Transcript
Welcome to Money Isn’t Everything. I’m Mary Wisniewski, Cornerstone Advisors editor-at-large and host of the show.
Today I am chatting with Elizabeth McCluskey, who’s a managing director who runs the Discovery Fund at TruStage Ventures.
This is a fund that invests in early-stage fintech startups with diverse founders.
The conversation is especially topical with so much political and legal scrutiny on corporate DEI programs right now.
Goldman Sachs, for example, is the latest to erase its diversity goals.
On the show today, we talk about the business case around DEI, underfunded sectors, and how ever more credit unions are partnering with fintech companies.
We unpack the why.
Here’s our conversation.
Elizabeth, welcome to Money Isn’t Everything.
It’s great to have you on the show today.
Thank you.
I’ve been a fan, so I’m excited to be a guest today.
Oh, good.
Well, hopefully we can continue that experience.
I wanted to just get right into it because I was so excited to be able to interview you on the importance of having a diverse founder and why, and all of that.
Especially right now, in this moment in this country, it’s such a hot topic.
DEI, with the president putting pressure on companies, federal companies, to pull it back.
But before we get into all of that, I just want to set it up for the listeners.
You’re running the Discovery Fund.
Tell us about that.
Yeah.
So, the Discovery Fund is part of TruStage Ventures, which is the venture capital arm of our parent company, TruStage.
Hopefully most listeners are aware by now, but TruStage was formerly known as CUNA Mutual Group.
We changed our name about a year and a half ago.
Our parent company, TruStage, really works a lot with credit unions, and we are distributing insurance and other financial protection products really to serve middle-income consumers in the U.S.
That’s our target consumer.
We established a ventures arm about eight years ago to help credit unions sort of keep up and innovate from a tech perspective, but also to think about ways we could distribute TruStage products through other channels, sort of reaching consumers in new ways.
Our Ventures and our Discovery arms are investing in fintech companies that are either insurance distribution opportunities for us or that are modernizing technology for credit unions.
The Discovery Fund specifically was launched about four years ago to invest in those early-stage fintech companies.
We’re typically coming in at the seed stage versus Ventures, which is typically starting to come in around the Series A stage.
Then, as you alluded to, one of the big differentiators of the Discovery Fund is that we have a mandate to invest in underrepresented founders.
So, the CEOs of the fintechs we invest in have to be people of color, women, or LGBTQ.
I mean, now I feel like I’m really throwing down a hard question after the opening of just getting a better sense of what it’s all about.
But we’re in this moment in time, probably an extended moment in time, where companies are really rethinking their DEI policies.
I am curious, are you feeling that pressure from your standpoint?
Fintech is a bit different than a bank, but I am curious what you’re feeling sentiment-wise from the industry.
Yeah.
Maybe I’ll go back before I go to present day.
Sure.
Sort of thinking to the future.
I think we launched the Discovery Fund in 2021, which was around the time many other companies announced mandates to support underrepresented founders, to invest in underrepresented founders.
It was coming in the wake of George Floyd’s murder and a lot of the social justice conversations that were happening more broadly nationally.
So, I think we were part of a movement.
But I think what happened, which frustrated people, separate from what’s happening politically today, is there’s been a lot of talk that hasn’t been followed by action in the DEI space.
There were a lot of corporations who made pledges but didn’t necessarily actually allocate funding.
We’re proud that over the last four years, we’ve actually put those dollars to work.
It hasn’t been an intention.
It’s been an actual application and reality.
So, we definitely fully embraced the DEI movement, not only because we think it’s the right thing to do, but because we see the future consumer as being an increasingly diverse consumer who we want to serve and who credit unions need to serve.
In our opinion, the founders who are best positioned to serve those increasingly diverse consumers come from those backgrounds and those perspectives.
Founders are placed to solve the problems that they have firsthand experience in, either personally or professionally.
I think that’s always been part of our statement, that DEI is not only the right thing to do, but we think it’s the strongest business case and is going to make for the most compelling investments, which are going to lead to the strongest returns.
So, we’ve continued to feel supported by TruStage in this endeavor.
I think we’re definitely aware that there’s been an increase in conversation around backlash against DEI, but we are remaining committed to carrying out this investment thesis.
I think that’s such an important point, the founder needing to know the problem.
I’ve been a traditional reporter in the past, and one of the stories I loved, and this is a different sort of way to think about it, it’s more geographical diversity versus the human.
I just remember this one home startup was talking about helping someone afford a home that was under $100,000, and nobody understood what they were saying.
