Mark Tluszcz (Mangrove): Investing in people and vision
Despite the buzz around the fintech sector, Mark Tluszcz believes the next big breakthrough in the financial sector is likely to come from established and cash-rich groups such as Facebook and Google. The Mangrove Capital Partners CEO says the firm’s investment in website builder Wix, now a $3bn company, reflects its trust-based approach to venture capital investment.
How would you describe the relationship between the financial industry and fintech?
Like other industries, the financial sector has been compelled to reinvent itself. Over the past 10 years, we have witnessed a gradual digital transition. However, it is an industry that does not like change, since innovation implies reduced profit margins. For the past half-century, the sector has been characterised by mediocre service and high margins. Fintech offers great opportunities for consumers in terms of access to services and user-friendliness, but it is still not easily embraced by financial players.
What breakthroughs over the past two decades have been most important to the sector?
There have been two critical innovations: the arrival 20 years ago of PayPal (now valued at $70 billion), which took advantage of the phobia about using credit cards online, and internet banking, launched by banks themselves. There has been no other leap forward since. From an investment perspective, Mangrove is not putting money into fintech because we believe the next breakthrough will come from established firms such as Facebook and Google with the financial strength and branding to develop innovative products. In China, for example, e-commerce giant Alibaba and online service provider Tencent are leveraging their scale and vast consumer base to lead the fintech revolution. That’s why I’m not very optimistic about fintech as an investment choice.
What are Luxembourg’s advantages as a centre for private equity and venture capital?
The value provided by private equity and venture capital in the global business development process is undeniable. The sector’s growth reflects its ability to capitalise on banks’ conservative risk management strategies and its readiness to enter new market segments. As professionals, our aim is to develop businesses, but in a human and thoughtful way – investments aren’t driven just by spreadsheets and projections. We base our decisions on trust and belief in the attitudes and vision of the people we invest in. It’s more of an art than a science and involves a certain degree of risk. With favourable legislation, political support and established financial expertise, Luxembourg is set to remain a centre for private equity and venture capital in the years to come. At macro level, the grand duchy pursues dazzling ambitions with sensible but groundbreaking policies focused on both short and long term. The support by the government for fintech offers a foundation to help start-ups, while the space mining legal framework is fresh testimony to Luxembourg’s determination to pave the way for growth and foster a forward-looking economic environment.
Of which investment are you most proud?
Skype was a great investment, but our involvement with Wix is a very good illustration of our investment approach – getting in early and supporting the team through thick and thin. In 2011, we received an offer to sell for $400 million. I advised Wix CEO Avishai Abrahami against selling, arguing that the potential of the platform had not yet been tapped. We eventually decided not to accept the offer, but Avishai insisted on one condition, that I should be chairman for five years once we had gone public. Now I hold that role, and Wix is valued at more than $3 billion. Considering our initial investment was $8 million, I consider this venture one of our biggest success stories – as well as an eye-opening experience.