Companies across the financial services – banks, insurance, payment and wealth managers – are still transforming into more digitised, customer-focused and flexible businesses, while facing challenges from the rapidly evolving fintech ecosystem.
After the global financial meltdown in 2008, the financial industry lived in a low-interest rate environment – or so it thought. After the covid-19 pandemic shock this year, interest rates are at a new all-time low and quantitative easing has been used abundantly by government around the world to fight off the economic effects of lockdowns. Stock markets have so far reacted jubilantly to this new wave of freshly printed cash and have seemed to price in a low-interest-rate recovery and expansion phase for at least over the next few years.
Expansion monetary policies coupled with fiscal stimuli should, in theory, benefit the retail banking business but that has not necessarily been the case, due to stricter regulations imposed on the sector. Low interest rates are unfavourable to insurance businesses, according to conventional economic wisdom. The pandemic, in turn, has propelled various fintech businesses ranging from cashless payment operators to online banking to brokerage services.
The 2020 Banking Industry Outlook report by consulting and auditing firm Deloitte paints the current situation for the banking industry in grim terms: “The combined effects of technological disruption, sweeping changes to the nature of work, demographic shifts, climate change, and possible Japanification [in Europe] could have serious implications for the banking industry. The low-growth scenario, in particular, could result in a drastic reduction in banking capacity, with fewer banks than we have today able to recover their cost of equity. Institutions that lack scale or differentiated capabilities, in most cases, will likely be challenged.”
The report notes, however, that despite such challenges, banks will continue to play the important role they always have: “But while the way banking is done changes, banks’ role will likely not. Despite what happens, banks should remain true to their core identity as financial intermediaries: matching demand with supply of capital. Banks’ competitive advantages should continue to be their ability to manage risk and complex financial matters, conducting business in a highly regulated market, driving innovation to serve client needs, protecting clients’ privacy, and maintaining trust, all at scale.” To do so, banks will have to become even more flexible and adaptable to disruption. This could be generally construed as good news for corporate venturing, which will be one of the tools to enable this adaptability.
The Deloitte report also notes the prominence of growth of digital channel in deposit and consumer lending, citing examples from Goldman Sachs’ Marcus retail banking subsidiary to the Germany-based mobile banking app N26 to non-banking apps (such as US-based Quicken Loans) that rob market share from incumbents. However, according to the report, their development is uncertain in a low-interest-rate environment due to a potential “lack of scale and high rates for deposits”.
The report also mentions that incumbents have not remained idle in response: “While fintechs are driving much of the disruption, incumbents are not far behind. Take, for instance, the perennial problem of delayed settlement in business-to-consumer payments. Some card incumbents are bringing solutions to shorten the settlement cycle to near real-time payments.”
Another possible hurdle is the issue of regulation. Symbiosis between emerging fintech and incumbents in the banking sector is likely to continue for foreseeable future for that reason. Banks boast a certain “competitive advantage” or “moat” that has been dug out by the regulatory framework. Complex regulatory frameworks in developed and large economies may often create serious barriers to entry for new challengers. It is often something as simple as switching costs, actual or perceived, that stop many customers from changing providers.
The payments sub-sector has been one of the most disrupted areas. The advent of connected mobile technologies has increased the choice of payment solutions for consumers, which has increased competition and adoption. The pandemic and social distancing have given it an additional boost in terms of adoption of mobile and other cashless payment methods. Not all of the pandemic’s impact on the sector is positive, however. “Ten ways covid-10 is impacting payments”, a report by consulting firm Accenture, highlights that while cash usage has declined during the pandemic, so has the overall consumption and therefore number of transactions, ultimately what drives revenues for payment companies. In addition, the threat of fraud related to electronic payments has spiked.
Breakneck competition in payment services, however, is leading to commoditisation, which is expected to make it harder for card issuers and other payment operators to drive volume-based fee growth. In the medium and long term, they are likely to seek further differentiation through ancillary services, which has been dubbed the “payments-plus” model. The Deloitte report stresses the important role big data will play in this subsector of fintech, along with concerns about privacy and data protection: “New platforms would necessitate new payment mechanisms—all digital, of course. Meanwhile, abundant customer data should enrich personalised experiences while increasing payment providers’ responsibilities in the areas of privacy and security.”
