DES MOINES, Iowa–Saying it already has a waiting list, Curql Collective, a CUSO that represents a family of funds provided by credit unions that seeks to invest in companies that bring innovation and collaboration to CUs, has announced the formation of its second fintech investment fund, Curql Fund II. As with the fund’s predecessor, the $252 million Curql Fund I, Curql Collective said the new fund will seek to focus on diverse offerings and early-stage investment opportunities in the fintech space.
In addition, the CUSO said Curql Fund II will offer larger, growth-stage investment opportunities, “further advancing Curql’s mission to bring fintech to credit unions.”
“By maintaining a commitment to compiling a diverse investment portfolio through continued partnership with our professional fund manager, we are aligning Curql Fund II to continue to de-risk these fintech CUSO investments for credit unions and build on the Curql ecosystem that has been created and is thriving,” said Curql Collective CEO Nick Evens.
Evens told CUToday.info it is likely Curql Fund II will be larger than its predecessor.
Investment out of Curql Fund II is slated to begin in 2024 and will build on the success of Curql Fund I, which began making investments in April 2021, according to Curql Collective.
The company noted that based on Pitchbook’s survey of investment funds from Q1 2023, Curql Fund I’s performance is in the top quartile of similar investment funds from the 2021 vintage year.
No Choice
According to Evens, the organization has no choice but to expand, explaining that Curql Fund I is coming to the end of its investment cycle as it has reached the point where it must now hold funds in reserve.
“It’s a 10-year-life fund and we’re only at two-and-a-half years, so we've got to hold reserves for those companies that we've invested in that in year five or year six or year seven might need additional capital,” Evens explained. “In order to keep them going and growing, the reserves are what we use for that.”
Evens said it’s also critical to keep everything separate between the two funds, especially since Curql Fund II will likely have additional and different investors.
Response to a Common Question
“Some people say, ‘Why don't you just invest all the money and just be done and then everything that comes forward after that comes out of Curql Fund II?’” Evens shared. “That’s not the way investment funds work.”
Approximately 30% of the funds in Curql Fund I, or $70 million, are being held in reserve. And that has brought it to where it is now.
“The board has decided that this has gone so well and that we have created an ecosystem that seems to attract people and be relevant in the market, that it’s time for a new fund,” Evens said, adding it is anticipated the second fund will be larger than the first, which has 68 investors.
Numerous Calls
“We get calls every day from credit unions asking how they can be involved, so early on we created a subscription model,” Evens told CUToday.info. “The only thing they don't get out of a subscription is return on investment, because they're not investors. But they get everything else. Those folks have made no bones about it; they're basically waiting for Curql Fund II.”
Evens pointed out that with more than 25 investors in the queue for the second fund, should 90% of those already in Curql Fund I also invest in the second fund, it will exceed the funds invested in the first. Curql Fund I closed to new investors in October 2021.
Nick Evens
Viable Companies in Market?
But are there a sufficient number of viable start-ups and established companies in the market in which to invest?
“We have thought long and hard about that and we do believe so,” said Evens. “What's going to happen, and we've seen this already come to fruition, is that some of these companies are going to be gobbled up. They’re going to be acquired. It's no secret that when you're doing investing like this some of our companies are going to go away for whatever reason. We anticipate our portfolio in Curql Fund I to be about 30 companies; 30 really good fintechs. So, is there room to invest in the next 30 or 40? We think the answer is yes.”
The Trend Lines
Evens said that since the creation of the Curql Collective he has been able to see several trends develop. With Curql Fund I, most of the activity has been around lending and lending platforms. But that has changed as credit unions have faced liquidity challenges.
“The next trends include AI; entire platform companies around artificial intelligence. Cybersecurity is always going to be a trend. Fraud is always going to be a trend,” Evens said. “So, it’s always going to be around how do we help credit unions in these certain areas. Trends change with economic headwinds and with all the things that are going on in the market. We have seen trends and we have seen cycles and we're going to continue to see that.”
A Success Story
Asked about the companies in which Curql Fund I invested that he considers particular success stories, Evens pointed to its very first investment, Eltropy, a digital conversion platform that says it now has more than 550 credit unions and community banks as customers and which acquired POPi/o in mid-2022.
Evens noted Eltropy also represents another trend, having launched with one product before becoming a platform company.
“We’re going to see more companies trend toward being a platform where they're offering multiple products and services,” Evens said. “That’s another reason we see some of the monies that we have that will be helping companies do acquisitions and become platform companies and become bigger, because that's the value proposition.
What’s In It For the Investor?
What does a credit union get if it chooses to invest in Curql Fund II? The benefits, said Evens, are similar to those seen by the CUs that invested in Curql Fund I.
“First and foremost, as an investor you get visibility, early visibility, to transformative technology that can impact your credit union and your members’ lives,” he said. “That's what we were intended to do with Curql; to provide this visibility, this access, this quicker way to integrate and implement these great technology companies.”
Investing in the companies also gives a credit union greater ability to fend off big fintech and big banks seeking to disintermediate CUs, he added.
And finally, said Evens, investing provides something else to a credit union.
‘Heard Over & Over Again’
“What we heard over and over and over again in Curql Fund I was relevance—‘We have to stay relevant’,” Evens shared. “That's what we're helping credit unions do first and foremost…The second thing is that if those fintechs are going to build their companies and build great technologies on the backs of credit unions, credit unions should benefit from that. That’s what is commonly known as return on investment and that's what you get out of Curql fund.”