October 4, 2022

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This Banker Is Minting Money in the Fintech Boom

Silicon Valley has minted plenty of billionaire entrepreneurs. Here’s one who has never written a line of code.

In 2002 Steve McLaughlin left his job at

Goldman Sachs Group Inc.

GS -0.21%

to start an investment bank from his San Francisco apartment. His specialty was financial-technology startups, then a backwater. Today the fintech sector, where coders seek to reinvent the humdrum world of banking as something slicker and even fun, is booming, and the 52-year-old Mr. McLaughlin is its unlikely mogul.

Compensation of deal makers is as hazy as it is large—millions here, millions there. But Mr. McLaughlin’s peers and competitors agree that, as best as anyone can reckon, he is comfortably the highest-paid investment banker in America.

His firm, Financial Technology Partners LP, is on track for some $600 million in revenue this year, according to people familiar with the matter. Valuations of similar listed firms would peg its worth at $2 billion or more. Mr. McLaughlin owns it all, having doled out none of the firm’s equity to its 225 or so employees.

Its playbook combines the advice-giving of traditional investment banks and the motivated profit-seeking of private equity, with fees that often ratchet up as a percentage of the sale prices it fetches for clients. And Mr. McLaughlin has also invested personally in companies he advises, with stakes in just two of them,

AvidXchange Holdings Inc.

and

Marqeta Inc.,

worth more than a combined $350 million, according to securities filings and people familiar with the matter.

His success has brought the usual trappings of Wall Street—he owns a Gulfstream G650 jet that ferries him from his home in Miami to clients on both coasts—and some offbeat ones, such as booking Snoop Dogg and Eddie Vedder to perform at firm parties in Las Vegas. It has also raised eyebrows across the industry, where his outsize fees engender envy and his marriage of personal investments and corporate advice has stoked concern about conflicts of interest. Mr. McLaughlin said that personally investing in his clients aligns his incentives with theirs.

FT Partners has worked on fundraising for Revolut, a European banking startup.



Photo:

Michal Fludra/NurPhoto/Zuma Press

Not content to stay in the advisory business, Mr. McLaughlin raised $500 million for his own blank-check company earlier this year, with plans to buy a fintech company. He recently hired a pair of stock analysts from Goldman and AllianceBernstein to produce original research.

“Historically, bankers are not entrepreneurial,” said

Nigel Morris,

co-founder of

Capital One Financial Corp.

and now a venture capitalist who sits on the board of AvidXchange, in which Mr. McLaughlin has a roughly 5% stake. “His scrappiness and tenacity is something to behold.”

FT Partners’ fees are brazen even for Wall Street in their size and structure. In 2019, the firm earned a roughly $250 million fee on the sale of a client, people familiar with the matter said. That is larger than the biggest advisory fee on record, according to Dealogic.

Many are calling decentralized finance, or DeFi, the “Wild West of finance.” This fast-growing industry aims to provide automated banking services for cryptocurrencies to everyone, with no middle men. But DeFi is still in its early stages, which means there are risks. WSJ explains. Photo illustration: Tammy Lian/WSJ

Its invoice for advising CardConnect on its $750 million sale to First Data Corp. in 2017 struck First Data executives as so egregious that they asked CardConnect to get it reduced, according to a securities filing.

Mr. McLaughlin often secures guarantees that clients will hire his firm for any deal they might do in the future—in at least two cases covering half a century, people familiar with the matter said.

One such arrangement has sparked a messy feud. FT Partners advised Circle Internet Financial Ltd. on its pending sale to a blank-check company, a deal that would take the cryptocurrency startup public. FT Partners says the engagement letter the parties signed entitles it to about 9% of the transaction value, according to a regulatory filing by Circle. Circle disputes the fee, which would amount to more than $400 million. Both sides declined to comment.

Mr. McLaughlin said his firm is justly compensated for its ability to dig into complicated, money-burning startups and sell investors on their potential. “We are Christie’s, and other banks are

eBay,

” Mr. McLaughlin said.

One thing is clear: FT Partners gets monster valuations for its clients. Revolut, a European banking startup, was valued at $5.5 billion in a 2020 fundraising round organized by

JPMorgan Chase

& Co. A year later, FT Partners helped raise another round of funding that valued Revolut at $33 billion. The same sort of catapult can be found in fundraising rounds for other FT Partners clients, well beyond the enthusiasm that has seized the sector as a whole.

