Over the past 12 months, GCV has tracked 439 deals involving corporate investors from the financial services sector. The majority took place in the US (241), China (43), Japan (31), the UK (17) and India (14). Commitments went to a wide array of emerging enterprises from various sectors – most notably IT (136), health (89), financial services (87), consumer (43), services (32), transport (22) and media (19).
While some of these investments may have been made with financial rather than strategic benefits in mind, the broad investment scope of corporate venturers in the financial sector seems to stem from the digitisation of many sectors and industries, and the further digitisation of financial transactions globally.
Given the vast number of deals, it is interesting to put financial sector corporate commitments in perspective. Historically, deals by such investors peaked in numbers during 2015, with 461 deals. But in terms of total capital raised, the 327 rounds registered by the end of September this year totalled $30.89bn, already far above the $21.92bn figure for 2015.
A similar picture is drawn by historical data on corporate investments in financial services emerging enterprises. They started growing noticeably in 2014 and reached a peak in number last year, with a total of 140 deals. Total capital raised in rounds by such enterprises is currently at an all-time high of $8.78bn.
While this tremendous growth is partly due to the increasing penetration of fintech in most sectors, what is also noteworthy is the rise of insuretech, as reflected by the growing number of commitments by insurance CVCs. The number of deals such investors have backed may not be the best indicator, as it appears so far to be less impressive in aggregate scale. Even the top three insurance venturers over the 2011-16 period have taken part in only a handful of publicly disclosed deals – Ping An Insurance in 25, Axa in 23 and USAA in 18. However, such venturers on the whole became more active from 2014 – the total number of deals grew from 28 in 2014 to 61 in 2015 and 57 by the end of September 2016. The growth of total value in those rounds was even more significant – from $460m in 2014 to $6.54bn in 2015 and $14.47bn by the end of September this year.
The data indicates heightened activity among insurance venturers, possibly because the insurtech field offers ample opportunity for disruption. Sebastien Loubry, partner at Axa Strategic Ventures, believes there are four main reasons why insurance is open to disruption. “First, this is a huge market worldwide. Second, technology can help improve various aspects of insurance, as we know it is today. Third, regulation is a significant barrier to entry. And, last but not least, digitisation is well behind vis-à-vis other industries.”
Andrew Pitz, an associate at Transamerica Ventures, the venturing subsidiary of Aegon-Transamerica Life Insurance, added: “Because there is so much opportunity to improve the insurance experience, to develop more efficient processes, to engage and advise customers more effectively, and to launch unique and more scalable business models, insurtech has been called ‘the final frontier of fintech’, and it is an industry receiving a lot of VC attention.”
Mario Belinky, managing partner at Santander innoVentures, believes “artificial intelligence is going to be the buzzword for the remainder of 2016 and a good chunk of 2017”. Pitz said: “Machine learning and cognitive computing have the ability to impact so many different aspects of our lives. There are many use cases which we call low-hanging fruit, but there are also some seriously innovative and fascinating advances being made as well. More specific to the insurance and financial worlds, as regulation increases, technology to help companies deal with compliance – known as regtech – will become more important.” Read the full interviews with both Pitz and Belinky in this issue.
Deals
The top investors from the sector in terms of involvement in deals were Mitsui, Axa and Alexandria. In turn, China Life, Ant Financial and China Post Capital took part in the largest rounds. And we saw some billion-dollar rounds over the past 12 months.
China-based ride-hailing service Didi Chuxing closed the largest financing round yet by a private VC-backed company, raising $7.3bn in debt and equity, according to the Wall Street Journal. The $4.5bn equity portion of the round included $1bn from electronics producer Apple, a reported $400m from e-commerce firm Alibaba and its Ant Financial affiliate, $600m from insurer China Life, and contributions from internet company Tencent and telecoms group SoftBank. Didi Chuxing was formed by the merger of China’s two largest ride-ordering platforms – Didi Dache and Kuaidi Dache – in early 2015.
Ant Financial closed a $4.5bn round that stands as the largest officially disclosed by a private technology company, the Wall Street Journal reported. The series B round, which valued Ant Financial at about $60bn, included postal service China Post Group and insurance companies such as China Life. Formed by Alibaba in 2014, Ant brings together several online financial services and investment entities, including Alipay, the most widely-used online payment platform in China.
