Max Koenig (MK): Alright guys, welcome, I’m Max. I’m here from Plug and Play, major fintech team, along with my colleague Omneed.

Omneed Mehrinfar (OM): I am Omneed; I am also managing the fintech programme. Firstly, welcome to California. It’s a good weather all year round here so you guys will get to enjoy that Vitamin A. But more importantly, welcome to Plug and Play. We are the largest technology accelerator in the world in terms of magnitude of sourcing and visible locations globally. This consists of a tour to give you a bit of history, to give you a bit of basic background on our model and how we function using these models for our programs, and then we’ll have an exchange with some of our products and engage with one of our current corporate partners. Then, we’ll wrap up with our vice president and head of fintech, Scott Robinson, giving an overview about Fintech in the transparency space and between different regions in the world. So, Scott Robinson, you’ll see him upstairs shortly, he is a thought leader on blockchain and fintech, especially the tech section. Tomorrow we will be having a massive regulatory event all day here at Plug and Play and before I get into too much detail, let me give you the history about Plug and Play.

I’ll kick it off and basically give you guys our history. Our history goes back to the early 90’s with our founder and CEO Saeed Amidi. He’s based in the Bay Area; he and his family are Silicon Valley Billionaires, but believe it or not, they didn’t make their money in tech. They made their money in more traditional lines of business. So in real estate, they own 8% of University Avenue, the real estate on Avenue, they won a bunch of high-rises out in Los Angeles. They own one-third of the bottled water market share in Spain, Austria, and Portugal. They used to own the largest water distribution companies in California, which they recently sold that. They have a massive importing and exporting business in China. They own a banking license. He represents Exxon Mobil in different countries. A humble businessman to say the least. So how did he get into the tech space? It effectively started because, he’d go to the country club, have a glass of wine with his friends and they all talked about tech. They’d be talking about their newest ventures as entrepreneurs in the tech space.

Basically something they have invested in has brought in so much capital within a six month period with sites like Snap. “My friends are making more money than me quicker. I need to get involved in this space.”

Amongst his real estate portfolio, Saeed had a tiny piece of property. Until today, we call it 165 University Avenue, good karma building. Why? He had the old office space, he didn’t really know what to do with it, he was like “I’m going to rent it out and see what happens.”

The first gentleman to walk into the building was a man called Pierluigi Zappacosta who started a company on the top diamond there called Logitech, He set up his first office there when he moved Switzerland. Saeed was still new to the game, so he didn’t want to invest. He just wanted to inspect them. They grew incredibly and had to move out of the building. Saeed’s like “I missed a great investment opportunity; I’m going to invest in the first startup that comes in the building next.”

Right after that, two quirky guys walked into the building. One was called Larry, the other was called Sergei, and they were starting a small company called Google. So, they moved in as three people. Saeed loved them. Number eight in Google is Saeed’s best friend, invested in the seed stage through a fund. The team moved from 3 to 50 people and moved out from there.

Right after that, if you think his thumb couldn’t get any greener, two more college kids came and had a lot of cash but horrible credits. So, they wanted prime real estate in downtown Palo Alto and no one wanted to give it to them, “Like, ok, you guys are a bunch of college kids, horrible credit score, pay your electricity bill on time and maybe in a year we’ll give it to you.”

So, Saeed being a Persian rug dealer by nature knew how to negotiate terms with these two kids, Max Levchin and Peter Theil. They’re starting a company called Paypal. So, Saeed told them “Listen. No one in the area wants to give you space, but I know you guys need it to survive, just because all the venture capitalists in the area. Give me two years rent upfront, one year in cash and one year in equity, and we’ll talk.” So, we know, Peter Theil and Max Levchin gave up one year’s worth of rent in equity and gave it to Saeed. Saeed became a seed investor and equity holder in Paypal. 

So, now Saeed took a couple of steps back and he’s like “Ok, I have this really questionable office space that got these three fantastic companies through such a short period of time. Imagine what I could do in a big building,” a very basic premise. 

