AAA Fund in the News: Santander InnoVentures

Fund in the News: Santander InnoVentures

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 like mobile operating system developer Cyanogen, which 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. “I think 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.”

InnoVentures is largely stage agnostic, investing between series A and E stage. 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 if possible.

“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.

“I think 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 InnoVentures has not so far seen a great deal of external pressure from rival units.

Santander’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 JP Morgan or Citi are present, things are yet to progress to the point where InnoVentures would be pushed out of a deal. One area InnoVentures is looking to expand into however, is Latin America.

“I think it is an ecosystem that started a couple of years later than the US or 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.”

In terms of sectors, 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 stated, 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 AI can bring a superior solution, and we focus more on capturing value from solving real problems rather than thinking: let’s invest in AI and decide what it is good for later.”

– Photo of Mariano Belinky courtesy of Santander InnoVentures

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