US-based ride-sharing app producer Uber received a $3.5bn investment from Public Investment Fund, the sovereign wealth fund of Saudi Arabia. The cash injection was part of Uber’s latest round, though a target size has not been revealed. It is the largest single investment in the company to date and boosts the total funding of Uber and its subsidiaries to more than $12.5bn. Uber’s valuation remained at $62.5bn for the latest investment.
China-based local listings and group buying company China Internet Plus Holdings raised more than $3.3bn in new funding from undisclosed investors, though previous investors include Tencent and Alibaba, and was created when group buying company Meituan merged with local listings and reviews platform Dianping in October 2015, when it was valued at $15bn.
Alibaba and its financial services affiliate Ant Financial invested $1.25bn in China-based online food ordering platform Ele.me. Alibaba provided $900m of the funding while Ant Financial put up the other $350m. Ele.me runs an online platform for ordering food for delivery from local restaurants, operating in an increasingly busy sector in China.
US-based augmented reality technology developer Magic Leap raised $793.5m in a series C round led by Alibaba. Internet technology provider Google, mobile semiconductor maker Qualcomm, which took part through its Qualcomm Ventures unit, film studio Legendary Entertainment, and media and entertainment company Warner Bros also invested in the round. Magic Leap works on augmented reality technology it calls Mixed Reality Lightfield, which can superimpose moving light sculptures on real environments.
GCV Analytics tracked 151 investments in emerging enterprises from the financial services sector over the past year. The top investors were Santander, Alphabet, SBI Holdings, Axa and Comcast. The interest in emerging financial enterprises comes not only from corporates in the financial sector but also from IT and media.
Peer-to-peer lending company Lufax’s oversubscribed $1.2bn series B round closed at an $18.5bn valuation. Approximately $924m of the funding came from new investors, including Bank of China, food producer Cofco, investment bank Guotai Junan and investment group Minsheng Shangyin International, while a further $292m was supplied by Lufax’s series A investors – Ping An, BlackPine Private Equity Partners, CDH Investments and China International Capital.
US-based credit marketplace SoFi closed a $1bn series E round, the largest yet raised by a fintech company. Japan-based telecoms and internet company SoftBank led the round, which reportedly valued SoFi at $4bn, and was joined by China-based social media company Renren, Wellington Management, Institutional Venture Partners, Baseline Ventures, DCM Ventures and Third Point, which also invested through its Third Point Ventures subsidiary. The round took SoFi’s overall funding to $1.42bn since its formation in 2011.
Yixin Capital, a China-based online automotive financing subsidiary of automotive retail services provider Bitauto, raised $550m from a consortium including its parent company and local corporations Tencent, Baidu and JD.com. Automotive retail services provider Bitauto will hold an equity stake in Yixin Capital of about 47% on a fully diluted basis and will have control of the company.
Exits
GCV Analytics tracked 38 exits involving corporate investors from the financial services sector.
Fidelity-backed Stemcentrx is to be acquired by biopharmaceutical company AbbVie for $5.8bn in cash and stock, and up to $4bn in milestone payments. The acquisition will give an exit to financial services group Fidelity. Stemcentrx emerged in September 2015 with a pipeline of oncology drugs being developed to kill cancer stem cells. Its lead drug candidate, Rova-T, is in registrational trials for small-cell lung cancer.
China Huarong Asset Management, a China-based state-owned bad debt management firm, raised HK$17.8bn ($2.3bn) in its IPO, according to China Money Network. The amount fell short of the $3bn target the company had reportedly been seeking. The firm’s backers include Malaysian sovereign wealth fund Khazanah Nasional, insurance provider China Life Insurance, Cofco, conglomerate Fosun International, private equity firm Warburg Pincus, and investment banks Citic Securities International, China International Capital and Goldman Sachs.
Semiconductor technology provider Intel agreed to acquire US-based deep learning software developer Nervana Systems for a price reported by Recode to be $408m, giving an exit to futures firm CME Group. Nervana has built a cloud-based platform that enables businesses to incorporate enterprise-grade deep-learning technology into their processes. Intel will use Nervana’s expertise and intellectual property to expand its artificial intelligence capabilities.
