As stock trading soared amid the pandemic, adding billions to the valuation of investing app maker Robinhood, I couldn’t help but notice the myriad other, even younger startups looking to step onto its turf.

There’s been Public, a kind of Pinterest of stock trading apps; Commonstock, which bills itself as a social investing platform; and more recently, Finary, which is starting out as a kind of Discord for market-related conversations but plans to eventually roll out stock trading.

Why the sudden explosion in such similar companies?

That’s the question I posed to Frank Rotman, a founding partner at QED Investors known for his fintech bets companies such as Credit Karma, SoFi, and Prosper.

He has seen a surge in startups pitching similar, if not the same, fintech business models—but that’s not necessarily because entrepreneurs are copying each other. Effectively, says Rotman, as fintech companies such as Plaid and Robinhood hit stride, younger startups are seeing an opportunity to build or improve upon those businesses. And often, they build in the same direction.

“At one point, we literally had four or five companies [pitching] at the same time all basically raising their Series A with very similar offerings around APIs for payroll,” he said.

I spoke with Rotman over the phone Wednesday about the recent surge in retail traders, where he’s looking for investments in fintech, and whether he wishes Credit Karma had waited just a smidgen longer before combining with tax prep software company Intuit in February of 2020, just before the valuations of other financial tech startups shot up.

Here’s our conversation, lightly edited for clarity.

Let’s talk a bit about the GameStop saga. Retail investors jumped into the market and created a short squeeze that many see as a seminal moment marking the power of the mom-and-pop trader. You’ve written about this on Twitter. So sum up your theory, and tell us a bit more about what that could mean for the market?

The first thing I think is important is that participation in the stock market is not a bad thing. 

But I think some of the old notions of what being an investor means are being challenged, and the traditional way of evaluating companies and picking where to put your money is being turned on its head.

A lot of people who are investors now want to be part of a group making decisions together, to discuss the companies that they’re investing in, and to talk about it to their friends, family and other people. So investing now is about more than just generating a financial return. It’s about being part of a community. And in some cases, people see it as being part of a movement.

So take investors in Bitcoin as an example: There are a lot of Bitcoin maximalists that want to be able to talk Bitcoin and they want to be a part of a group that believes that this is an inflation hedge against the government printing money and a way of protecting their future. That movement is more than just about a financial return, it’s about a group that believes in a narrative around the future, that they have wrapped part of their identity around.

Same with Tesla: Some invest in the company without analyzing the financials for one second.

So how does the concept about the habits of this new generation of investors impact your thesis in terms of investing in fintech companies?

There’s no putting the genie back in the bottle. It’s really obvious that investors, the newer, the next-gen investors in this market, are looking to curate ideas from smart people who they trust.

There’s going to be a next-generation set of companies that are trying to build the social connectivity and education that enables the next-gen trader to trade smartly, not as part of a movement, not as part of the noise, but off of fundamental investment theses that have been curated.

It’s not too different from when I was a novice investor back in the 1990s. People back then would pay for access to a newsletter in which an expert would analyze three or four stocks that month, and you would read and decide if you agreed. This would just take it to the next level. We are now connected instantaneously on a social basis and publishing tools are very different: It can be a newsletter, it can be a video, it can be audio.

We’re not invested in Robinhood, but we are in a social investing company called CommonStock (Editor’s note: Social investing companies like CommonStock allow users to post their investing tips and follow friends).

This idea of social investing really played out on Reddit when it came to GameStop. How is your idea of social trading different from what Reddit is already doing on r/wallstreetbets?

When you’re on a social platform, there’s tons of noise and you have to figure out what the signal is. In some ways, that’s a lot of what Reddit is. It’s the same thing with some platforms out there like StockTwits.

But I think you’re gonna find some social networks rise that will be all signal and no noise. And that’s going to be really interesting when you have experts doing the work and publishing their theses with a social community around them ingesting that information and investing.

In general, investors say fintech companies have benefited from the pandemic. Banking has gone online, as have services such as homebuying. But do you see any sectors within fintech that have been overblown in recent months?

That’s a tough question. I think we’re about to see a second wave of really durable, really important fintech companies emerge. [But] I think with that comes some noise. So the new problem is, in the U.S. in particular, that whenever an idea comes across your desk, there are four other companies launching the exact same thing at the exact same time. And now you have to actually figure out which company is, hopefully, going to be the dominant winner. I don’t think it’s an overblown market, but I think it’s just now very competitive even at the earliest stages of company building.

That a great point. Why is it that there are so many companies all doing the same thing right now? Are they copying each other?

So I think it’s easier to see now what’s possible, and some startups are layering their ideas on top of other foundational companies. 

Once you see a successful company in the space, you ask, what else could be built like that? For instance now that a company like Plaid has emerged, entrepreneurs have come to understand what an API company can grow up to become at scale. So they asked, where else could we build an API company? At one point, we literally had four or five companies at the same time all basically raising their Series A with very similar offerings around… APIs for payroll. 

And that was because it became obvious that someone needed to build a solution in the space. Everyone was looking to get access to payroll data for employment verification, new account openings, or [renting from landlords]. 

Same thing with Robinhood. It built a multibillion company, and that has opened people’s eyes. Now entrepreneurs ask, what doesn’t Robinhood do? What else could be built in that space? Where are there gaps?

So effectively disrupting the disruptors.

[The success of these fintech startups] really opens up the aperture for the next stage of entrepreneurs to come up. And some of the entrepreneurs are spinning out of those startups—the best way to spot a problem is to [have been] a part of the problem.

So if the pandemic has brought fintech trends forward by 10 years, what happens 10 years from now? What are you betting on?

One thing that’s really interesting is the middleware layer for all of banking is being rethought and rebuilt.

So there’s the core systems and the front-end, consumer-facing interface within banks. The technology on the front-end has accelerated and gone mobile. The problem is the core systems are old, archaic technologies. It’s really amazing the last time they were rebuilt. We’re talking 20, 30, 40-year-old technologies. The ability for the two systems to talk to each other has always been really challenging.

But now we’re seeing a cadre of companies being built in this middleware layer that are enabling systems to talk to each other. These are the big API companies that are popping up with businesses like Plaid paving the way.

So if you’re a small business owner, for instance, you can grant access to a bank to see your QuickBooks account, which is a true file on how your business is doing. You don’t have to fill out long-form applications.

The middleware layer is allowing reduction in friction in any application process and allowing for the movement of information without paperwork. And it’s going to empower a whole new set of experiences that are going to feel magical and frictionless.

You’re also known for investing in Credit Karma, which Intuit announced it would acquire for $7 billion plus back in February 2020, just before the pandemic ramped up in the U.S. With the way Plaid’s valuation jumped after its merger with Visa fell apart, do you ever think, “Man, I wish Credit Karma had just waited, we could’ve had a higher valuation?”

It’s an interesting question. I’ll say that Intuit got a deal. I love the Intuit team and the Credit Karma team, and the synergies are amazing. I think the two companies are going to do wonders together and it’s going to be a good fit.

With that said, from a financial standpoint, it’s obvious there’s been a change in how the public markets are valuing [fintech] companies. And if Credit Karma had gone public instead of being sold to Intuit, it’s unknown what it would have been worth, but you can speculate based on what you’ve seen in the market. And speculation would suggest that Intuit ended up getting a good deal.