The fund raised $250 million in assets, made 11 fintech investments in 2021

Next Level Ventures launched the Curql Fund (pronounced “circle”) early in 2021 as a national group of credit unions was expressing interest in a nationwide credit union-led venture capital fund that invests in fintech companies that serve credit unions and their members.

Credit unions have been investors in NLV since its founding in 2013 and it became the largest asset manager of credit unions in the country, so it was a natural step that the relationship would continue to grow.

But due to a rapid rise in venture capital funding of fintech companies in 2021 and interest from credit unions in expanding their technology capabilities, NLV managing partner Craig Ibsen said the fund veered from expectations.

“When we went out and thought we were going to raise the Curql Fund, our upper expectation was that this fund would be $100 million in size, and we thought that would be a great size,” Ibsen said. “Well, lo and behold it became $250 million, because there was a lot of investor interest, a lot of credit union interest.”

According to the CB Insights 2021 State of Venture Report, global venture capital funding of fintech companies shattered quarterly and yearly records by totaling $31.5 billion across nearly 5,000 deals in 2021, compared with 2020’s $49 billion across about 3,500 deals.

Ibsen said whereas a few years ago a fintech company may have had a $20 million pre-money valuation, he estimated that today the same company’s valuation before investments would be around $100 million.

The pandemic contributed to the boost in interest around fintechs, he said, as banks and credit unions needed to take all operations online and consumers needed to manage their finances remotely.

NLV’s first fintech investment from the Curql Fund was in April 2021, and its 11th closed in February. NLV manages the Curql Fund’s $250 million in assets, which come from the fund’s 69 investors, of which 64 are credit unions from across the country. Three of those credit unions are from Iowa.

Ibsen said that “by staying in our lane” and working solely with credit unions, the Curql Fund is filling a niche and becoming a destination to connect credit unions and fintechs.

Partnerships between the two in Iowa and those nationwide are burgeoning, partly because each provides something the other is missing.

Fintech companies have the infrastructure that small to midsize credit unions lack and the technology they need to stay up to date with consumer preferences, while credit unions can help early stage fintech startups expand their customer base and get feedback.

As NLV looks for fintechs to invest in, Ibsen said this is the guiding principle: “We don’t make any investments that won’t benefit credit unions or enhance the life of a credit union member.”

The 64 credit union investors sit in on pitches and demos to confirm that a company meets that criterion. These initial introductions are often done over Zoom but help just the same, especially as not all fintech companies are alike.

Ibsen said NLV seeks out fintech companies that want to equip credit unions to be more efficient and offer their members improved services rather than ones that are looking to “disintermediate” or eliminate traditional financial institutions as the intermediary between consumers and their finances.

This strategy has led NLV to build its portfolio to 11 investments, including Zest AI. The California-based startup allows loan underwriters at traditional financial institutions to identify creditworthy borrowers that the usual channels may have missed.

Ibsen said the algorithms built into Zest’s platform are catching underprivileged borrowers and achieving the credit union mission of “helping consumers that don’t find a path into more traditional banking lines.”

The Curql Collective, the fund’s general partner, led by former Veridian executive Nick Evens, works with Zest AI and the 10 other companies to bring their services to credit unions across the country.

In the Curql Fund’s first year, it also garnered attention from well-known investment banks and venture capital firms.

Both Goldman Sachs and Andreesen Horowitz invited NLV to join their investment rounds for credit union-focused companies.

“Why would they let us into a super competitive investment that they won when they’re trying to deploy as well?” Ibsen said. “It’s because that founder said, ‘I’m selling to credit unions. These are the only people managing dedicated credit union money in the country; it’d be to all our mutual benefit if we let them in.’”

Ibsen said the fund has been making an investment about every four to six weeks and NLV plans to continue at that pace in 2022. He also expects fintech valuations to remain high in the year ahead, and due to the number of “high-quality investment opportunities” available to the Curql Fund, he forecasts that the $250 million will be invested more quickly than he originally thought.

Whatever companies come along next, Ibsen said the pandemic has ensured that the future of consumer banking is mobile.

But Iowa’s future with fintech is more fluid. Ibsen said Des Moines’ focus on insurance and agriculture has been propelled in part by associated accelerators like the Global Insurance Accelerator and the Ag Startup Engine. He said he would like to see a fintech-focused accelerator come to Central Iowa, but as in the past, it is up to the region to decide to prioritize it.

“You have to go back and look at who are the early people that had faith in them a decade ago? And how do we replicate that? I think today accelerators [and] incubators play a big role in that, if we want to make a conscious effort to attract more fintechs.”

Related: Next Level Ventures, Members Development announce Curql venture capital fund for credit unionsIowa banks intensify their connections with fintechs (Insider)