509 Making A Difference Roger That and Discovery Fund

Welcome to Breaking Banks, the number one global fintech radio show and podcast. I’m Brett King. And I’m Jason Henricks.

Every week since 2013, we explore the personalities, startups, innovators, and industry players driving disruption in financial services. From incumbents to unicorns and from cutting edge technology to the people using it to help create a more innovative, inclusive, and healthy financial future. I’m J.P. Nichols, and this is Breaking Banks.

It’s always exciting when one can do good by combining personal experience, knowledge, the need, and the work to create something for the benefit of many. This is exactly what Citizens Bank of Edmond, Oklahoma did based on President and CEO Jill Castillo’s experience in the military. They have launched Roger, think military term indicating message received.

Listen as Jill and I discuss how the bank launched a digital bank for military recruits, entry level, many of whom have just gone to basic training without a bank account. The lack of an account can delay training start date and the recruits first paycheck. Now, this is a segment of the population that has very low financial stability.

There’s lots of predatory lending. They lack financial literacy. All these things can be threats to military readiness.

It’s a fascinating success story. Then it is Finnovate Fall. We feature a Finnovate conversation between MC Greg Palmer and Elizabeth McCloskey from True Stage Ventures, where they cover the financial technology landscape and specific to credit unions and DEI initiatives.

So, Jill, I thought we would start with a story. You have a mixed history. We love each other a lot for some reasons.

We also have difficulties because you sent one child to West Point, one child to the Naval Academy. I question your choices, but this one, I think I was- Tell them, Jason. I thought I would start with a story to set this up, and then I’d love to hear some of your stories that brought you to the launch of Rogers.

One of my classmates that was one prior service thought he was definitely going to be one that would be a lifer and stay in, left actually as a captain. The genesis of it was he realized a majority of his time was spent trying to help his soldiers who were in financial trouble out of it. The story that is the hair that broke the elephant’s back on this was he had a recently promoted specialist, and so for those who don’t know militaries, call it your approaching middle management, like your junior management right at that point.

For an enlisted person, it’s the first time you’re probably, as with only a high school diploma or GED, making a decent amount of money for you. The problem was, in this case, and this is the case I think across a lot of bases, feeling rich, went out and bought a sports car and a bunch of stereo equipment. Keep in mind, this is the 90s, so stereo equipment is a big thing.

Suddenly realized months in could not keep up with payments and thought the only way out was to get an insurance claim on the vehicle, drove the car into a field in Texas, set it on fire. The problem, of course, being he called the insurance company before he called the fire department. You can laugh and say, who would do something like that? Well, financial stress will drive people to do all sorts of unnatural acts.

When we talk about underserved markets, I think one market we don’t spend enough time talking about is the US military. Jill would love for you to first share your experience in terms of joining the military and what you saw, and then bring us up to what is the need that Roger’s going after? Yeah, when I enlisted at 19, I was living literally in a storage room with no electricity, no plumbing. It was a desperate situation, and the military was my way out.

I was carrying groceries out for a recruiter, and I signed up the next day whenever he told me this is the benefits that you get. I was trying to go to college, but I couldn’t afford to pay for it myself. Many people don’t know this, but if your parents, even if they’re financially needing, that they’re not willing to give you their information for financial aid, you can’t apply for it.

Not everybody has supportive parents. I was in that situation. A single dad who was at 17, when you graduate from high school, you’re done.

I was really struggling. I didn’t have a lot of hope. This recruiter really gave me something to hope for and to have a pathway to be able to potentially go to college and get out of the small town that I was living in.

I felt like I was, compared to my friends, the least, from a financially well-off standpoint, I was the least of the group. When I went to basic training, you’re surrounded by those that are in much more desperate situations than what I came from, at least the women that I initially served with. Whenever I went in, I opened a bank account with a direct deposit to Citizens Bank of Edmond, where I now work.

It was the Citizens Bank of Edmond? Seriously, yes. Okay. It couldn’t have made the story up any better.