France-based e-commerce company Showroomprivé, backed by online discount retailer Vipshop, secured €256m ($282m) from its IPO on Euronext Paris. The shares traded at $19.25, below the target range of $21.50 to $29m, and valued the company at $726m. Showroomprivé had hoped to raise up to $339m in the offering. Founded in 2006, Showroomprivé sells designer fashion items, homewear, toys and electronics to consumers through flash sales with discounts.
Square, a US-based payment services provider backed by coffee chain Starbucks and payment services firm Visa, raised $243m in an IPO priced significantly below the $11-$13 share range it had set earlier. This was also about 42% lower than the $15.46 price at which investors bought shares in its last funding round, a $150m series E in October 2014. The company’s other investors include Citi Ventures, financial services firm Citi’s strategic investment arm, as well as GIC, Goldman Sachs, CrunchFund, GGV Capital, First Round, Kleiner Perkins Caufield & Byers, Sequoia Capital and Sapphire Ventures.
Funds
GCV Analytics has tracked 48 funding initiatives related to the financial services sector over the past 12 months, in which an estimated total of $1.87bn was raised.
US-based venture capital firm Geodesic Capital closed its inaugural fund at $335m with anchor investments from several businesses within the Japan-based conglomerate Mitsubishi Group – camera manufacturer Nikon, engineering company Mitsubishi Heavy Industries and financial services firms Bank of Tokyo–Mitsubishi UFJ and Mitsubishi UFJ Trust and Banking Corporation. The fund also secured backing from insurance provider Sompo Japan Nipponkoa Insurance, financial services firms Toho Bank and Sumitomo Mitsui Banking Corporation, and government-owned financial institution Development Bank of Japan.
Spain-based financial services and banking group BBVA increased its specialist financial technology fund from $100m to $250m and announced it would be investing through a partnership with Propel Venture Partners. BBVA had been investing out of BBVA Ventures, the $100m fintech fund it formed in 2013. Propel is a San Francisco-based venture capital firm recently launched by former executive directors of BBVA Ventures Jay Reinemann and Tom Whiteaker.
Italy-based financial services firm UniCredit announced plans to invest almost €200m ($220m) in financial technology startups in partnership with fintech-focused investment and consulting firm Anthemis Group. UniCredit intends to make the investments as part of a wider digital evolution strategy to improve its offering to clients.
Indonesia-based conglomerate Lippo contributed capital to a $150m venture capital firm named Venturra Capital, which will act as the successor to its Lippo Digital Ventures corporate venturing unit. Though independent, Venturra will in effect be the latest incarnation of Lippo Digital Ventures, as it has taken on the unit’s venture capital portfolio.
IDG Ventures India, the Indian venture capital affiliate of IT media company International Data Group, raised $150m for its third fund. The fund will be double the size of its first two, and the larger amount is being raised to equip IDG Ventures India with the means to make more investments at series B stage and beyond.
Brazil-based insurer Porto Seguro launched Porto Capital, whose first fund, Porto Edge Growth I, has R$400m ($124m) of capital. It intends to invest this capital primarily in medium-sized companies with revenues between R$50m and R$150m. Porto Capital will have two managing directors, Anibal Messa and Frederico Mesnik.
Japan-based internet and e-commerce firm Rakuten launched a $100m strategic corporate venturing fund that will target investments in early to mid-stage financial technology companies, looking to invest in startups and growth-stage companies in the US and Europe with strategic relevance. Oskar Mielczarek de la Miel will run the fund as managing partner.
Spain-based financial services firm Santander committed another $100m to its London-based strategic investment fund, Santander InnoVentures, doubling its size. Santander launched its fund in mid-2014 with $100m of capital. Santander InnoVentures provides funding to early and growth-stage fintech developers along with connections to the firm’s experts on topics such as regulation, operations or technology.
People
Nathan McKinley was promoted to vice-president and head of corporate development for USAA, a financial services provider for the US Army. McKinley has worked at USAA since 2006, and has spent the past six years building its entrance into the military affinity relationships. He replaces Victor Pascucci, who has left USAA after developing its $330m strategic venture capital programme over nearly five years.
David Orlandella rejoined Orix Ventures, the corporate venturing arm of US-based financial services firm Orix, as managing director two years after leaving the unit. Orlandella was principal at corporate venturing unit Orix Corporate Capital for almost two years before leaving in late 2013 to be managing director at asset manager Fifth Street Asset Management. In his MD role at Orix Ventures, Orlandella will focus mainly on the healthcare sector.