So, fast-forward to 2006. Plug and Play was born and we acquired this property from Phillip Semi-Conductor, and today it’s a global HQ, it measures 180,000 sq. ft. Today, we have 415 start-ups working in this building, anywhere between one business development representatives to up to 30-40 programming team working out of here, and we are good, and today, in 2016, we are the largest accelerator and one of the largest venture capitals in the world. 

Why do all of these start-ups from around the world want to be part of our ecosystem? Wheel of Fortune! So, five reasons:

Firstly, investment. 

We are seed stage investors into start-ups. Essentially, at the end of the day, we are investors, regardless of all the programs and the corporate innovation you run so and so forth. We are, before anything, investors. $25,000-$500,000 from 1-5% equity into start-ups that come through our accelerator programs and needless to say, because we take such small ticket sizes and such small equity stakes in these start-ups, venture capitalists (VCs), instead of competing with us, love collaborating with us. So, in that sense, we like to say we have 180 VC partners, where venture capitalists from the area and internationally actually share with us the overflow.

So, if a start-up is too early for us for Jason Horowitz to invest in, we’ll refer them to one of our accelerator programs and basically teach X, Y and Z metrics, and if they do well, we’ll invest in them and we’ll do their Series B also.

Second point - networking

It says fewer than 50+ events up there, but in 2015, we actually seated 306 events here. So, on any given day, we’ll have anything from 50% bitcoin meetups. You’ll see bitcoin crazy people running around, up to our 1,000 persons demo per day , so we’ll have 50 start-ups on stage pitching for three minutes to an audience of 850 to 1,000 corporations, venture capitalists, angel investors, PR & marketing firms from the tech branches to wired news. Creating this ecosystem by plugging-in and getting our start-ups, corporations and our VCs with one another.

Third point - mentorship.

We work with 166 paying corporations from around the world that come to us for help. Basically, it is for us to help them source for some entrepreneurial talent that they can engage with their innovations. But, what they also commit, more than just the membership, is the few hours every month of two is to come in and meet these start-ups going through our accelerator programs and coaching them. Anything from to their pitch polishing –“Stand up straight, speak louder, you’re going to meet Jason Horowitz tomorrow. Please don’t wear flip-flops, straight through to the actual business model- You guys are currently targeted as a B to C. You can get way more traction, way more quickly if you actually looked to partner with banks and became a solution for them’.

Fourth point - logistical support.

Two people, a pet dog in their mother’s basement. They have a start-up and their team is growing. With a growing team, you need to start taking investor’s meetings, with investors, as your team grows you also need to do term sheets, payroll. With these growing pains, by coming into Plug and Pay, we provide start-ups with basic Fortune 500 amenities from the basic office space, conference rooms, data centre. They can plug into downstairs in the basement to even service partners- corporations such as Wilson Sonsini, Paychex, people providing these kinds of legal services, accounting services even Visa legal services.

Why do they do this? Well, today it starts with a million dollars, and then 5-6 years, when it becomes a billion dollar start-up, Wilson Sonsini is still retained as their legal advisor.

Then, last but not least, corporate innovation, which me and Max are a part of.

So, all the different accelerators in the Bay Area, we don’t like to say we compete with one another.

If Draper University really makes the entrepreneur move from ideation, bring the first ideas, not even a minimum type of viable product. Just idea, and mature them as an entrepreneur at their confidence level. Why combinatory wants to then help secure that start-up the first round of funding, that young hungry entrepreneur. We’re more focused. We think money and financing is great, but more than anything, we also highly value strategic partnerships. Through Plug and Play, we have nine different accelerator programs - each one is industry specific. Max and I are part of the fintech program, so we work with 21 of the largest financial institutions in the world - ranging from Santander, BNP Paribas Deutsche Bank and Credit Suisse, and they effectively come to us as an augmented resource with each of their exclusive KPIs to help them reach the two pilots they need to execute in one year. With Santander Innoventure’s case, the 4 to 6 investments that they have to execute here, they set up a HQ in London. By working with all of these different financial entities, we like to say that we’re experts in the start-up world. We have the resources, but we’re not experts in the financial industry.

