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 for last year’s GCV Powerlist profile.
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, a top 25 global bank with an about $100bn market capitalisation.
Gilligan said last year: “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 [Gail Kelly who retired in 2015 with Brian Hartzer
taking over] who got the proposition we were talking about, which was quite a challenging proposition to pitch 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 in August 2016 that Gilligan and Cant said was 99% funded by the bank. Westpac this month has committed another A$50m to a third fund for Reinventure.
For all 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.
Australian financial services is the single largest part of the economy – more than 14% of gross domestic product.
And the potential is shown by Reinventure’s recent deal with Basiq, a middle-man providing fintechs with access to banks’ consumer data.
In June, Reinventure invested an undisclosed amount in Basiq for its seed round, pre-empting a regulatory environment that could provide a boon. With the Australian Treasury looking to review its policy on open banking in favour of openness, Basiq could take advantage of greater regulatory freedom.
Other early success include its investments in Coinbase (series C), Hyper Anna (seed investor with series A follow-on by Sequoia), and noticeable traction by early stage investments like online debt solution InDebted.
Reinventure led InDebted’s $1m seed round in May, and Hyper Anna’s series A round closed at $12.7m in August, following on from October 2016, where Reinventure led the $960,000 seed round for the Australia-based data analysis software provider.
Reinventure has made another three deals in the past year. In January last year, it led Australia-based Doshii’s seed round, worth $1m to the financial services amiddleware’ software company.
In August, Reinventure led Flare HR’s $7m funding round for the all-in-one online HR platform. They then closed out the year by leading Brickx’s funding round for an undisclosed amount in November.
Cant said in a keynote at the GCV Asia Congress in September: “To reinforce our independence while raising the tide of Australian fintech we set about creating a fintech ecosystem in Australia – connecting startups to capital, government, corporates and mentors.”
As well as the three A$50m ($40m) Reinventure funds, they set up co-working spaces, Stone & Chalk and the Sydney Startup Hub, for corporate and government support, the Fuel-D Accelerator for skill-sharing and mentoring, and Fintech Australia to campaign for government cooperation and a favourable regulatory environment.
All of which has led to more meetings and fintech startups, going from fewer than 100 in 2014 to 579 by this year, Cant concluded, which is a job well done so far.
He was previously an innovation specialist at Cantt Associates and before that WhatIf Innovation, with a focus on disruptive innovation, he advised clients such Tennis Australia, UBS, NAB, Suncorp, AMP, Fairfax, News Limited and APN News & Media and Transport for NSW. Prior to that he worked with entrepreneurs, in both commercial startups, at Tinshed Angel Group and social ventures at Social Ventures Australia.
Before reinventure, Gilligan was co-founder of Gizmo Corporation and a co-founder of Data Republic, a startup for big data.