A direct deposit here, went to basic training in another state. At that time, you would get a substance allowance while you were basic at AIT. I was in Fort Leonard Wood, Missouri for a pretty long period of time.

I had a really long AIT, and then I had an extension type of period that I had to stay in the schoolhouse. I was thought I had to save up about $15,000, that I could go back to Oklahoma State, and go in ROTC, and have this money, and be in the National Guard, and get the GI Bill. I was going to be rich, from my perspective.

When I came back, the Army feeds you a lot of carbs, especially at that time, so I bulked up quite a bit. A close family member took me shopping, I wrote a check, and I got a notice a couple days later that I was overdrawn. The check cleared, but I was overdrawn a couple hundred dollars.

I thought I had $15,000, and I have nothing. It turned out that whenever you’re away, you don’t have a permanent address at your training station, so you have to pick a place, basically, to have your mail sent. Well, the place I sent my mail, I’m a close family member, I’ve got my checkbook, and wrote checks on my account the entire time I was gone, and spent every penny I had.

I didn’t know that I could have gone to Citizens Bank of Edmond, and said, this is a forgery, make me whole. I had to figure out what to do from there, and so I found a college down in South Texas, got rides. There, they gave me a full ride in ROTC, but I literally just had a trash bag of my belongings, and then met my husband there, stayed in the National Guard.

We got stationed in Hawaii whenever he went on active duty, and kind of let rest his history. The military experience was extraordinary. It taught me a lot about leadership, a lot about myself, and kind of grit, and perseverance, a lot about other people, and how to relate to people from diverse backgrounds, and not just the kind of how we typically categorize, but my friends that were in gangs, that were in domestic violence situations that they were trying to escape, I mean, just to see the world, kind of the most challenging pieces of it, like right in front of you, had me grow up really fast, but I thought I was alone in that journey, even though, and so once you start sharing that story, you find out it wasn’t just me, it really is so many other people that have similar stories that went through the military experience.

Well, I mean, that is an incredible journey, and to your point, there’s this intersection of the people who pursue the military, in my experience, come in two flavors, those who choose it out of a level of patriotism and duty, and those who also feel the duty, they’re not there to shirk, but it is also like their best path out, but they’re not always the best equipped, right? That’s right. And I think, unless you visited a major military base, which is really hard to do in a post-911 world, I don’t think people also appreciate what it’s like in the run-up, the main roads to the base, like you joke about the loading up on carbs, but if you’re going up to any major military base, I mean, you name it, what are the top three kinds of stores you see going in? I mean, you’re going to see pawn shops, cash advances, used car lots, and- Tattoo parlors, and fast food. Yes, yes.

Right? Yeah. It sets up this interesting challenge because the traditional banking system is not always the easiest for someone who is going to change addresses on a fairly regular basis, will sometimes not, mobile banking and digital banking is all well and good, not so great when you’re serving in Afghanistan for nine months to do things, so the needs are different. Citizens of Edmond, in partnership with Nimbus, has launched Roger, a bank for the military.

I’d love for you to unpack, what are the problems you saw that you said, these are things we can go solve that traditional banking doesn’t? Because I’m generally down on challenger banks that are just like marketing engines. You actually saw real needs and said, we can go solve these things that are real and valuable. Can you unpack that? Yeah.

I mean, it was amazing when I started sharing my story as service civilian aid to the Secretary of the Army, and in that capacity, I share my army story a lot. What I was surprised about was 30 years after my experience, I was hearing stories from young people that had similar issues. A young lady that now works for us, whenever she joined the National Guard, her first account was when she was 17, and she had to have her family member on the account with her.

When she went off to training, family member gets in a credit situation, and a garnishment happens on her account. It was not any kind of cruel intentions from the family member, it was just the fact that she couldn’t have an independent account at 17. She shared that story with me after I spoke, and I’m like, gosh, I can’t believe this is still occurring to young people that are trying to change their lives for the better serve our country.