Constance Freedman, founder of National Association of Realtors’ venture capital unit Second Century Ventures (SCV), founded a US-based early-stage VC fund called Moderne Ventures. Freedman launched SCV in 2009, subsequently managing it as the association’s head of strategic investments. She also launched its accelerator, Reach, in 2013.
Norwest Venture Partners (NVP), the US-based venture capital firm sponsored by financial services provider Wells Fargo, promoted Casper de Clercq and Ryan Harris to general partners. De Clercq joined NVP in 2011 from US Venture Partners, and oversees mid-to-late-stage investments in consumer and digital health, medical devices and diagnostics. Harris was a principal at Carlyle Group and a venture partner at Industry Ventures before becoming a partner at NVP in 2010.
Salmaun Ahmad joined Korea-based industrial conglomerate Hyundai’s strategic innovation office in Silicon Valley, California. Best known for its automotive manufacturing, Hyundai also maintains interests in steel, construction, retail and finance. The firm’s corporate venturing unit, Hyundai Ventures, opened an office in Silicon Valley in 2011, and Ahmad has said he will be focusing on the fintech and connected car sectors.
Emmanuelle Pierret and Mathias Raynaud were appointed investment directors at Idinvest Partners, a France-based private equity firm with several corporates as backers. Pierret joined Idinvest from private equity and venture capital firm Naxicap Partners, where she had spent 14 years. Mathias was hired in November 2015 from QIA, the sovereign wealth fund of Qatar where he worked in the capital markets department.
Basil Darwish left Citi Ventures to become director of strategic investments at Wells Fargo. Darwish had been a senior vice-president at Citi Ventures in New York since early 2014 and has co-led investments in or portfolio management of companies including insight discovery platform Ayasdi, big data analytics technology provider Platfora and cybersecurity company Illusive Networks.
Deborah Hopkins, US-listed bank Citi’s chief innovation officer and CEO of Citi Ventures is to retire at the end of the year. Hopkins founded and built Citi Ventures and is now part of the current succession planning. She is expected to establish her own advisory firm, increase her board service and lend her support to various women’s initiatives. Hopkins joined Citi in 2003 as head of strategy. In 2008, she was given the new role of chief innovation officer.
US-based small business finance provider BlueVine hired Ana Sirbu, formerly a manager at growth equity fund Google Capital, as vice-president of finance and strategy. Sirbu joined Google Capital in 2013 as a senior associate before becoming a manager the following year and leading its investments in the fintech sector.
Paul Ark (Polapat Arkkrapridi) was appointed head of venture capital for SCB Ventures, the $50m strategic investment fund formed by Thailand-based financial services firm Siam Commercial Bank. SCB Ventures was launched in the first quarter of this year with a brief to invest in financial technology developers at series A stage or later. The bank also established an incubator and a lab subsidiary that will work on innovative technologies.
Stephen Lowery, partner at venture capital firm Frog Capital, joined Silicon Valley Bank’s UK team to lead its corporate and independent VC relationships. Alex McCracken, the managing director who had covered VC relations, stepped up to help the bank lend about $100m from its new Ireland office, as well as building its startup banking services in Europe more broadly.
Paul Harvey joined US-based insurance communications provider Octo Telematics North America, where he is to set up its corporate venturing unit as executive chairman. Harvey comes from Bank of America Merrill Lynch and was based in London as its head of Europe, Middle East and Africa technology investment banking.
Claudia Iannazzo announced she had set up US-based venture capital firm AlphaPrime with a strategic limited partner in an undisclosed European bank. Iannazzo is managing partner and co-founder of New York-based AlphaPrime with Alessandro Piol, who helped run US phone operator AT&T’s corporate venturing unit in the early 1990s but for the past decade has been president of Vedanta Capital. Their partner on the US west coast is Joseph Rothman.
Anju Patwardhan joined China-based wealth management and online lending platform CreditEase as a venture partner and will be making strategic investments through its CreditEase Fintech Investment Fund. CreditEase established the Fintech Investment Fund in 2015 and is aiming to raise $1bn to provide funding for “global leaders in the financial technology industry”.
