{"id":9866,"date":"2022-03-10T15:22:00","date_gmt":"2022-03-10T20:22:00","guid":{"rendered":"https:\/\/www.sage.com\/en-us\/blog\/?p=9866"},"modified":"2023-06-21T06:15:20","modified_gmt":"2023-06-21T10:15:20","slug":"how-financial-services-firms-should-think-about-tech-investments-lessons-learned-from-a-venture-capitalist-turned-white-house-deputy-cto-part-2","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-us\/blog\/how-financial-services-firms-should-think-about-tech-investments-lessons-learned-from-a-venture-capitalist-turned-white-house-deputy-cto-part-2\/","title":{"rendered":"Optimizing tech investments in financial services: Insights from a VC-turned-Deputy CTO (Part 2)"},"content":{"rendered":"
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\n\t\t\t\t\t\tOptimizing tech investments in financial services: Insights from a VC-turned-Deputy CTO (Part 2)\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\n\t\t\t\t\"ben-collins\"\t\t\t\tBen Collins<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

With a unique background as a current private equity advisor, experienced venture capitalist, and former Deputy CTO of the White House, Nick Sinai\u2019s perspective is always interesting. In this post, I continue my conversation with the Insight Partners Senior Advisor to get his thoughts about the role of data-driven decision making, artificial intelligence (AI), and machine learning in today\u2019s financial tech stack. Nick also divulges ways to \u201chack the bureaucracy\u201d when upgrading your company\u2019s technology, and reveals what he sees ahead for the financial services industry in 2022.<\/p>\n\n\n\n

Here\u2019s what Nick had to say…<\/p>\n\n\n\n

You\u2019re a strategic advisor to many companies. How would you rate the ability of most to make real, data-driven decisions right now? <\/span><\/em><\/p>\n\n\n\n

NICK:<\/span> Well, as one of the largest venture capital and private equity investors in software, Insight Partners has close to 300 portfolio companies and investments. We don\u2019t invest in the very early startup that has two guys or gals and a dog in a garage kind of thing. So oftentimes, there will be 50 people in a company when we make that investment. But after a few years, with some product-market fit, that company has often grown to 100 people and done fantastically well inventing next-gen software, finding customers, and then finding the next round of customers.<\/p>\n\n\n\n

What\u2019s interesting is, they\u2019re so focused on building great product and finding those initial dozen or couple-dozen customers, they haven\u2019t invested in back-end systems. They\u2019re often on QuickBooks, sometimes they\u2019re in Excel. And that\u2019s because these types of systems are just not the top investment most want to make when starting up a company.<\/p>\n\n\n\n

But as a Board member, we ask for and expect a lot of information. We help our portfolio companies benchmark on both financial and operational KPIs. So if you\u2019re going to take a $20 million or $50 million investment from a venture capital firm, investment in systems is one of those requirements. We don\u2019t want a lag time between when we can ask data-driven questions and when they can get the answer. We want to empower them, but that can only really happen if they invest in their systems.<\/p>\n\n\n\n

Artificial intelligence (AI) and machine learning are promising results that are often beyond our imagination. Do you think financial services firms are taking a pragmatic approach to these emerging technologies, or are they trying to make a leap to AI or machine learning without having the right foundational technology in place first?<\/em><\/p>\n\n\n\n

NICK:<\/span> I\u2019m a big believer in using AI and machine learning to transform all kinds of industries, including financial services and government, where I do a lot of work. Every software we at Insight Partners invest in and use talks about AI and machine learning \u2014 that\u2019s just table stakes at this point. And they\u2019ve become just part of the experience when you\u2019re in Gmail or Facebook, without most users even really realizing it. So, I think we\u2019ll start to see that pervasiveness increasingly in financial services as well, where maybe you\u2019ll get some suggestions on what you can do to close the books faster. (Editor\u2019s note \u2014 Sage Intacct offer this capability today through Outlier Detection \u2014 a machine learning tool that helps ensure the accuracy of approval processes: Info in Intelligent GL<\/a>).<\/p>\n\n\n\n

But what does AI and machine learning fundamentally depend on? They depend on the data \u2014 how that data\u2019s created and how it\u2019s processed. If we have a bunch of lousy data that isn\u2019t really meeting people\u2019s needs, we can\u2019t merely sprinkle AI and machine learning dust on top of it and expect it to be better.<\/p>\n\n\n\n

I think many people have this vision that AI and machine learning are going to cause a massive displacement or disruption of existing technologies, but what you\u2019re saying is they\u2019re more likely complementary technologies. Is that accurate?<\/em><\/p>\n\n\n\n

NICK:<\/span> That\u2019s what I\u2019m really interested in \u2014 this idea of machine learning that\u2019s complementary to people, where we can bring humans and machines together in ways that let humans do higher-purpose things. So it\u2019s not always AI. It could be automation, for example.<\/p>\n\n\n\n

Even smaller organizations often force people to navigate a maze of red tape in order to implement new software \u2014 or even just a new module within an existing accounting platform. Can you tell us a little bit about the book you\u2019re currently writing regarding hacking bureaucracy?<\/em><\/p>\n\n\n\n

