The Curql Fund has a similar expectation that investing credit unions use its startups' products. But given the size of its portfolio, 100% adoption is unrealistic.
“They’re involved in the discovery process, providing feedback in these companies before we invest in them,” according to President/CEO Nick Evens. “In the course of their diligence, they’re going to want to use some of them.”
Curql has 69 limited partner investors, encompassing credit unions ranging in assets from $200 million to $25 billion. After initially aiming to raise $150 million in investment capital, a late surge of interest brought the total to $252 million by the time the fund closed in October.
Additional credit unions were still becoming aware of Curql and expressing interest last fall. But after extending the deadline once, Evens determined it was necessary to close the window.
“That’s why we’re starting to prepare for Fund No. 2, if Fund No. 1 goes as well as we think it will,” he hints regarding future plans.
Curql has already made 11 portfolio investments, ahead of pace for a fund with a projected 10-year life.
“Typically, 80% is invested in the first five years, then you’re looking for return on investment in years six to 10,” Evens says. “The remaining 20% of funding is dry powder for those companies that need a little boost later.”
One ongoing challenge is educating new investors on the dynamics of venture capital while weaving them into a broader mission.
“This is a long-term play; investors can’t expect any return in years two through four, maybe longer,” he frequently reminds participants. “We also hit home that ROI is secondary: We’re also looking for transformative technology that will keep credit unions relevant in the eyes of their members.”
The Curql fund is itself structured as a CUSO and by definition can only invest in CUSOs, which has occasionally quashed opportunities despite a relatively painless on-ramp.
“Some of these companies have been in business for three to four years and don’t know what a CUSO is. We have to educate them,” Evens says.
For some providers, such as Eltropy, a Curql portfolio company serving only credit unions, it’s easy, he adds. “But for some others with venture funding already in hand, some VCs might decide it’s not worth the hassle.”
More often, however, fintechs grasp the value of the CUSO structure and organize themselves to accommodate.
John Janclaes has a unique vantage point from which to appreciate these synergies. A former credit union CEO, in 2021 Janclaes was named president of Nymbus CUSO, the new, credit union-focused unit of six-year-old digital banking provider Nymbus.
“A CUSO is a recognition by credit unions that if we’re going to partner with them as customers, why not partner as investors, too?” Janclaes says. “We want you to be an owner.”
Both VyStar and Curql own stakes in the company, and the $30 billion technology venture capital firm Insight Partners remains the lead investor. Nymbus’ sales to credit unions grew 25% in 2021, and management forecasts an even greater increase in 2022.
Janclaes refers to a “governance playbook” outlining 26 items Nymbus must cover over the course of a year to satisfy CUSO criteria. “Most of these would have to be done anyway; it’s not a show stopper.”
He says the process of establishing a CUSO took only a couple of months, and he believes the payoff is worth it in terms of alignment with clients’ goals and objectives.
“You’ve got to have people across the table who get it—who understand volunteer boards as a reality; that you can’t just go out and raise more capital; things like that” Janclaes says.
On that latter point, he doesn’t see the long-term nature of CUSO investments as a major barrier for credit unions. “Certainly other portions of capital are invested long term, too.”
Channeling both his past and present roles, Janclaes makes an impassioned case for both credit union action and the fund-based model. “We need bolder steps, and not just in operations but also with investments. You can’t win from where we’re at with the tiny steps we’re taking.
“You can’t do it fast enough yourself—a single credit union couldn’t hire all the people,” he continues. “Companies like ours bring the people and the technology.”
The Winter 2023 issue of Credit Union Magazine explores award-winning marketing, board training on a budget, developments in instant payments, service to small businesses, and NCUA’s final rule on member expulsion.