Once you share it once, you hear just dozens. It’s clear, even though the data is showing improvement when it comes to the financial literacy of our service members. There’s less of that predatory lending that’s occurring.

It’s still much more prevalent than in other areas of our community. Also, the statistics are really difficult for service members when it comes to finances. You talked a little bit about that specialist as they had increasing income, their lifestyle also creeped with that.

Whenever you don’t have strong financial principles that you’ve been brought up with or part of your foundation, I was part of that community, you can have that creep and it continues to cause stress even though your income is increasing. We see military families being food insecure at a much higher rate than the rest of the population. It’s anywhere from a quarter of them all the way up to 40%, depending on what surveys you look at with food insecurity.

There’s whenever we’re looking at basic trainings coming in up to 50% and in some cases up to two-thirds of the class coming into basic training will be unbanked in that 17 to 25-year-old group. They’re getting a bank account when they come in, but they’re not necessarily getting to understand that bank account. They’re getting the direct deposit when they know where their money is going to go.

That’s one of the challenges that comes into play. Whenever we look at the recruiting process and even that direct deposit form, there wasn’t a way whenever we even look at the major military banks, they have barriers of entry where it’s difficult if you’re not currently serving to go and it’s like a USAA or a native federal credit. You can’t really join very easily, especially digitally.

You have to call and get access. And so we’re like, wow, if we could remove some barriers for the army recruiter or the digital direct deposit form, so then they can actually research the bank that they’re working with, that we can provide them tools from a financial literacy standpoint to understand what the account has. Create the most badass digital bank you possibly could for the military community.

So secure messaging 24-7, long hours from a call center that’s available seven days a week, high interest rate on the savings, ability to round up and your debit card transactions and the bank match that. We were just trying to think about if we could design this perfectly, and that’s what we started asking our advisory board members as well as members of the community. If we design this perfectly for you, what would that look like? And it’s like, I need a bank that will follow me around the world and that will be simple and straightforward and that I can control decisions using my phone and not necessarily having to go into a bank branch, which is still very much dependent for a lot of these banks that are serving especially the basic training communities.

Yeah. Well, I mean, so my first bank account was Bank of New York because it was right outside the gates, right? Walked out, opened an account, and then was spending the summer on tour way, way from New York, right? Running around in the woods in Georgia and needed access and couldn’t do it. Like to your point, and granted digital was in its nascency then, but even now, the number of times the default is go to the branch or call and wait, which isn’t always an option.

Well, call, even like changing an address is so difficult, and we heard this from multiple military members that I’ve kept the same account and have a fee. I need to change this paper statement fee, for instance, and I have no way of doing it because I’m in Germany and I can’t call during bank hours. And talk to someone.

And so you can see the challenges. And so trying to make it where that’s accessible to someone 24-7 that you’re really able to think thankfully now with how sophisticated we are from a digital banking standpoint, we’re able to really have secure features to be able to make sure that the phone is where they say that they are and that the secure messaging is actually secure. And then we can really make some progress so that the management of the account, just simple things can be done really expeditiously and securely.

So what’s next for Roger? Knowing you, your vision is always much bigger than this. This is a great first step. What can we expect to see in the future in terms of the problems you go to solve? Yeah, we’re really excited for a number of different reasons.

Right now, this is a really simple checking and savings account. We didn’t want to introduce any credit products until we had the ability for a new service member to be able to manage their credit well. So you’ll see some more credit management features.

We’re working on developing a community and some really strong and exciting financial literacy tools and mentorship opportunities so that E5, that step above the specialist you were talking about that’s been there, done that, can give some advice to the new service member and say, okay, this is what I wish I would have done differently. That’s what the name Roger means. It’s a signal that I understand over the radio.

And so I understand you as to kind of what Roger means. But it also embodies to me kind of that E5, that sergeant that was literally the stripes on their shoulder that can have some mentorship opportunities with someone younger. So we really wanted to create some communities there so that it goes beyond just the standard financial literacy tools, that we really have the opportunity to share experiences, to be able to change the financial wealth opportunities for this community.