NICK:<\/span> The White House and federal government is one of the largest, most notorious bureaucracies. My co-author and I were fascinated by watching what works and what doesn\u2019t work there because high-profile entrepreneurs-in-residence or leading executives from Big Tech would come in, and they would fail. But other people would be able to get momentum and make real, lasting change.<\/p>\n\n\n\n

My co-author was the CTO of the Veterans Administration (VA) \u2014 a Fortune-10 enterprise with 400,000 employees \u2014 yet the president of the U.S. was asking her to \u201cgo fix the VA.\u201d She had an epiphany that it was up to her because the leader of the free world couldn\u2019t make the VA actually work better. So she really set out to understand the VA bureaucracy and how she could make it more efficient and veteran-centric.<\/p>\n\n\n\n

We used real-life scenarios like that one to come up with a bunch of tips and tactics on how you can hack your own bureaucracy. A lot of people try to make big or small change in what we call \u201corganizational karate\u201d \u2014 they come in with full force, using speed and strength. But I think it\u2019s better to use the natural rhythm of the bureaucracy itself \u2014 \u201corganizational Judo,\u201d if you will, where you harness your opponent\u2019s strength and find ways to actually make lasting change.<\/p>\n\n\n\n

It\u2019s about how you can really understand your organization, take the way it works into account and then use it to your advantage.<\/p>\n\n\n\n

In the spirit of \u201corganizational Judo,\u201d how does Insight Partners handle things when you know one of your portfolio companies needs to upgrade its tech stack, but you don\u2019t want to come across as heavy-handed?<\/em><\/p>\n\n\n\n

NICK<\/strong>: Other private equity firms that own more than 50% of a company typically have a standard playbook outlining the systems its investments are going to use. It\u2019s more prescriptive. But Insight Partners invests in high-growth companies, so it\u2019s more of a conversation, more encouragement instead of \u201cthou must\u201d directives.<\/p>\n\n\n\n

For example, we introduce CEOs to other CEOs they can talk to who are maybe a year ahead of them in their growth trajectory. They benefit from those CEOs\u2019 real-world experience and perspective. We\u2019ve also built as part of our firm centers of excellence for sales, marketing, finance and so forth, so executives in each of those areas can easily connect and share best practices.<\/p>\n\n\n\n

We find that when it comes to tech investments and upgrades, though, it\u2019s often not a question of whether something is a good idea. It\u2019s a question of priorities. So it\u2019s a question of \u201cwhen,\u201d not \u201cif.\u201d<\/p>\n\n\n\n

Would you mind sharing one or two other hacking tips and tricks from your book?<\/em><\/p>\n\n\n\n

NICK:<\/span> A lot of these are common sense about organizational behavior. I\u2019m a big fan of giving credit, for example. If you can authentically give credit to other people, it\u2019s going to show you\u2019re a team player.<\/p>\n\n\n\n

I\u2019m also a big fan of just writing it down. When I worked at the White House, people would come in from the outside with all these ideas, and we\u2019d ask them to summarize it in a single one-pager \u2014 force them to crystallize their ideas. That can be really powerful.<\/p>\n\n\n\n

I\u2019ll give you another one, one that I didn\u2019t even realize had become a big, heralded Amazon technique \u2014 it\u2019s about visualizing success, thinking about what success looks like. When I worked in the Office of Science and Technology Policy, we\u2019d make new staffers who wanted to propose a new initiative write the press release and fact sheet announcing it. That\u2019s because journalists are critical and will put the news in the context of what\u2019s happened before.<\/p>\n\n\n\n

In the course of researching our book, we found out Amazon does something similar. Their \u201cPR\/FAQ\u201d process requires anyone wanting to launch a new product at Amazon to write a press release and FAQ sheet that basically answers \u201cso what?\u201d for Amazon\u2019s internal organizations and customers.<\/p>\n\n\n\n

2021 was fairly tumultuous, but there also was an air of prosperity and a lot of growth across many financial services firms. To conclude, as we look ahead to 2022, do you have any macro-level thoughts or predictions around what the year could bring?<\/em><\/p>\n\n\n\n

NICK:<\/span> We\u2019ve realized we can work from anywhere, even from home. Now it\u2019s a hybrid environment. The nature of how we work and how we collaborate, those things have changed pretty significantly. All of that has implications for talent \u2014 we\u2019re going to have a more distributed war for talent because you don\u2019t have to move to urban areas to work anymore.<\/p>\n\n\n\n

There\u2019s also a ton of innovation that continues to happen. This idea of payments and software coming together is a big one. We at Insight Partners have made a number of investments \u2014probably over a dozen \u2014 in financial services and payments. It feels like the big financial services and big banks are nervous, and that\u2019s great.<\/p>\n\n\n\n

You can learn more about Sage Intacct<\/a> and why it’s the accounting software of choice for more than 670 financial services firms that collectively manage more than $1.3 trillion AUM.<\/p>\n\n\n

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