But that person knew that market that was available.
It’s like, you don’t know what you don’t know.
Yeah.
I think one of the stereotypes, broadly speaking, and this is not in the fintech space, but just to take a quick segue, women’s health has been a very underfunded sector.
I think that’s because of some of the things you’re saying.
The people who have traditionally been in the position of writing checks have been white men.
So, they don’t really understand when a female entrepreneur comes to them and says, “This is a multibillion-dollar problem and opportunity.”
They’re like, it doesn’t feel real to them or tangible to them in a way that it would if it were a female check writer, for example.
So, yeah, I think part of increasing the playing field and the opportunity set for consumers and for entrepreneurs is actually also diversifying who is making the investments too.
Yeah.
What’s the latest there?
I have to think we’re still unusually white male for the venture capitalist.
Am I right?
Yeah.
The numbers aren’t great.
They are a little bit more encouraging than the numbers of funding going to diverse founders.
I think change does start with who the check writers are.
I do think we’re starting to see some progress there.
I don’t know the exact number, but I want to say the percentage of women in check-writing positions in VC is maybe in the 20% range.
Okay.
So not at parity, but it’s better than 2%, which is the percentage of funding that’s going to women entrepreneurs.
Oh gosh.
That’s bad.
To your point, just the lack of understanding of women’s health, you could give me a whole tangent on that because I always like to go over with my doctor, who’s female, like, we’ve got to get it a little bit better than where we’re at.
Yeah.
It’s just one of those mysteries where you don’t know what you don’t know.
I will say, I know a lot of male executives who want to understand, but I also think there’s this, this winds the clock back to when I did a blog at American Banker and I was trying to take on feminist issues.
I started the lead with, “Hey, the one thing you get going to these conferences, at least, is you don’t have a bathroom line if you’re a female.”
It still depends what the event is, but that’s how I started it because I was like, it’s a hard conversation to have because automatically, sometimes, your audience in having it is going to think you’re going against them in some way.
So, you have to find different ways to tell a story.
I’ve long wondered, and I’m curious on your take on this too, I’ve heard that male executives have to really push for this for it to really resonate with a company as well.
I wonder if that sounds true to you or if that sounds like a dated concept in terms of pushing for supporting diversity.
I mean, I have felt very supported both by our Ventures team and by TruStage broadly.
I think the credit unions who we’re often putting our portfolio companies in front of probably don’t necessarily even differentiate or distinguish between Discovery Fund companies and Ventures companies.
So, I think that’s part of the strength of our strategy and our cohesive approach of investing across stages, is that for the most part these companies are being identified more as early-stage companies than companies led by diverse founders.
There’s risk because they’re early stage.
We make sure credit unions are aware of that as they’re talking about, you know, they don’t have a ton of reference customers yet, for example.
But they’re open to pursuing partnerships with credit unions where there might be more opportunity for the credit union to have input.
So, I think that’s more the focus, and that’s the way we lead with those companies.
If you were to talk to a credit union who was working with one of our portfolio companies, I honestly bet there’s a good chance they wouldn’t know whether they were in the Discovery Fund portfolio or the Ventures portfolio.
I love that.
That actually sounds good to me.
Sounds really good to me.
It sounds like how it ought to be.
Yeah.
It doesn’t need to be a distinction.
Well, I wanted to do this.
We’ve kind of already covered it, but it is the one segment of the show where I say, “That’s What You Said.”
It’s either in print or on a podcast.
This is something you said on a podcast.
I think you might have been quoting McKinsey research at the time, but it’s speaking to the need for diverse teams.
You said, “Those diverse teams are going to outperform those who have all had sort of the same lived experiences and the same approach to solving problems.”
I know we got a little bit into that, but let’s explore it a little bit more.
I love entering other people’s worlds because I feel like I’m endlessly curious.
Like, man, how am I even enjoying going into this bank FAQ site?
What happened in my life?
But I do think, do you have any suggestions or ideas of what’s a good way for different worlds to sort of mix and mingle in a more meaningful way?
I cite this a lot, but it always seems to be a golfing event.
I advocate for more than golfing events for these work things.
I’m just kind of curious about your perspective.
I actually just got invited to an upcoming kind of fintech financial services event where there are choices.
I think golf is a choice, but I think paddle is a choice, and I think they might have a museum or a cultural outing.
Oh, that sounds fun.
So I think sort of meeting people in their comfort zones, but maybe giving them an option slightly outside of their comfort zone.
Yeah.
Or sort of a lower-commitment thing.
I think probably one of the problems with golf is it’s such a long day.