For those who are wondering about some of this slang that may help your movie going, E5 is when you become a non-commissioned officer, right? So you join the ranks of echelons of officers, and it literally is where the phrase you’ve earned your stripes comes from because you now have stripes on your shoulders in a different way. That’s right. So Jill, what’s reception been like so far? I mean, it’s been really amazing.

So a good representation of this is whenever I went out to build our advisory board, I had this list of people I wanted to ask, and every single one of those people said yes. I didn’t have one person decline. The belief in this product is so high.

Just to give you an example, I went to recently retired TRADOC commander in General Paul Funk, who is like a superhero to me. A four-star general over all training, recruiting, and doctrine for the Army. And he’s just this powerhouse of leadership.

And whenever I met with General Funk, I sheepishly asked him, would you be interested? I can’t pay you anything, but would you be interested? And he was a resounding yes before I finished the sentence, and has been so forthcoming and connecting us with others who are a resounding yes. And this isn’t trying to step on anyone else’s toes because there’s some great military things out there, but it’s really trying to fill this gap where we don’t have the service member really taken care of in this pre-enlistment time period. So it’s been great.

And then when I go out on social media, and you know this about this community, Jason, I mean, they expect perfection. I mean, failure is not an option. Winning, we don’t do anything but win.

You have to win. And so if there’s any kind of vulnerabilities, they’re going to attack them. And I mean, we had one soldier wearing a uniform that was a little out of date.

And boy, I mean, social media went right on top of it. And so we were like, okay, who would you connect us with on a great photographer? And so we were able to get a great military photographer to connect us with. So it’s been about engaging with the community.

The community owns, has strong ownership to their representation of what we’re showing them, as well as like these are not victims. I think, and I think it’s a really good lesson as we talk about the unbanked in general. These aren’t victims.

These are individuals with strong desires to improve their financial health and they’re doing all that they can to hustle, but they just need some additional tools to be able to help propel them into greater success. And so I get more enthusiastic about it every day. And it’s funny in the financial technology community too, there’s been a lot.

And even today, there was a comparison with like, well, you know, what about like Marcus with, you know, and what about this? And then I Google like how many accounts there are that Marcus has. And it’s like 19 million accounts. And we were like, our goal is to say, can we get 20,000 accounts? I mean, it’s such a smaller scale.

And so like, I think that it removes to some of the cynicism around a digital bank. The other thing is, is this is a little bit different too. And that it’s kind of like how Marcus is and that it’s fully owned by Citizens Bank of Although we’re saying we’re partnering with Nimbus, Nimbus is our vendor in this process.

They’ve been amazing. But I think for me, it’s been the just the enthusiasm all around has been really exciting and motivating. There hasn’t been anybody that says like, this isn’t needed, go home.

So it’s been good. Well, I think you’d strike an important chord around financial vulnerability is it’s not that these are people who are lazy. It’s not that these are people who are dumb, and they just need more literacy.

It’s they need help and tools because they’re in a different set of circumstances. And they come from different backgrounds. Jennifer Tescher strikes that over and over again.

You know, it’s exceedingly hard to have a side hustle if you’re downrange, right, or overseas. And it is also exceedingly difficult to have a working spouse, you know. 24% of military spouses are unemployed.

I mean, this is not that they don’t work. This is seeking work, and they’re unable to find it. 24% in the tightest labor market that we’ve probably ever experienced in the world.

It only got as low as 23%. Yeah. Sorry, but it’s just ridiculous.

And the challenges that you have in this community that just aren’t anywhere else. Yeah. And it’s a system and a set of circumstances that are seemingly difficult to replicate that I think it’s really hard for the rest of us who haven’t been through it to empathize with.

And I think that speaks to why do we need boutique, or as Ron Shevlin would say, community fintech, right? This is a unique community that has needs that aren’t being met by traditional financial services. Not for, you know, lack of desire. It is they don’t have the expertise that you guys have brought to bear.

