Building Better: S3 Ventures & Alkami

Welcome to the NVCA Blog series, Building Better, where we celebrate the dynamic relationship between our VC members and their innovative portfolio companies around the nation. For today’s Building Better, we spoke with Brian R. Smith, Managing Director of S3 Ventures, and with Stephen Bohanon, Founder of Alkami, an S3 Ventures portfolio company that recently had its initial public offering on the Nasdaq stock exchange under the ticker symbol of ALKT on April 14, 2021. Learn about their partnership in the Q&A below! 

S3 Ventures: Brian R. Smith, Managing Director

Give us some background on S3 Ventures: How did the firm start, what is your mission and how does the firm strive to meet its goals?

S3 Ventures was founded in Austin, Texas in May 2005. After founding a startup and taking it public, I had a strong desire to create a venture capital firm that was focused on supporting visionary, Texas-based entrepreneurs with patient capital and local resources. I was incredibly fortunate to find a limited partner in a highly philanthropic family office that shared these goals. They backed the entirety of our first $20M fund; 15+ years and several funds later, we have grown the firm to eight investment professionals with $600M AUM – all with the same, solo LP.

As the largest VC focused on Texas, our goal has always been to partner with amazing companies for the long-term – throughout their growth journey – not just a single investment transaction. With our unique LP structure, our senior team can focus its time and efforts on meeting, funding, and supporting founders. It also provides flexibility when it comes to fund sizes, time horizons, and later-stage co-investment opportunities.

What does S3 Ventures look for in a partner when choosing to invest in a portfolio company? What does S3 Ventures value? What do you especially value in the Alkami team?

We invest in Texas-based entrepreneurs re-imagining the way the world works, lives, and heals. To date, we have funded 45+ start-ups across three sectors: Business Technology, Consumer Digital Experiences, and Healthcare Technology. We lead Seed, Series A, and Series B investments with the capacity to invest $50M+ into a company over its lifetime and potentially more via LP co-investment.

As was the case with Alkami, we are attracted to extraordinary companies that are delivering big-impact innovations that are game-changing for their customers – and even humanity. We value founders, like Alkami co-founder Stephen Bohanon, who have the vision to solve problems in a completely new way – making step-function advancements for their customers.

It has been a privilege to be part of Alkami’s decade-long journey to IPO – leading the Series A, B, and C rounds, participating in the Series E, and having our LP co-invest as well. Alkami’s executives are extraordinary in their clear vision and adherence to the company’s core values in everything they do. Their unwavering commitment to their culture is a living example of the strong leadership that results in highly engaged employees, and ultimately, customer success.

How does S3 Ventures support its portfolio companies? How does it help entrepreneurs grow and advance the VC industry?

Whether solidifying a business model, providing pragmatic tools, or by making critical introductions, we are committed to providing support to our portfolio companies when and where needed—over a long-term horizon. Our goal is to help our portfolios manage through growth and growing pains—and accelerate their success.

Our guiding principle is centered around our three commitments: Patient Capital, True Resources, and Big Impacts. Patient Capital means that we believe in keeping a long-term vision, being flexible, and supporting entrepreneurs with clarity and empathy. True Resources means that we operate with honesty and transparency – offering a valuable platform comprised of accessible senior partners, a dedicated analyst team, useful tools, and a powerful network. Finally, our commitment to Big Impacts entails being agile and decisive in supporting entrepreneurs with the unique vision and drive to make a lasting mark in the world.

If current trends continue, Texas has the potential to be the second largest technology startup ecosystem in the country by 2030.  We are committed to help make that potential future a reality.

Alkami Technology: Stephen Bohanon, Founder

What is the mission of your company and how did you start?

Alkami was founded 11 years ago with the intent to level the digital banking playing field and with a vision to help mid-tier financial institutions compete with megabanks. We started the company in the throes of one of the worst financial crises of our nation’s history and at a time when digitization was disrupting multiple categories (including travel, hospitality, and entertainment). We realized that anything that could be digitized would be digitized… including banking. The Alkami Platform is our solution to level the competitive playing field in the essential financial services market by democratizing digital banking technology. Our cloud-based solution makes it possible for banks of any asset size to manage “all things digital banking” through a single platform. Our mission remains to empower financial institutions to grow, adapt and build thriving digital communities.

Where and how is your company looking to grow into the next 5 years?

Alkami participates in a market growing in terms of consumers and business users of digital banking as well as an expansion of technology/functionality. We are expanding our addressable market by applying the following strategies: deepening existing relationships, winning new clients, broadening and expanding our product suite, selectively pursuing acquisitions or other strategic transactions.

What problem is your company trying to solve?

We believe healthy competitive choice in the financial services market is good for US consumers and businesses. The top megabanks in the industry manage approximately 40% of the nation’s assets. Another 2,000 financial institutions manage most of the remainder. Our focus is in helping these 2,000 financial institutions grow so that US consumers and businesses benefit from greater choice. These are remarkable financial institutions that simply lack the scale or technical expertise to continuously innovate in digital banking. At the same time, consumers and businesses expect their financial institutions to meet them where they increasingly are—online, on mobile, and on their terms with self-service delivery.

We focus on our core competency of digital banking by providing a best-in-class digital banking platform in a white-label, SaaS-based consumption model to these financial institutions. By focusing on our core competency, we allow these financial institutions to do the same and compete fairly on the merits of their services and solutions vs. those offered by megabanks or other alternatives.

How has S3 Ventures impacted your company’s future for the better?

S3 Ventures was an early investor in Alkami. They provided resources in the form of capital, guidance, process and governance.  They also leveraged their investor network to bring additional investors along the way as unforeseen challenges and capital needs arose.  They continued to invest in Alkami throughout the years, participating in virtually all of our funding rounds.  Their belief in our vision and trust in our execution has allowed our company to enjoy significant growth over the years. They continue to provide strategic counsel and financial resources enabling Alkami to fulfill our mission to help our remarkable clients grow confidently, adapt quickly, and build thriving digital communities.