Michael Treskow joined Eight Roads Ventures, the proprietary investment branch of financial services conglomerate Fidelity International, from venture capital firm Accel Partners, taking a partner role. Treskow will invest out of Eight Roads’ European office in London and will concentrate on financial, enterprise software and mobile technology developers.
Joe Chang left SoftBank China Venture Capital (SCVC), a subsidiary of telecoms firm SoftBank, to join Eight Roads Ventures. Chang became a partner at SCVC, Japan-based SoftBank’s local corporate venturing unit, in September 2014, after four years as managing director of networking equipment producer Cisco’s corporate development team.
Prudential Retirement, a business unit of New York-listed financial services conglomerate Prudential Financial, closed its seed stage-focused corporate venturing group, Gibraltar Ventures. Most of the Gibraltar team, however, including managing director George Castineiras, are being “repositioned” inside Prudential as they help the company build a new innovation strategy around designing, acquiring and partnering startups rather than investing in them at seed stage.
Fund in the news: Santander InnoVentures
Robert Lavine, news editor
Corporate venturing unit Santander InnoVentures focuses on portfolio companies with which it can seal a commercial partnership, and the model’s success was behind the fund size being doubled earlier this year, managing partner -Mariano Belinky told Global Corporate Venturing.
Financial services firm Santander formed InnoVentures almost two years ago, putting $100m into the fund, since when it has invested in fintech companies including alternative lender Kabbage and financial settlement platform Ripple, as well as those, such as mobile operating system developer Cyanogen, that are working on adjacent technologies.
Santander doubled InnoVentures’ capital to $200m in July this year, and Belinky said the strategy of the unit, which he described as “a strategic investor that does not like losing money”, involves looking at potential partners that can create value for Santander’s customers.
“We focus on companies we can partner with, where we can have a commercial agreement,” Belinky said. “Through the investments we have made since the fund’s inception in December 2014, the model has worked well for the bank.
“We have a couple of good early cases where the partnerships are working well, and it is a model the bank seems to like, and so the doubling up of the fund has to do with the bank seeing this as a valuable model to capture some of the innovation and disruption happening in the fintech space.”
Santander InnoVentures is largely stage agnostic, investing between series A and E. It has a limit of $10m per round, but typically provides between $4m and $5m, though individual investments have been as low as $250,000. The unit also likes to keep its stakes relatively small.
“We are very nimble in that sense,” Belinky explained. “I am a firm believer that one of the things that really does not work in corporate venturing is trying to get large stakes and trying to control the companies.
“That is where corporate VCs tend to do more harm than good, so I like to stay small, always below 10%. The sweet spot is probably 5% or 6%. I do not like going beyond that.”
The fintech sector has grown rapidly in the past two years, with more and more banks forming funds, but Santander InnoVentures has not so far suffered much external pressure from rival units.
The company’s reputation combined with the fund’s experience gives it an edge in Europe, but even in the US, where longer-established strategic investors like JPMorgan or Citi are present, things are yet to progress to the point where the fund would be pushed out of a deal. One area into which it is looking to expand, however, is Latin America.
“It is an ecosystem that started a couple of years later than the US or the UK, but where there is a lot of potential on the financial inclusion side, on doing lending while leveraging different data sources,” Belinky said.
“Micropayments could be huge across the region, and there are a number of themes there where Santander, given our geographical footprint there, can leverage, and so that is where we are focusing today.”
Belinky said the fintech sector was still suffering from the hype over blockchain to some degree, but that there was a lot of value in machine learning, despite a tendency this year for some investors to go after anything that incorporates artificial intelligence. Instead, Belinky said, Santander InnoVentures pursues what it calls a “by the way” investment strategy.
“For instance,” he said, “we invested in Elliptic, which is a financial crime monitoring company in the blockchain space. They look at transactions as if they were a network and apply pattern recognition to identify potentially criminal transactions. They are working in the money-laundering space and, by the way, they are using artificial intelligence to do it.
“We are investing in Socure, which is a digital identity verification company – same story. They use all the usual and alternative data sources from the web and other media, and they have a very strong machine-learning layer to identify fraud. By the way, they are using machine learning, but the problem is fraud in online identity.
“That is how I like to think about the space – focus on a complete problem where artificial intelligence can bring a superior solution, and we focus more on capturing value from solving real problems rather than thinking ‘Let’s invest in artificial intelligence and decide what it is good for later’.”