And well, and I love that there is such an engaged, like everyone is willing to share the expertise and is willing to listen to, okay, are we getting this right? And so the humility of our team, I think it’s really a differentiator here where we’re not saying like, we know the answers, here they are. It’s like, okay, give us feedback. Is this working for you? Yeah.

Well, thanks for taking time out of your busy schedule to share the vision of Roger. Really appreciate what you’re doing for the men and women who are serving our country and helping improve financial health across the board. Thanks, Jason.

I appreciate you so much. This show is brought to you by Alloy Labs. As much as we love talking on the show, we believe that action is more valuable than talk.

Alloy Labs is the industry leader in helping fearless bankers drive exponential growth through collaboration, exclusive partnerships, and powerful network effects that give them an unfair advantage. Learn more at alloylabs.com. Alloy Labs, banking unbound. Hello, and welcome to the Finnovate podcast.

Joining me today, we have Elizabeth McCluskey, head of the Discovery Fund at TrueStage Ventures. Elizabeth, thanks so much for taking the time. I’m happy to be here.

Thanks for having me. So to kick things off, can you give us just a quick background on yourself and TrueStage? Yeah, happy to. So I’ve spent my career in financial services, starting with investment banking and wealth management.

So I kind of got to see different aspects of financial services over the course of my career before turning to venture capital about eight years ago. And while I initially was doing kind of broad-based early stage VC investing, I really honed in on financial services and fintech as an area that I wanted to explore more deeply. So the opportunity came up to lead the Discovery Fund about two years ago.

And what I was really excited about was to join a company that was focused on investing in early-stage entrepreneurs who came from underrepresented backgrounds and focusing on solutions for financial inclusion. So the Discovery Fund invests pre-seed through Series A into companies who have a CEO who’s a person of color, woman, or LGBTQ founder. And TrueStage, our parent company, serves the credit union ecosystem with financial services and insurance products.

So we also have a really nice opportunity to make some strategic connections between our portfolio companies and the broader credit union ecosystem that we serve through the parent company. Yeah, no, it’s really cool. And we’re going to talk more specifically about some of those pieces in a little bit.

But before we do, I want to take a quick snapshot from a super high level. How is the fintech funding environment looking right now from your perspective? I mean, obviously, we’ve had a lot of news articles about where it’s at right now. But what are the big picture factors that are at play that are affecting how fintechs are raising money right now? Yeah, it’s been a wild ride for the past couple of years.

So I think there was a lot of euphoria in 2021, which led to a ton of deal volume and really high valuations. I think COVID led to kind of a realization that a lot of financial services needed to become digital much more quickly. And so there was sort of that wave of fintech euphoria that crashed pretty hard in 2022 due to some geopolitical factors and economic conditions with rising interest rates and sort of fear of recession on the horizon.

I think as 2023 has started to play out, we’re seeing things kind of come back to an equilibrium and levels of funding look like they’re a little bit more of a return to that steady state we had in like 2019, 2020, early part of 2021. So I think things are kind of calming down a little bit, which is reassuring. I think on both the VC and the entrepreneur side that people aren’t kind of running around with their heads chopped off anymore.

But I’m optimistic about the next 12 to 24 months because I think now that expectations have been tempered on both sides. We are seeing entrepreneurs coming back to the table and being willing to raise at more realistic valuations. And I think venture capitalists who had been kind of very much focused on supporting their portfolio companies during a turbulent time and only really committing to, you know, bridge rounds or extensions within their existing portfolio are starting to finally open up their checkbooks for new opportunities again.

So just anecdotally speaking, you know, we’re committing to a couple of new deals in the last few months, which we really hadn’t done for several months prior to that. And as I am then circulating those opportunities with some other investors in my network, they’re starting to say yes to taking those introductions and being potentially interested in exploring some new investment opportunities. So I think kind of a sigh of relief for entrepreneurs that that funding is out there and that there is interest.

