Connie Lee pitches nCino at Sohn 2025

Good morning. My name is Connie Lee, and I’m the founder and CIO of Fearless Advantage, a long-short equity fund launching this year. I’m here today to talk about one of our favorite long ideas.

1. How Banks Generate Revenue

Banks generate revenue by issuing loans, and that process is very complicated and highly regulated. Believe it or not, most banks today manage this process using some combination of legacy systems from the 1980s and Excel. But some banks use nCino, a cloud-based platform built on top of Salesforce and customized for banking-specific workflows, similar to what Veeva has done for life sciences.

For nCino customers, nCino is one of the most important pieces of software within their technology stack. It literally drives their revenue engine. So, as you could imagine, nCino is very sticky, deeply embedded, and mission-critical for those customers.

Our investment thesis is simple. nCino is a high-quality business with a dominant position in a large, underpenetrated market. Yet it trades at a steep discount compared to peers due to a confluence of one-time events. We are already starting to see the business comp against all-time lows and reaccelerate. Even if we’re wrong about the company’s growth prospects, we think that we’re getting some unique downside protection at today’s prices.

nCino trades at a significant discount relative to historical private equity buyout prices, despite having many of the same characteristics that sponsors look for—namely, the ability to generate significant and predictable amounts of free cash flow. In today’s dynamic macroeconomic environment, it’s rare to find an asset that has minimal exposure to tariffs and limited sensitivity to recession and inflation.

Given that this is a mission-critical system with contractually recurring revenue and pricing increases, we think that we can make 2.5 times our money over the next 3 years under a very realistic case, assuming no improvement in macroeconomic conditions. Taken altogether, we think this presents a pretty compelling risk-reward.

2. The Mission Critical Moat

nCino exhibits the hallmarks of an exceptional business. Over 90% of nCino’s revenue is recurring, with 40% incremental margins. nCino is very, very sticky. Ripping this out is like open-heart surgery. What this means is that nCino rarely loses a customer unless the customer goes bankrupt or gets acquired by JPMorgan, the only bank with enough scale and desire to build all of its own technology.

It also means that nCino has incredible pricing power. They typically take 5 points of price a year and most recently announced a 7% price increase with zero customer pushback. Barriers to entry are incredibly high, given regulatory complexity. In the last 10 years, no one has entered nCino’s core market, commercial loan management.

And finally, nCino is an AI winner. Given how dynamic and complex regulations are around banks, it’s highly unlikely that this gets disrupted by an AI-native startup. In fact, nCino sits at the nexus of all lending and compliance workflows within a bank, putting it in a very unique position to train its AI model on differentiated, deep pools of data.

And that is exactly what nCino has done. Though it’s early days, its AI product, Banking Advisor, has already seen significant traction within its customer base.

3. The Untapped Banking Market

nCino plays in a large, underpenetrated market. We think the TAM is roughly $18 billion, but nCino is under a $3 billion market cap today. Consensus estimates that nCino will do roughly $580 million of revenue this year. Even where nCino is strongest, in the commercial segment, nCino is only 7% penetrated.

This is just a cut of U.S. banks with more than $1 billion of assets. We ran a proprietary, AI-based web-scraping screen to build a bottom-up market map of every single U.S. bank and the loan management software that they use. What we learned is that well over half of all U.S. banks are using what we can truly classify as legacy software, and only 20% are using nCino in some form or capacity.

What this tells us is that there’s a lot of white space. There’s a lot of low-hanging fruit. This chart deeply understates the dominance of nCino’s competitive position. nCino is the only modern solution that can handle both commercial and retail loans, and having a single repository of data across loan types is incredibly important for banks.

The only way to get a complete view of a customer is if a bank could tie John Doe, the individual with a mortgage, to John Doe, the business owner getting a business loan. Our industry participant interviews suggest that nCino wins about 60% of all RFPs, and that number is closer to 90% for banks with assets of more than $5 billion looking for a commercial loan management system.

4. Why nCino Trades Cheap

Despite all of this, nCino trades at a 50% discount to vertical software peers on an NTM basis. nCino trades at 4 times revenue and 6.5 times gross profit, versus comps at 8 times revenue and 11 times gross profit. That’s because, over the last couple of years, everything that could possibly go wrong for nCino has gone wrong for this business.

First, nCino used to price on a seat-based model based on the number of loan officers using its product. As you can imagine, over the last couple of years, as interest rates increased, the number of loan officers went down by 30%. nCino still grew throughout this period, given its competitive market position, large TAM, and large white space. But what this means is that instead of growing 60%, it grew 15%.

nCino is currently in the middle of a transition, changing its pricing model to more of a fixed-fee structure based on a bank’s asset size. So this actually shouldn’t be a problem going forward.

Second, 15% of nCino’s revenues are indexed to mortgages. Over the same time period, mortgage volumes went down 60%. Again, nCino’s business did grow—it grew 8% last year. But at one point, this was a business that grew more than 440% over 2019 to 2021.

Third, First Republic, Silicon Valley Bank, and Signature Bank comprised approximately 4% of nCino’s revenues, which went away.

Fourth, nCino had a very large shareholder, Insight, that owned about a third of the business. They’ve been exiting their stake over the past year, which has significantly pressured the stock. We think, based on their activity, this pressure is likely to abate very shortly.

And then, finally, this is a little bit more of a self-inflicted wound, but the company recently changed its guidance methodology to the most conservative one possible. To give an example, its guidance assumes 0% growth in its mortgage business, which would be an 8-point deceleration from the worst year on record for mortgages.

We think this came from a very thoughtful place: wanting to reestablish nCino as a consistent beat-and-raise company. But I think what it also inadvertently did was spook investors. They guided to nCino growing 7% this year, and this is a business that takes 5 to 6 points of price annually. So, understandably, investors were left questioning whether this business was one that could ever grow again.

5. The Reacceleration Is Real

However, digging underneath the hood, when you look at the forward-leading indicators for this business, you see a very different story. Last quarter, nCino’s billings grew 22% year-over-year, and backlog grew 18%. This is a significant reacceleration. At the same time last year, nCino’s billings grew 12%, and backlog grew only 6%.

This is the fastest that nCino’s billings and backlog have grown in the last 7 quarters. And look, even if you don’t believe the reacceleration story, nCino is currently trading 35% below where private equity sponsors have taken out software companies in the last few years. If you believe any part of the reacceleration story, it’s not that hard to see a path in which nCino is 2 to 3 times bigger in the next couple of years.

6. The Downside Case Works

This model takes management at their word and grows nCino 7% a year. It also assumes no improvement in macroeconomic conditions. So it has nCino adding customers at the very depressed pace at which it’s been adding customers over the last couple of years. Margins just grow in line with their current incremental margins today.

Even with those assumptions, we are buying down nCino’s valuation to a mid-single-digit multiple of free cash flow in the next 4 to 5 years. And if, at any point over the next few years, rates ever go down or mortgages ever come back, this would be a heck of a lot better than what we’re showing today.

We think, given where nCino is trading, the primary risks of the investment thesis are 1. execution, and 2. the possibility that this business gets taken out by a private equity sponsor before we can realize some of these upside outcomes.

In conclusion, we think that nCino presents a particularly asymmetric risk-reward: the opportunity to buy a world-beater at a discount, where you make a good amount of money if you’re right and don’t lose a whole lot if you’re wrong.

Thank you for listening and giving us the opportunity to present on an idea we love.