That’s just the statistical, pragmatic distribution that occurs,” he added.
Within the fintech industry, there are myriad complicated issues — compliance, operations, tech, talent, credit risk and treasury, Morris continued.
“And they take a long time for people to have enough tree rings to be able to understand them,” he told TechCrunch. “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.”