Wealth management is another area of banking and financial services that has been seriously disrupted. Digitisation has democratised financial advice, which was previously available to high-net-worth individuals only, thanks to a substantial shift toward low-cost financial advice (robo-advisors) and low-cost or zero-cost investment products or brokerage services like the first no-fee ETFs or “feeless” trading services like Robinhood.
For incumbents, there have also been some headwinds such as the removal of US tax deduction for investment management costs. Overall, retail customers are becoming more fee sensitive and demanding in terms of customisation. This has come along with rising cost of regulatory compliance.
Despite the headwinds for wealth management, Deloitte remains generally optimistic: “It is unlikely that machines will replace human advisers, especially in serving the ultra/high net worth individual [UHNWI and HNWIs] segments. Ability to provide real-time, tailored advice will become a key differentiator, along with the readiness to offer new products and asset classes, including digital assets.” The report also notes the rising importance of expertise in alternative asset classes, as high-ticket clients seek to diversify portfolios in them: “Wealth managers should follow the money to attain long-term growth. Greater expertise in alternative investments, including private equity, real estate, and digital assets, such as tokens and cryptocurrencies, will be important as UHNWI [and] HNWIs seek to diversify their portfolios.”
In alternative lending, nonbank lenders seek opportunities in underserved market segments and play a significant social role. Monetary policy of low interest rates is likely to bring lending volume further up but it remains unclear how positively, if at all, margins will be affected. According to a recent report by data services company Statista, alternative lending services, such as crowd and P2P marketplace lending, have become increasingly popular, particularly in developing economies. In 2019, the global alternative credit market boasted an estimated transaction value of more than $267bn. However, more notably, the size of China’s alternative lending market accounted for 83% of the global market. We are yet to see how the pandemic and the ensuing economic downturn will affect this business in the developed economies of the world. It is the first true test to which such business models have been put. While cheap credit and money are still largely available, it is consumers’ propensity to borrow and spend that may potentially give it a harsh blow.
The other major area of the financial services sector, insurance, is also undergoing a major transformation that has many challenges. As the 2020 Insurance Industry Outlook by Deloitte points out before the pandemic, the industry was “resilient” and continued growing around the world “despite turbulence in the global economy” and low interest rates. The report also said: “In the United States, the world’s biggest insurance market, the property and casualty sector is building upon a strong 2018 in which the industry saw net income soar 66 percent to $60 billion, thanks to a 10.8% boost in net premiums written and nearly breaking even on underwriting (after losing $23.3bn the year before). US insurer results deteriorated a bit but were still positive in the first half of 2019, with the industry posting an underwriting gain of $5.4bn.”
Insurtech innovation enables insurers to address digital transformation issues in their industry. Connected devices, big data and advanced analytics come to the rescue along the value chain of the insurance industry – from underwriting based on actual driving data in auto insurance to direct-to-consumer online platforms selling policies. Digitisation can help rationalise expensive and cumbersome processes but also gives more control to the customers.
The Deloitte insurance report notes that global investment in insurtech businesses has continued to surge – a conclusion largely corroborated by our GCV Analytics data.
The report also recommends industry incumbents engage even more actively with those emerging businesses: “Rather than treat insurtechs as just a new type of vendor, more carriers should be looking to collaborate with or even acquiring them so legacy players may feed off the entrepreneurial culture and technical ingenuity of startups, while tech pioneers at startups benefit from the industry’s market expertise, capital, and brand recognition.” After the pandemic and the boost it has given to digital financial services, it is likely that we see more such collaboration and engagement. This has already shown in some of the notable exits and initial public offerings.
The sector in charts
For the period between October 2019 and September 2020, we reported 1,080 venturing rounds involving corporate investors from the financial services sector. Many of them (375) took place in the US, while 197 were hosted in Japan, 79 in China and 74 in the UK.
On a calendar year-on-year basis, total capital raised in corporate-backed rounds went down from $48.98bn in 2018 to $43.3bn in 2019, representing a 13% decrease. The deal count, however, increased to 1,097, up nearly 15% from the 957 rounds reported in 2018 . The 10 largest investments by corporate venturers from the financial sector were diversified across sectors.
Corporate investments in emerging fintech-focused enterprises went up from 394 rounds in 2018 to 407 by the end of 2019, a 3% increase. The estimated total dollars in those rounds surged, by 18%, from $12.32bn in 2018 to $14.57bn last year. By the end of September this year we had tracked 318 rounds, worth an estimated total of $9.12bn, suggesting valuations are likely to be broadly in line with last year’s.