Mr. McLaughlin acknowledges there is some serendipity at work. He hustled for scraps in the fallow early 2000s, after the dot-com bust. Now fintech is on fire. A record $95 billion in startup fundraising this year through September flowed into the sector, according to research firm CB Insights. Some of the year’s biggest mergers, such as Square Inc.’s planned $29 billion takeover of

Afterpay Ltd.

, and initial public offerings, including

Robinhood Markets Inc.’s

debut, happened in fintech.

“It’s like what they say about good hockey players—they don’t skate where the puck is, but where it’s going,” said Mark Loehr, a repeat fintech founder who met Mr. McLaughlin in the late 1990s. “Steve was there long before it was fashionable.”

FT Partners helped raise $25 million this year for Mr. Loehr’s latest venture, and Mr. McLaughlin invested personally. Mr. Loehr said he didn’t see a conflict: “He’s buying what he’s selling.”

The New York office of Financial Technology Partners, whose fees are brazen even for Wall Street in their size and structure.



Photo:

Gabby Jones for The Wall Street Journal

Mr. McLaughlin grew up in suburban Philadelphia, manning the popcorn machine at the local movie theater for $3.35 an hour and commuting to Villanova University. After getting an M.B.A. from Wharton, he landed a plum assignment on Goldman’s financial-institutions group. He focused on small technology companies that were digitizing securities trading and capital markets, an area so unloved he had it to himself.

“The [financial-institutions] bankers didn’t like it because it was small,” he said in an interview. “The tech bankers didn’t like it because the deals were weird.”

He helped organize Goldman’s winter conference, a raucous affair in those pre-2008 days. One year he emceed in full KISS makeup for a spoof of “Rock and Roll All Nite” that bemoaned the bank’s punishing workload. “I ran the merger plans all niiiiight / and had to work the next day” went the new lyrics. (Another sendup, “We Pulled the IPO,” was set to the tune of Joan Jett’s “I Love Rock ’n Roll,” after Goldman’s failed attempt to go public in 1998.)

FT Partners launched in 2002 from Mr. McLaughlin’s Pacific Heights apartment with the help of unpaid interns recruited from the University of California, Berkeley. Buying enough card tables and printers at a local Staples Inc. store resulted in a free coffee machine, said Tim Wolfe, an early hire.

An early deal that put the firm on the map was for Lynk Systems Inc., a credit-card processor. According to Mr. McLaughlin, the company had previously hired Merrill Lynch to find a buyer and fetched an offer of around $150 million. He promised to beat it. In return, Lynk offered him 5% of any deal price over $300 million. Mr. McLaughlin all but moved into a hotel near Lynk’s headquarters in Atlanta. In 2004, the company was sold to

Royal Bank of Scotland

for $525 million.

That became Mr. McLaughlin’s blueprint: Find companies that are opaquely valued or misunderstood. Negotiate unusual fee structures. And only represent sellers, never investors or potential acquirers. It is a lesson Mr. McLaughlin said he learned from his mom, a Realtor. “Always get the listing,” he said.

Clients admire Mr. McLaughlin’s hustle and chutzpah.

After the Lynk Systems sale, FT Partners commissioned and framed a cartoon commemorating the deal with plans to present it at a celebratory dinner in New York. Mr. McLaughlin thought it wasn’t big enough. As the sun set, he hit the streets of Manhattan, offered the proprietor of a printing shop $1,000 to stay open and showed up with a poster-sized version. “It was a big hit,” Mr. Wolfe said.

Some of FT Partners’ biggest wins took more than a decade. When AvidXchange approached Mr. McLaughlin in 2009 for help raising $5 million, he said it wasn’t worth the time. He changed his mind when the company agreed to sign an engagement letter that guaranteed FT Partners a role on any deal the company did for the next 50 years. He also joined AvidXchange’s board of directors.

AvidXchange went from a few million dollars in annual revenue in 2009 to $186 million in 2020. An October IPO valued the commercial-payments company at about $5 billion. On top of the stake Mr. McLaughlin owns in the company, FT Partners collected a roughly 6% fee on the $1 billion it helped AvidXchange raise over nearly a dozen years.

Mike Praeger,

AvidXchange’s chief executive, said Mr. McLaughlin did plenty of work for the company outside of fundraisings, including late-night phone calls and weekend flights to North Carolina to map out strategy. He also said Mr. McLaughlin talked him out of selling the company at prices well below its current market value.

“Worth every penny,” Mr. Praeger said.

Write to Peter Rudegeair at [email protected] and Liz Hoffman at [email protected]

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