I’m not a golfer, but I would be willing to go out for a couple of hours, but maybe not for five or six.
It is a long day.
Yeah.
I think giving people the opportunity to step outside of their comfort zones in a contained way, in terms of a time period or the downside of saying yes to something that you aren’t comfortable with or you aren’t familiar with, is going to be low.
But when you were talking about that quote of diversity, actually what it was making me think about is just generally this philosophy of credit unions working with fintechs.
I think many times these fintech founders don’t come from the credit union world, and they have to learn a lot about the culture and the approach and the way that credit unions work.
But I also give a lot of credit to credit unions because they’re working with fintechs who, again, don’t necessarily come from their world.
So, they’re bringing this diversity of perspective, saying, this is how maybe the rest of the financial services landscape is thinking about this.
Credit unions might have been thinking about it a different way.
By bringing those two perspectives together, they may come up with a third option, or they may come up with a nuanced version of the fintech orientation or the credit union orientation.
We’ve seen it be successful to have that outsider perspective coming into credit unions to say, “The way you’ve been doing it maybe hasn’t been working, and here’s a way to think about how we can approach it in the future.”
Yeah, no, that’s really cool.
It opens up part of the conversation I wanted to have with you also.
It seems like the appetite for credit unions to work with fintech companies seems to be growing.
Cornerstone Advisors just did a big report by Ron Shevlin, and one of the findings was showing that credit unions are swinging up more on how they’re viewing fintech partnerships as growth drivers, in a more significant way than banks.
That’s just one data point, but I’m kind of curious.
Are you seeing a similar thing?
Credit unions, the willingness is on an upswing?
Yes.
Yes, definitely.
I think as we do our own surveys and as we reference external surveys, you do see those numbers continuing to tick up, of fintech partnerships not just being a nice-to-have, but then becoming a necessity.
Then, like you said, actually becoming a growth driver and something that they want to pursue proactively.
To say, where are areas that we can stretch or that we see opportunities, not necessarily just to fix issues that we have, but actually to be forward-thinking and growth-oriented?
I think that is reflected even in our own portfolio across our two funds.
Maybe in the past, we made some more investments in the core banking technology categories, or we did a lot in the lending solution space.
Now, I think we’re seeing a lot of opportunity and investments in member engagement, member acquisition.
So really helping credit unions think about how they’re going to grow their membership bases in terms of who they serve from an age perspective, from a diversity perspective.
I give credit unions credit that they’re taking that growth-oriented approach to pursuing partnerships.
But ultimately, there are still a ton of fintechs that are trying to work with credit unions, so there does have to be a prioritization in terms of what are the fires that need to be put out first.
That is always one of the things we have to balance and wrestle with.
Even if a solution is great, just where is it going to fall in the pecking order from the prioritization perspective of the credit union?
Gosh, that must be quite the juggling act.
I imagine where it changes.
But I do know one thing I hear a lot is, “Oh, our members are way too old.”
Right?
Or not too old, there’s not enough young people.
So, how is this credit union going to survive in the years to come without members?
I’m curious what you’re seeing.
Gen Z, there’s always whatever generation is coming next or is already present in the workforce.
There’s always a desire by credit unions and banks to connect with them, but there does also seem to be a disconnect.
I’m wondering, I believe you worked with Frich?
Yes.
Okay.
So that’s one example of a fintech company targeting Gen Z.
But I’m curious, what things are you seeing that are interesting on the fintech front that could potentially help credit unions drum up more Gen Z members?
Yeah.
I think Frich is a great example because I think each party should be playing to their strengths.
I don’t think the credit union is suddenly going to be able to embody the voice of Gen Z and have the branding that appeals to Gen Z and know necessarily what their talking points and even their vernacular are.
But credit unions still offer really solid products that could be good fits for the needs of Gen Z.
Whether that’s high-yield savings accounts or an account to help them save for their first home and then actually issuing them a mortgage when they’re able to purchase that, giving them an auto loan.
Those are all things that credit unions already have existing product suites around that they can help offer as compelling options to Gen Z.
Where I think they’ve just struggled is in the marketing and the messaging and getting that in front of Gen Z.
So, I think that’s where fintech partners can play a big role.
The fintech, especially again an example like Frich, where it’s coming from Gen Z founders, they have an authentic voice to speak to Gen Z and say, “We know what you and your peers are talking about. We know how to talk to you about these financial issues, and let’s just help you connect the dots between what your problem areas and what you’re looking for are and some solutions that can come from credit unions.”