People are starting to sniff around again for deals, albeit perhaps at lower valuations than they would have gotten if they were raising these rounds two years ago. Yeah, and it’s certainly cause for optimism there. I think you touched on something interesting, which is the valuations of the companies.

Obviously, that valuations have come down across the board. It’s always difficult to say what evaluation, you know, quote unquote, should be. It’s really a murky number.

But what’s your instinct right now? Are we getting closer to valuation levels that are more reasonable or has the pendulum swung too far the other way? Will we start to see valuations rise again over the next couple of years? Yeah, again, I think you kind of look to the public markets as the leading indicator for what’s going to happen in the private markets. And I think particularly in the fintech space, the direct to consumer fintechs got hit so hard. So, you know, you saw some of the like buy now, pay later names, the Robin Hoods and the chimes of the world come crashing down.

And I think they were 80, 90 percent below their peak levels earlier this summer. But I think even in the last couple of months, we’ve started to see those valuations bounce back. And so I think the private markets are probably a few months behind them.

So I think anybody who is a private company that has raised a round in the last four or five months has definitely taken that haircut from a valuation perspective. Now, I think there’s probably some fintechs out there who have still been hanging on and have been able to make it through this time without raising. So I think there may still be some rounds in the next six months or so where they still need to take that haircut that they should have taken in the last 12 months.

And they’ve just been able to kind of exist on fumes. So I think maybe a little bit more kind of price correction is to come. But I think expectations have already adjusted in terms of valuation.

So I think we will hopefully we won’t kind of go back to crazy high levels anytime soon. But I think we’re starting to reach a bit of a bottom when it comes to valuations. I really like this euphemism, by the way, take the haircut.

I haven’t heard that one before. And I think that’s just a really it sounds so pleasant. Are you going to go get a haircut? It’s that’s right.

It grows back. You know, it’s not forever come back. So looking, obviously, the situation that we’re in right now is different, I think, from when a lot of the fintech companies that we’ve seen become successful got their start.

What advice do you have for fintechs right now who are just getting started, who are kind of looking around and thinking, you know, all these potential role models are people who found success in a very different environment from the one that we’re in now. So what’s their best growth strategy for those early stage fintechs in this moment right now? Yeah, it’s funny, because I think there might have been a Sequoia presentation that was circulated within the last couple of years about how some of the strongest and most successful companies were actually forged during really challenging economic times. So I think it’s easy for companies today to say, man, if I had started a couple years ago, or those companies that started in 2020 and 2021 really had it easy.

And that may be true. But I think there are advantages to building your company in a more capital constrained environment. I think it gives you and your team that discipline and that culture around, you know, growing towards profitability and managing your cash and managing your investors and expectations in a much more disciplined way that’s going to set you up for that success long term.

So hopefully entrepreneurs aren’t feeling too sorry for themselves about starting a business in today’s conditions. And I think, you know, in terms of advice to give them, I’ve given this advice, as have many others, many times. But, you know, sometimes you have to say things repeatedly for them to actually sink in.

I think one of the best attributes of early stage companies is really how do they communicate with existing investors and prospective investors? And, you know, how are they transparent about all the great things that are happening in their business, but also some of the challenges that they’re facing or that they might see coming up on the horizon? So I would encourage people to really be proactive about building kind of target lists of relationships that you want to develop and starting to engage with those people well in advance of needing to raise capital from them. I’ve been added, you know, especially in the last couple of months with some of the new companies I’m talking to, I’ve been added to several kind of investor update lists, even though I’m not an investor in these companies, just so that I can really see that monthly cadence and that monthly progress of like, here’s what’s going well. Here’s what’s not going well.

Here’s what we’re asking anybody in our network to help us with so far, because you’re never going to get that support you need unless you ask for it. And I think I’ve seen even with some of my existing portfolio companies that if they kind of fall off on being good about communicating with their investors, then they fall off the top of my mind, too. They’re not on kind of my radar, and then I’m not going to be as helpful or value added to them.

