Q&A with Guy Hartstein, VC Analyst at Recharge Capital

2022 will be the year of Decentralized FinTech

With the rise of DeFi, cryptocurrencies, tokens, and DAOs (decentralized autonomous organizations), 2022 will most likely be the year of decentralized fintech. This is especially true in emerging markets, where leveraging lending rates of stablecoins like USDC can bring highly stable financial products to countries suffering from hyperinflation

Here is my chat with Guy Hartstein, VC Analyst at Recharge Capital, a fund based in New York, that invests across sectors from fintech, consumer tech, health-tech, and prop-tech focused on emerging markets. 

Please tell us a bit about yourself, both at work and in your spare time:

I work for Recharge Capital, a VC fund based in New York City. When I’m not working, I can be seen studying languages, cooking sous-vide, or gardening.

What are your focus areas, overall and within the FinTech space?

I specialize in global fintech, with a focus on emerging markets and the emerging consumer. My current focus is on disruptive fintech startups in Latin America.

What’s one question you ask yourself before investing in a company? OR, What do you look for in a FinTech startup before you invest?

It's important to recognize that the most successful founders within the fintech space are very well connected. This allows early-stage companies to secure banking licenses, contracts with major financial partners, and access to large user bases. I look for founders who are closest to the most prominent players in the region and back them as they ultimately join that circle. 

Being able to recognize "fluff" is important. There are terms like "Buy Now, Pay Later" and "DeFi" that act as instant valuation boosters. It's important to see the difference between companies that are riding the wave of high valuations and those that are building something unique. Ultimately, it's challenging to find uniqueness in most pitch decks; that's really something you are able to identify when speaking directly to a founder.

In any fintech startup, I look for regulatory headwinds and tailwinds, as well as the unique approach the founder is taking to navigate the regulatory landscape. FinTech founders with a strong grasp of regulations and their importance ultimately succeed over founders who don’t.

Since you started investing in FinTech as a VC or angel, what has been your biggest mistake and lesson learned?

A great lesson I learned was one that I learned in my early days as an analyst. When speaking with founders, ask questions that don't have an obvious "fill in the blank" answer. Don't volunteer information either.

Best practice is to come up with thought-provoking questions whose answers are likely to surprise you. It is then up to you to pick apart the answers and make an educated decision on how likely the company is to succeed. Also, avoid asking a founder if they are planning to add X functionality or Y feature to their service. Their answer to the VC whom they are trying to impress will almost always be yes.

Which are the trends to watch out for in the next 6–18 months?

2022 will likely be the year of decentralized projects. With the rise of DeFi, cryptocurrencies, tokens, and DAOs (decentralized autonomous organizations), I expect many fintech companies to adopt these core elements of digital decentralization to better add value to their users. This is especially true in emerging markets, where the leveraged lending rates of stablecoins like USDC can bring highly stable financial products to countries that suffer from hyperinflation. 

One dangerous trend to watch out for is the rapid rise in valuations in emerging markets. While this may seem to be an indicator of value accretion in the region, it is really just the result of American venture capitalists' hyper-inflating valuations in an attempt to make emerging venture landscapes a lot more like the US venture landscape. It's important to avoid the froth and find the untouched oases of deep value that are still highly present in emerging markets.

Do you have a tip, trick, or golden nugget for startups to attract the attention of an investor? OR, What should startups think about before contacting a VC? What kind of question impresses you?

What is key here is understanding what works and what doesn't work. What doesn't work is sending a generalized LinkedIn message to 200 funds. When I receive a generalized "cold outbound" message, my first thought is: "They need money, not necessarily strategic capital." Founders that have a good understanding of the strategic value-add of a VC fund before reaching out are much more likely to get a deal. This is because they are not only pitching the value of their company as good cash investment, but also the value of the partnership, which can drastically change the course of a company's success.

What’s on your bookshelf or reading list?

I’m currently reading Meditations by Marcus Aurelius. I look forward to reading Thinking in Bets by Annie Duke, which is currently on my shelf.

What’s one interesting thing most people won’t know about you?

Despite having worked in venture capital and startups for several years, I am still young and a first-year university student. Part of what drives me as a young investor is my ability to bring in fresh perspectives that I get from meeting founders and VCs every day as part of my work at Recharge Capital. As a consumer of new-age media, I also get a glimpse of the cutting edge of financial technology, which helps me discover exciting new companies.