Australia-based venture capital firm Reinventure is attempting to apply the “most functional” corporate venturing model to its relationship with its sponsor, financial services firm Westpac, according to co-founders Simon Cant and Danny Gilligan.
Reinventure was founded in 2013 using a model in which it works with a single corporate limited partner with a view to investing independently in startups operating in adjacent or potentially disruptive sectors, and it found a suitable backer in Westpac.
Gilligan said: “Simon and I have both worked in industries, both with venture capital and corporates, around innovation and navigating disruption, and also with startups.
“We have basically seen every kind of sin a corporate VC has committed, and we felt slightly frustrated that corporate VC was not more functional. We felt there was a very big opportunity, particularly in markets outside the US, for corporate VC to take more of a leadership position in developing new business models in those markets. So we sat down and designed what we thought would be the most functional corporate venture mode, structure and strategy based on all that experience, and then we proposed that model to a handful of companies, one of which was Westpac.
“They had a visionary CEO who got the proposition we were talking about, which was quite a challenging proposition to pitch to him at the time, in 2013 before fintech was really a word, to say: ‘You are going to be disrupted and all your natural instincts for how you want to respond to that will not work. And as part of a portfolio of responses to disruption you should have an arm’s-length venture capital fund that invests in minority stakes in the companies trying to disrupt you – and you should actively help those companies.’ ”
Reinventure was structured as an independent firm because, as Gilligan and Cant explained, corporates often find it difficult to bring themselves to fund and encourage technologies that would disrupt their core business, and an independent fund removes that obstacle. Westpac provided Reinventure with an initial A$50m ($38m) before the firm closed a A$50m second fund last August that Gilligan and Cant said was 99% funded by the bank. It has already made four new investments, including Doshii, Fillr and Hyper Anna.
For both funds, a specific amount was required to place Westpac’s venturing money firmly in the patient capital bracket, as opposed to the yield capital that banks generally deal in, allowing it to be allocated without the need for direct returns and without the risk that investments could be affected by unforeseen difficulties in the parent.
Cant said: “We have established something that is a hybrid between Norwest Venture Partners – that is we own the management company and we are on a pure 2 and 20 remuneration model [2% annual management fee and 20% carried interest – a share of investment profit] and cannot access our carry for seven years, consistent with the long-term nature of disruption – and Salesforce, because we have deep sponsorship, from the CEO down.”
Cant said: “It also meant that, by being established as an entirely independent fund, we could pursue things that were well outside Westpac’s current thinking about what was and was not strategic. There are a whole lot of things about the fund’s structure that were specifically designed for us to invest in what would either be disruptive to banking or to adjacencies and therefore may prove to be useful options to the bank in a five to 10-year timeframe.”
The adjacencies in question include data, which Cant and Gilligan pointed out had many of the same properties as money, and real-estate technology.
Fintech has so far been seen as a technology restricted to two or three major centres, particularly in Western Europe, but Reinventure believes Australia also has the potential to be a player, not least because of the position of banks such as Westpac, which were not only better positioned than US and European banks to recover from the 2008 crash, but also have access to the fifth-largest retirement savings pool in the world due to Australia’s mandatory superannuation scheme.