Good Reads: Embedded Finance, Usage-Based Billing, Funding AI Startups

Hey everyone,

Hope the year has started off well for everyone (and that you got budget for everything you need to do :).

We did our first Fintech Fireside of the year a few weeks ago, in Mexico City! The fireside featured Carlos Rojas, who leads Cloud Reliability at Capital One. You can see more photos from the event here.

Things have been crazy at Kunai to start the year, so I didn’t get much reading done in January. Happy to report I got back on the horse this weekend, and I’m linking you here to some of my favorite pieces. 

Embedded Finance in Crisis

Embedded finance is going through a tough maturation phase, as partner banks are learning their lessons the hard way. The accountability chain continues to grow in complexity & scale, and banks are learning that it is virtually impossible to hire their way out of the swamp. 

Every company became a Fintech company, but not every partner bank was fully ready for the consequences.

Per usual, my favorite piece from last week is from Simon Taylor, who makes a compelling argument for regulating Fintechs directly and for greater automation of compliance and risk practices at partner banks. 

How do you fund an AI startup?

The study could be followed by a more formal investigation into whether the deals between the companies violate antitrust laws.

Startups are typically lean endeavors. A few million dollars is usually all it takes to get smart people on laptops off and running. But what happens when your AI startup requires a few billion dollars of cloud computing costs to ship its first product? Well, what seems to happen, if you’re OpenAI or Anthropic, is that you get Google, Amazon, or Microsoft involved…which also means that the FTC might launch an antitrust probe.

Usage-Based Billing

A16z General Partner Martin Casado believes that the entire software industry is moving toward “more granular and expressive pricing models, starting with usage-based pricing.”

Software companies have been shifting to usage-based pricing over per-seat subscription models, creating opportunities for startups and large institutions to build software to manage and optimize billing. Metronome seems to be the leader out of the gate, with thirty million in funding from A16z and customers like OpenAI, DataBricks, and Nvidia. 

It’s hard out here for a Regional Bank

It’s been less than a year since the failure of several regional lenders, including Silicon Valley Bank and First Republic Bank, and investors are now worried that exposure to commercial real estate could cause a fresh round of turmoil for the sector.

Shares in New York Community Bancorp plummeted 47% last week, driven by increased regulatory oversight as the bank hit over $100B of assets and growing fears of dependency on commercial real estate. This led to ripple effects throughout the sector, with recent debacles at SVB and FRB resh on investor’s minds. Here’s a great breakdown on NYCB’s woes from Marc Rubinstein (requires subscription to Net Interest, which I highly recommend).