Which might not have been the first place that Gen Z would have looked without something like a Frich being that kind of intermediary.
Yeah.
The brand awareness thing, it’s so important.
For any company, I do think credit unions in particular need a better push for themselves on the brand awareness.
But also it kind of unpacks interesting trends.
Frich, for example, puts a lot of attention on how Gen Z likes to share their salary or just be much more transparent with their money habits.
To me, that’s a notable thing to take note of for any kind of institution.
Yeah.
I think a trend on the opposite end of the spectrum, but still relating to Gen Z, is, we haven’t necessarily made any investments in the space yet, but kind of have a few on our radar and are seeing more companies doing this, which is meeting the needs of the older demographic, but also finding a way to bring in the next gen.
Whether that’s around topics of inheritance and estate planning, meeting the needs of the asset owners who are currently credit union members, but engaging their kids and their grandkids to say, “We want to give you a good experience as you’re figuring out how to distribute your parents’ funds, or close their accounts, or hopefully transfer them to a new account in your name in the credit union.”
Things like that.
I think everybody has talked about this great wealth transfer that’s going to be happening over the next decade.
I feel like we’re still kind of on the precipice of this, but we’re still not necessarily fully ready for just how much change there’s going to be in who holds the wealth.
So, as we’re starting to see some fintechs emerge that are addressing that issue, being cognizant that you’re not just meeting the needs of a Gen Z or of a Boomer generation, but finding a way, again, to help them cross the bridges that they’re going to need to cross together.
Yeah.
I’m especially interested in that because I do think it becomes an area of neglect, just because you’re already a member or customer, so you think you don’t have needs.
Then, of course, ageism cuts both ways.
Cuts against younger people, cuts against older people.
I think it’s a really interesting area of fintech.
Charlie, for example, the neobank that is offering products for the over-62 crowd, to me is an interesting illustration of going after an older audience.
But I am curious, because you have such intel into, hey, this is what’s interesting right now in early-stage fintech.
As you mentioned, some of them don’t have clients.
So, how do you think about, hey, this is actually interesting, a credit union might like this?
What goes into your thinking patterns to be like, that’s interesting or that’s not?
Kind of a combination of things.
One thing is, does this idea and does this conversation feel new?
Or is this one of four or five versions of the solution I’ve heard about in the past several months?
If something is totally new to me and the entrepreneur is actually educating me on the scope of the opportunity or the problem, that’s always interesting to me.
It doesn’t necessarily mean it will pan out, but it means they’re doing something differentiated versus having to choose the best among a set of competitors who are already kind of doing the same thing.
But then we definitely do a lot of validation, cross-checking with credit unions.
We are regularly meeting with credit unions to hear what their priorities and what their needs are.
Again, going back to, there can be a ton of great solutions, but they’re not all going to get implemented at the same time.
So, just making sure we continue to hear what they’re talking about from a prioritization perspective.
I think a big theme going into 2025 is fraud and cyber, protection, digital privacy, just thinking about how credit unions can protect their members, keep a good member experience for them to prevent fraud, or if it happens, thinking about how they can rectify that for consumers.
So, I think that’s an area where hopefully there are going to be some more emerging solutions.
Yeah.
Are there any particular promising technologies you think would be a good add-on for a credit union to help get in front of fraud versus have it happen, then try to tackle it?
We’re looking at more in the space.
I have talked to a couple of companies recently that are trying to empower the consumer or empower family members of somebody who’s aging, who might not be as savvy when it comes to scams and things like that.
So, I think there is going to be more of a theme around trying to empower the consumer and enable them with tools to help them combat that social engineering that they might be facing when it comes to some of these scams.
Yeah.
I’m overwhelmed by the amount of fraud.
I’m like, oh man, I’m going to fall for these traps left and right.
I hope not to.
But just the video, the likeness of people, is bonkers to me.
Like, oh, that’s actually not a human.
Yeah.
I think that is one of the stereotypes, that people who are smart won’t fall victim to these scams.
But in fact, it can happen to anybody.
So, I do think there is a need, holistically, from the financial institutions to think about how they can put as many resources toward combating this as these scammers are.
The scammers are spending a lot of money, and they have very sophisticated technologies to figure out just how to get in people’s hearts and minds.
I wanted to, because it’s those out-of-wallet questions.
I remember, it was a few years back now, but I was definitely well into my 30s and I had to call a bank and answer one of those out-of-wallet questions.
It was something like, I don’t remember, but the answer was Sailor Moon.
I was like, clearly, hopefully I settled on this when I was very young.
And now I’m embarrassed.