All of you here have way more knowledge of the financial industry than me and Max. While we have the resources for the start-ups, we effectively do our due diligence by working with the corporations where they tell us what pain points they have. Whether it’s the private banking team saying they need KYC solutions like finding income source for their ultra-high net worth clients or whether its biometric authentication for the retail banking division because there is fraudulent activity through the roof in the last five years. So, these various technology pain points and interests will be shared with us, and we’ll find from around the world - from our 31 sourcing and locations around the world, the best entrepreneurs and the best innovators in the space, and effectively bring them through a 3-months acceleration program to engage with each of our partners for each of these respective programs.

When it comes to scalability, in terms of how many start-ups we accelerate a year. In the fintech program alone, we run it twice a year - Q1 and Q3 of every year for 3 months at a time. For each program, we get 1,000 applications just for fintech. That’s anywhere between 1800 to 2,000 applications in just fintech a year. 
So, put up the 2,000 number and imagine that across 9 different programs with similar numbers and applications. 75% of the applications that come here are organic, where they reach out to us from around the world, and 25%, like they say some of the best entrepreneurs, you need to pick up the phone and call.
Max (Speaker 2): We’ve done four batches for fintech alone. Some of the programs are more mature like Fintech, IoT and retail. Some of them are new and young ideas that we’re really excited about.

We just opened up companies, we just did 23 yesterday. The way we work is this. The business model structure, the way we find the start-ups and the way we get down to the number we accelerate is this. We just got 873 fintech companies applying to a recent cohort of start-ups. That’s basically allocated over the course of three months per application process. We then take the 873, since we are investors. We do due diligence on our corporate partners behalf given that they are big Fortune 500 corporation. They don’t really have the manpower or the resources or the time to look through 873. So, we break it down into the top 100. We take that 100 and pass it out to our partners, and our partners give us a 1-5 rating on each company, potentially a 5 being the highest. They potentially want to invest in them, work with them, buy one of their solutions, and incorporate their business lines and so on. We then take out those top 100 and break it down roughly between the top 40-50 per corporate and cross-reference amongst all of our partners, and we invite our Top 40 here to pitch 4 minutes of talk and 2 minutes of Q&A to our corporate clients.

If you’ve seen the show Shark Tank, it’s essentially Shark Tank, but on a way bigger scale. Roughly, we have about 100 people in the room, representing 40-50 financial entries - from the Amex, to MasterCard and so on. Then, each start-up will go on stage and they’ll pitch. The corporates will then vote one more time on which start-up they want to be accepted into the program. Typically, we end up anywhere between 20 to 30, and we just admitted a class of 24 fintechs. When you break it down from 873 to top 24, it’s just under a 3% hit rate that you’ll actually be accepted into the program.

Once you do get admitted into the program, you’ll get all types of cool things. You guys will get a full-on curriculum, two mentor sessions a week. Basically, our corporate partners will fly a business unit out here and they’ll say: “Hey, Credit Suisse, their next investment fund guys are here for a week. They want to meet every single start-up in the program for an hour.” We pretty much relay the information to start-ups and they will come. They pretty much get 24 meetings with start-ups for that week they’re here.

We do other cool things, like corporate innovation seminars. Essentially, we’ll have large financial institutions, lay out their whole entire organisation and say “Hey, these are all the seven business units we have and these are the realm of people we talk to within each one. This is how you work with these businesses.” So, it’s kind of like a reverse pitch from the corporate to the start-ups, and then, we’ll do a bunch of other cool things like pitch polishing.

We work with American clients, Latin American clients; we work with numerous South-East Asian clients. We work with clients from the Euro zone. Why do they come to us? Five reasons:

Firstly, educational purposes

A lot of these corporations are new to the innovation space so they really want to get a forefront of all the up-and-coming technologies, and the entrepreneurs to learn from them than to formally engage with them. A quick case that I usually like to drop is that back in Q1 of 2015, when we launched the fintech program, we launched it in conjunction with Citigroup, Citi Ventures. Citi Ventures effectively came to us and they’re like “Listen, we’re really interested to learn about bitcoin and blockchain, but right now, it’s a bad word internally, so we want to utilise your guys’ platform as a third party sandbox to play around with the technology without the bad PR and press associated with it.”