So I think making sure that you’re always kind of proactive and communicative, both with your existing investors and with prospective investors, because part of our strength and our contribution to entrepreneurs is really like our network, but we’re only going to engage our network if we’re reminded and if we’re asked to do so. Yeah. Yeah, no, it’s interesting.

And I think the point about it being pieces that people have heard multiple times before it hasn’t resonated is a crucial one. This is not unique to this area. I think it’s something that you need to say a lot.

But the relationship is so important, and there’s so many. It’s never been easier, I think, to cultivate that kind of relationship given the tools that we have right now. I want to switch gears here and come back to the piece that we talked about at the beginning, which is really getting into not just the general fund, which True Stage has going on, but the Discovery Fund, which you lead, which is focused on FinTechs with diverse founders and leadership teams.

Can you talk a little bit about how that Discovery Fund came to be? Yes. So as I mentioned, True Stage, which was formerly known as Q2Mutual, so if you have any listeners who are unfamiliar with True Stage, the name is new, the company is not. So we established a ventures arm about seven years ago, and that True Stage Ventures has focused on Series A and later stage companies.

So we’ve kind of established a track record and a reputation in this space. We’ve deployed about $300 million of capital into FinTechs, primarily those that can partner with credit unions and help improve consumer financial well-being. So based on that track record, we said, what more can we do? We felt like there’s more opportunities to have an impact in the FinTech space.

So decided to launch the Discovery Fund about two years ago, again, to address some of the inequities we see in the VC and early stage funding landscape, which, as some of your listeners may know, has historically been very inequitable, unfortunately. So less than 3% of VC funding goes to Black and Hispanic entrepreneurs, and less than 3% of funding goes to women entrepreneurs. If you look at intersectionality, it’s well under 1% that goes to women of color.

There’s not even statistics really on LGBTQ founders. So a lot of capital has been funneled to the same types of people for a long time. And so the Discovery Fund was launched to help address some of that issue, but also because we think founders who come from those underrepresented backgrounds are best positioned to build some of the solutions in the financial services space that we’re most interested in.

So we really are looking for solutions that are going to address financial inclusion and make financial services more affordable and accessible for consumers across the U.S. And it’s oftentimes people who have experienced a particular problem who are then committed and sort of best positioned to solve that problem. So I think a lot of the underrepresented founders we invest in often have a very personal story that ties them to the solution that they’re building because they’ve experienced some form of financial exclusion. And they’re saying, I want to do my part in making the system work better, not just for me, but for my community, for my family, for my peers.

So I think that’s kind of the business case behind it. But it also speaks to the types of people that we’re investing in who are really passionate and mission driven and are going to stick with these companies even through the hard times, because being an entrepreneur is a very challenging journey. And so, you know, we want people who are going to be committed to making these businesses work in the long term.

Yeah, absolutely. And I think it’s one of those things that everybody kind of knows that if you don’t have a diverse group of people who are creating solutions, then your solutions are inherently going to be missing something because they don’t represent all the perspectives that are available. And there’s a difference between knowing this from kind of an academic theoretical sense and actually putting it into practice and saying, we’re going to do something about this to go out and proactively grab that.

And so it’s interesting to hear about that discovery fund. The question I have now is, why does there need to be a separate fund for startups with more diversity on their leadership teams? Why is this not something that can be accounted for in the existing funds? I think it really holds us accountable as investors. And it’s also a signal to the rest of the market that, you know, diverse founders are worth investing in and they’re worth prioritizing.

And we think these, again, are some of the most promising solutions that we could be investing in. And so for us, it’s really just, you know, making that headline commitment and then actually following through with our actions. So saying we’re going to deploy $5 million of capital a year into diverse founders.

And then I think what’s exciting is we do have a really strong relationship between the discovery fund and the ventures fund. So the hope is that, you know, a number of companies that go through the discovery fund and who we get to build relationships with and support and help them figure out how to kind of find that product market fit and start to scale their businesses, can then go on and kind of, quote unquote, graduate to the ventures fund and get those larger checks from us as they start to get into those later stages. So of the 18 companies we’ve invested in over the last two years from the discovery fund, we already have three companies that have graduated into the ventures fund.