So that’s how that went.
That’s my call to the industry to stop that.
Yeah.
I think there’s going to be kind of a rise of biometric identification, so you won’t have to answer those questions necessarily.
Be great.
Just by talking, potentially it can authenticate your voice or something.
Talking would be even better.
I don’t know if you’ve hit this, but I’ve hit it when it’s IDing my face and it’s like, “No, that’s wrong.”
I was like, oh, that’s because I just woke up and I look however I look.
I’m like, clearly something I did last night, but whatever.
I wanted to talk, we’re coming to the end of the conversation, but I wanted to make sure, your prognosis for 2025, early-stage fintech.
What are you thinking?
What are you feeling?
Good, bad, somewhere in between?
What are you predicting this year?
I don’t want to be like everybody else.
I think generally the mood is optimistic within fintech.
I think people are feeling better about this year than the past few years.
So, I agree with that, but I’ll try to be a little bit different.
I do think that even from our own portfolio, I’ve seen, it really took a long time for companies to take their medicine and either shut down or go to those lower valuations.
So, I think that has still taken a while to cascade through the industry, especially down to the earliest-stage companies.
There probably will still be a few more flat-to-down rounds this coming year, or M&A that happens at valuations that are lower than a company raised its last round at.
But I do think we’re going to start to see a pickup in activity in M&A, potentially in IPOs.
I think, again, that will all trickle down to the earlier stages and have a positive impact on valuations there.
But probably still early in the optimism cycle.
Okay.
I like how you put it that way.
What about for the founders who don’t get a check?
Any advice for them?
What’s their next move, if there’s a general principle to guide them?
One of the things I always tell entrepreneurs is, unless it’s a hard pass because it’s just not a fit from an investment-thesis perspective, an investor can glean a lot about an entrepreneur from how they communicate in those in-between phases.
So, when you’re not necessarily actively fundraising, but I say, “Let’s keep in touch for your next round,” do you actually add me to an investor update?
Or do you reach out to me individually and give updates on key metrics, learnings, things that have happened that have caused you to shift the way the business is going?
I think it’s worth founders putting time into building a prospective investor update list and giving them some meaningful updates at a regular cadence to keep people aware of what you’re doing and remembering your name.
Because then when it comes time to raise again in 12 or 18 months, they have a little bit of a sense of what you’ve been up to, and you don’t have to completely restart that conversation.
Yeah.
That’s really important.
So it does require, I guess, a bit of vulnerability to be like, hey, I was rejected, but I’m still going to let you know about me.
Yes.
Yes.
Yeah.
I can feel that when I’ve pitched essays in the past.
Rejection.
I’m like, here I go again.
But it’s important.
It’s important.
All right, one last question for you.
Before, you know, how should people reach out to you?
Any things you want to say before we end our chat?
I mean, people can always reach me on LinkedIn.
But I’m also happy to share my email.
It’s elizabeth.mccluskey@trustage.com.
So, yeah, feel free to reach out.
I love to hear from whoever your listeners may be, whether it’s entrepreneurs, credit unions, others in the industry, other fintech investors, because I think so much of what our job is is just connecting people who haven’t necessarily met but who should meet.
So even if we are not an investor or don’t play a role in that way, I’m always happy to help make connections between people in the industry.
Wonderful.
That’s a really important gift to be able to give.
Elizabeth, last question.
What is the photo on your phone’s lock screen or image?
Oh, it’s my family.
Two kids.
My son just turned two.
Aw, congratulations.
Thank you.
My daughter is four and a half.
Aw, yeah.
They keep life fun and crazy.
Good.
That’s how that makes everything interesting.
Well, Elizabeth, thanks so much for being on the show today.
It’s been a true delight to explore early-stage fintech with you.
Likewise.
Thank you so much, Mary.
Okay, one thing I learned is the growing need for intergenerational tools.
Helping younger generations handle the money issues of their aging parents, for example, is only becoming ever more important.
Higher and higher stakes.
Two weeks from now on the show, we’re dropping a flavorful conversation with Sam Miller, who co-founded Kasheesh, a fintech startup that bills itself as a buy now, pay later alternative and lets consumers pay for stuff online using multiple cards.
It’s an interesting proposition, and it was a vibrant chitchat with the startup CEO.
Catch you then, and maybe even catch you sooner because if you’re at Fintech Meetup, please hit me up.
Or even better, come to my panel on Monday afternoon.
It’s going to be a vibrant time.
See you then.
Enjoying Money Isn't Everything?
Subscribe on your favorite platform