For the first four months, they were meeting start-ups in our program and learning from them, and now four months later, they’re now Citicoin. Then four months to go, Citi announces that all their credit swaps on Wall Street are done with blockchain backend. So, we work with these corporations and basically, it’s an educational curve in getting them comfortable with innovation from the point of knowledge to actual execution.

Second and third point - Business development and business licensing 
You don’t want to invest in a start-up but you want to formally engage with them. So you want to license out their product as external or internal innovation. Internal innovation being enhancing their legacy system, cost optimisation, and how can I reduce the analysts time in half, those kinds of things. Second point, external innovation, is basically new revenue streams that you can service out or sell out to your existing client base.

Last, but not least investments, and or acquisition

So, more and more corporations, now that have been familiar with the innovation space for a while, have spun out investment funds. Santander, BBVA ventures Citi Ventures where they actively invest in start-ups to not necessarily work with them exclusively, but so they can get some equity stakes in the space and help scale-up that start-up, not just with one corporation, but across the industry as a whole, which is why our platform is so unique. We don’t like working with one corporation. For start-ups to be successful, it has to scale across the whole industry, because for us, if one of our start-ups lands a POC with Santander, the domino effect happens. BNP will get interested and want to use their products, because BNP is scaling their products in Paris. Now back in the West, we’re evaluating that for the West Coast in the United States. If I go to Brazil out in Latin America, it’s like “Wow, these guys in the Euro zone and the US markets are using this technology. Let’s take a closer look at it”. Then, of course, we have our South East Asian clients who are some of the most innovative. They then get really intrigued and want to expand that outside of South East Asia - Japanese and Chinese markets. So, it’s for us, as investors, at the end of the day, this corporate innovation platform, really help us to de-risk our innovation portfolio while providing value to the start-ups.

It’s a win-win-win, and so far it’s a win-win-win because if it’s a lose-lose-lose situation, we probably would be out of a job right now. For the past two years, the partners have been happy. The traction’s been there, ROI’s been good. So, everything is incentivized to complement the other.

MK: A couple of things before we head on up. We’ll show you the second floor, show you where the start-ups actually sit, we offer free desk space and this and that, and then we've got lunch for you guys. We’ll take you to the third floor and you actually get to meet three of them.

Last thing to touch, three things about the start-ups that we have here. We’re stage agnostic so we’re seeding early stage companies. Companies with five people on their team with a couple millions in funding, and then we have guys that are later in growth stages. So, very much guys that have $50 million in funding and they come to us, because their play is to get hooked up with some of the guys like you as well as have direct communication with the CEOs of big banks. Two other things to note. 50% of start-ups come internationally, 50% come domestically.

OM: Why does Saeed do Plug and Play? I mean the guy is in his golden years. He is 55 years old. He has made his billions. But what keeps him alive and kicking? On one hand, he says Plug and Play makes him feel young again. Why? Because we invest in these bad boys down here and get them up here and hope they go to the right. So, what gives him that kick of youth? He invested in Dropbox for $100,000 eight years ago, and then sold his equity for $100 million. That’s what makes him feel younger again.

The $120,000 that you put into lending club and returned it at $48 million when they went IPO. Or more so than just the big ones. Even these ones. Number 26 is a bank. It’s all digital banks out of Germany we have invested in. They’re now raising... We invested in them when they were evaluated at.

MK: We were the first investors and they were 26. Is anybody familiar with them?

Audience: Yup

MK: So we put the first 12,500 into them and they went through our accelerator programme. Actually with the joint venture we had with Axel Springer in Berlin, and then Peter Thiel recently put 10 million or something like that?

OM: Yeah put 10 million.

MK: That’s a 3 million dollar evaluation.