I think we’re going to hope to continue to build on that track record and just, you know, build those relationships over time and kind of get the discovery fund companies more and more integrated into different partnerships with various aspects of our company and our credit union ecosystem. Yeah, and I think that sounds, it makes a ton of sense when you say it like that. And then this is something which we look at from our side as well.

Obviously, at Finnovate, we started offering scholarships for companies with diverse founders or who are tackling problems in the kind of social good or financial inclusion space. And we’re seeing the same type of thing as well, that once you give some of these companies an opportunity to come, then it’s able, they’re able to kind of make that leap into the rest of the companies. And a lot of them do come back and become more traditional demoers later on.

So it’s something where, you know, you have to be intentional about it initially or else it just doesn’t happen. And so I think that’s a really crucial piece to put in place. And for anybody who’s out there from a venture capital standpoint, I think you probably need to be doing more to go out and court some of these more diverse founders and really broaden the scope of solutions that are inside your portfolio.

Last question, we’re almost out of time here, but what’s the overlap that you’re seeing between kind of the credit union space, which obviously is where TrueStage is really focused, between that credit union space and some of these diversity and inclusion initiatives? Do you find that credit unions are by and large welcoming to founders focused on financial inclusion or other sort of social good fintechs? Yes, definitely. I think that’s part of why it’s so great and so exciting to work within the credit union ecosystem. You know, credit unions are a non-profit financial institution.

So they really exist to serve their members with affordable financial services. They’re not out to nickel and dime people and to try to take advantage of customers. So I think very much built into their DNA and into their missions is this desire to serve people and to, you know, kind of build on this philosophy of people helping people.

So, you know, in trying to best serve their members, I think they’re often looking at who their members are and how those demographics are evolving. And I think the future of credit union membership is becoming increasingly diverse, and therefore they need to find solutions that are going to meet their needs, which often come in the form of, again, supporting diverse entrepreneurs who are building those solutions. And looking, I think, at DEI from multiple lenses.

So how can they make their leadership teams and their boards more inclusive and diverse? How do they meet the needs and kind of manage teams, you know, whether that’s branch employees or back office employees or whomever that are becoming increasingly diverse as a workforce? And then how also can they equip those employees to better serve the needs of an increasingly diverse membership base? So even things like, you know, if they have a high proportion of Spanish-speaking members, do they have enough people within their branches who are speaking Spanish who can translate documents for them, et cetera? So I think the DEI strategy is something that has to be thought about holistically, and I think credit unions have done a great job of that so far, and we’re committed to continuing to help them with that journey. So actually at TrueStage, we have a DEI consulting arm that’s really working with credit unions kind of in a variety of capacities on how they can think about DEI across their whole organization. And then obviously the Discovery Fund is bringing some specific fintech solutions to them that we think can help support their efforts towards financial inclusion.

Yeah, no, that’s really cool. And I think it’s an excellent program. I think this is the kind of thing that we could talk about for a lot longer, but unfortunately we are out of time.

There’s so much here to follow up on. So as they say, watch this space. We’ll continue to be at Finnovate events, continuing to bring these items to the forefront.

And of course, it’s great to hear from people like you, Elizabeth, who are kind of leading the charge here. So again, Elizabeth McCluskey, head of the Discovery Fund at TrueStage Ventures. Thanks again for joining me.

It was a very enlightening conversation. Thanks, Greg. It was my pleasure.

That’s it for another week of the world’s number one fintech podcast and radio show, Breaking Banks. This episode was produced by a U.S.-based production team, including producer Elizabeth Severins, audio engineer Kevin Hirsham, with social media support from Carlo Navarro and Sylvie Johnson. If you liked this episode, don’t forget to tweet it out or post it on your favorite social media.

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