OM: And now they’re raising a couple of $100 million evaluation. I think so. And now, they just got their banking licence so we are just waiting for the next one. But more so than the billion dollar exit, you also have a lot of start-ups that actually move onto this range. That actually becomes multimillion dollar sustainable businesses that we see 1 to 5%profits. So, for Saeed; a lot of scattered equity and a lot of big access. And if at the end of the day one of these pays out every two years that carries the weight for our whole investment criteria for the next 6 years.

Alright. Okay. Now we will follow Max.

MK: Now we will answer two things really quick before we go. Where do we find our start-ups? It’s kind of like a huge question for all these people. Two major ways we do is partnering with government agencies and partnering with university entrepreneurial clubs. Zueskin somehow came out of Stanford. Basically, we partnered with 50 universities and 50 government agencies. The way we work with them is basically we have five companies joining the entrepreneurial club. Two will stand out, then relay to us, and we try and see if we can work with them for about three months.

We will touch on our international presence, but beforehand, these are the kind of the bigger event areas which we throw. You guys can take a peak if you want. But we hold our major events usually in this area. Feel free to take a look.

OM: Some kind of platform or physical location to work on the programme. If anyone comes and provides that or offers that to us, then we’ll expand our location. So, no one has come with that kind of aggressive offer. We have gotten into Paris; we have gotten into Berlin, Spain. We have gotten into South-east Asia. We have eight offices in China and two in Singapore but nothing in Africa as of yet.

Audience: Are these the critical things?

OM: So these are the two biggest critical things. We will put together the team and even the start-ups that apply will come through our global Plug and Play. 
Audience: So you mean physical location?

OM: Physical? Yes so we need the monetary stability of a million or two million dollars depending on the location a year. A physical location of anywhere between 4,500 square feet for the first year for a pilot programme and if it succeeds something that takes scale of up to a 10,000 square foot facility.

Audience: What about infrastructure?

OM: Infrastructure? I can get you all the details on that. But infrastructure? So, the Wi-Fi and all that? We have all the basic needs. Actually we can have one right now. 
I will talk about that more. All these locations as I said earlier, we source from 31 locations around the world. Not all of them are physical Plug and Play buildings. Each one kind of has a different model. 18 of these are actual physical buildings. So, in China we don’t have an accelerator but we have eight small investment offices. One in Shanghai,one in Nanjing, based on universities in different parts of the city, one sitting in a bank.

In Singapore we have two locations. One with a media focus and the other is a generic incubator. In France, we just launched Lafayette Plug and Play, which is luxury retail where we are working with not just Lafayette group, but we are working with all the luxury brands out of Italy and France. So basically, we find new technologies to integrate into clothing and even the point of customer experience when entering the store. And we are actually super low-key going into launch. Hopefully, knock on wood, another programme in France independent of the Lafayette one for fintech.

So, we are working with one of the biggest banks in the world to actually run for them a fintech platform. So how are the models different at the end of the day? Every one of our international activities funnels back to here. If a start-up gets retraction in the Lafayette program, they come back to HQ here in California to scale even further with more of our partners. So everything reports to here. We just launched with Mercedes Benz. We are running a Mercedes Benz innovation lab out in Stuttgart, Germany. So, it’s really diverse, and for us, at the end of the day, if a start-up scales with Mercedes Benz, and we are the first investor with them. And now, they’re in every S-class or E-class. Pretty good!

Retail programmes the IIT programme. So if there is a way to sell it. It’s like augmented resource will help you in any way we can. Soft landing in Silicon Valley.

MK: If you guys see on the wall here. Push back a little bit. You will see all the banks and financial institutions we are currently partnered with. We have 21 or22 institutions signed up currently. About 18 of them are some of the world’s largest banks. Domestically, you will see Capital. One, you will see U.S Bank, you will see USAA, abroad, you will see Santander, you will see TD up in Canada, you will see Credit Suisse, and Deutsche Bank amongst a lot of others. There are two different levels of engagement.

The gold plaque which is essentially an anchor partnership. So like I said, when I was explaining the model. When we get those 800 somewhat applicants, and then we break it down to the top 100, the gold is actually the one we are giving the top 100 list to. These are the guys deciding on which companies get accelerated here. Once you cross reference all of their interests, and we admit 25 of these, are the guys that are usually the more hands on, allocate more resources to work with these guys. Our asset to them is to essentially run four pilots a year. Hopefully, two will go commercial and the guys in the white here essentially get access to the start-ups of the ecosystem but they don’t get the actual selection aspect to it.

OM: So did you tell them about the history of how we came to this model?

MK: Oh yeah. History of how we came to this model. We used to run on one- off accelerators. So we did it with Volkswagen, State Farm and PayPal; three good examples. Best example I think would be Volkswagen. We gave them 10 companies to be accelerated in the course of three months. They got to work with seven of them which are great. 70% hit rate; great on the corporation side but they don’t have the resources to work with all 10. So, you look on the start-up side, you see the 3 out of 10 that could not land a way of engaging with Volkswagen.

They can’t simply go to a competitor like Toyota or Ford, and use their broken solution that didn’t work with Volkswagen, with another competitor. They’re going to say no way. Another reason why we changed this sourcing approach is that bigger corporations will somewhat poach the start-ups; stifle their creativity, and ultimately their solution does not have a good market fit and is tailored specifically to what their corporation needs and if it ends up not working, then they are screwed. 
Audience: How much for the gold?

MK: Its $200,000 annually for the gold and $100 000 for the whites. You want to touch on one more time on what we need? And I will touch on the history of the programme.

OM: Of course. So whenever we work with any corporation we realise that more hurtful than a bad start-up, is a corporation that does not have executive clients for their innovation strategy. In the past we saw that we’d have corporations come into our programme and give a lot of false promises to the start-ups like “we’ll engage”, “we’ll talk next week” and “yah, I just need to get this letter of approval”, and then we find out.

MK: Those two acquisitions happened for the last six months. So large contraction is really quick and so far, it has been quite a success.

OM: And when you look in terms of the numbers. So look at Plug and Play’s portfolio, take a step back. The numbers, what was it? One out of every 10,000 start -ups in Silicon Valley is considered to be potentially the next billion dollars start-up. This is what it says. We have invested in 450 start-ups; we used to invest back in 2006 in 12 start-ups, now we invest in 20 start-ups a month. So in the past three years, we have invested on 450 start-ups. From our portfolio of 450 start-ups, we have had three billion dollar exits. So not bad compared to the one in ten thousand.

MK: We are very active when it comes to investments. In 2014, we got voted the most active venture capital in Silicon Valley and did 152 investments. Last year we did 166 and this year, we are set for 200.

OM: Globally! Not just in the U.S market but also in Berlin

MK: So investing wise, we are about 50-50. I think 51 and 49.

And also you will notice a lot of corporations have office space here. Something we saw trending in a lot of corporations although our programme works with corporations that have no physical presence. Half our partners have no physical presence here in the Bay area in Silicon Valley. But we ask that they commit to fly in four to six times a year to really get value out of our programme to meet the entrepreneurs. A lot of them, after during the course of a year into the relationship, they actually allocate one or two people to actually move full time here into the Bay area.

Something that comes by way with being a partner of Plug and Play, you get a virtually free office space here in Plug and Play and have a team of one to two people working out of full time, and we are kind of a soft landing. So Sberbank is doing it. From Russia they have one person who is a GM of their venture fund. I don’t know if he is here today. And then you have Deutsche Bank Collab. Deutsche Bank Collab has its office. I hear you guys went to it in Palo Alto but they still work out here twice a week just because they believe in something called random collusions. More so than a tailored, catered session.

OM: They’re not giving me a paycheck in the parking lot. And last but not least, you also have a bank from Brazil. They’re moving here because their largest shareholder is the government. So, they move their innovation team here, and basically move away from the scrutiny, the bureaucracy, and the hierarchy that a traditional bank is based on. And then, you have Banco Original, a digital bank out of Brazil. I don’t know where Santiago is, he hasn’t been here all week. But anyway, this one innovation guy moved from Brazil and he has a team coming in every two months of three other people to evaluate the start-ups he has been keeping tabs on.