The leading corporate investors in terms of largest number of deals were investment bank and financial services firms Goldman Sachs, Mizuho Financial and SBI Group. The list of financial corporates committing capital in the largest rounds was also headed by Goldman Sachs, with financial services firm Citigroup and investment firm Franklin Templeton.
The most active corporate venture investors in emerging financial businesses were SBI Group, Goldman Sachs and internet conglomerate Alphabet.
Deals
Corporates from the financial sector invested in multi-million-dollar rounds, raised by enterprises from the same sector as well as from other sectors like consumer, health and IT, reflecting the broad investment theses of such investors. None of the top 10 deals stood above $1bn.
India-based business e-commerce marketplace Udaan secured $585m in a series D round featuring financial services firm Citi and internet group Tencent. Citi invested through its Citi Ventures unit. Altimeter Capital, Footpath Ventures, Hillhouse Capital, GGV Capital, Lightspeed Venture Partners and DST Global also took part in the round, which reportedly valued the company between $2.3bn and $2.7bn.
Udaan operates an e-commerce platform that connects a network of about 25,000 large wholesalers and traders to a customer base of about 3 million smaller businesses, such as restaurants, farmers or local shops, facilitating the distribution of a wide range of consumer goods. Buyers and sellers can also access credit and working capital through the platform, and Udaan runs a supply chain network.
MissFresh, a China-based online supermarket backed by Tencent and consumer electronics producer Lenovo, completed a $495m financing round, which also included Goldman Sachs’ asset management arm. China International Capital Corporation led the round, which also featured financial services firm Industrial and Commercial Bank of China, among other backers. The round reportedly valued the company at more than $3bn.
MissFresh operates an e-commerce platform that delivers groceries to customers in as little as an hour, sourcing items from more than 1,500 small warehouses scattered around China. The company had more than 25 million monthly active users as of mid-2019, but that figure is likely to have risen as online grocery orders skyrocketed during the recent coronavirus lockdown.
Fanatics, a US-based sports memorabilia retailer backed by telecoms and internet conglomerate SoftBank and e-commerce firm Alibaba, secured $350m in series E funding. Investment and financial services group Fidelity co-led the round with venture capital firm Thrive Capital. It included Franklin Templeton and Neuberger Berman and valued Fanatics at $6.2bn.
Goldman Sachs was placement agent for the round, which was oversubscribed from Fanatics’ initial target of $250m. The series E is expected to be its last round before it pursues a listing.
Fanatics’ e-commerce platform sells apparel and memorabilia spanning several American and international sports. The company has also branched out into esports items. The company’s e-commerce operations were up by 30% by mid-2020, perhaps reflecting the temporary closure of brick-and-mortar rivals during the pandemic.
China-headquartered artificial intelligence (AI)-powered drug developer XtalPi received nearly $319m in a series C round co-led by insurer PICC Group, SoftBank and VC firm Morningside Venture Capital. SoftBank and PICC Group participated through their investment units Vision Fund 2 and PICC Capital.
Tencent, quantitative trading firm Susquehanna International Group (SIG)’s local outfit SIG China and insurance provider China Life Insurance’s investment arm China Life Private Equity Investment also contributed to the round.
Founded in 2014, XtalPi exploits AI and cloud computing technologies to facilitate therapy development by predicting the physicochemical and pharmaceutical properties of small-molecule drug candidates. The proceeds from the round will drive further platform development.
Brazil-based digital bank Neon Pagamentos raised $300m in series C funding from investors including online payment processor PayPal and Propel Venture Partners, the venture capital firm funded by banking group BBVA. Growth equity firm General Atlantic led the round. PayPal invested through CVC unit PayPal Ventures.
Founded in 2016, Neon offers a digital bank account in addition to credit cards, loans and investment products for consumers and businesses. It oversees 9 million accounts. The series C proceeds were put into technology and product development, recruitment and expanding the user base.
US-based digital wallet developer Bakkt closed a $300m series B round that included corporates Microsoft, PayU, Intercontinental Exchange, Boston Consulting Group (BCG) and CMT Digital. Exchange operator Intercontinental, consulting firm BCG, crypto services provider CMT and PayU, the payment technology subsidiary of e-commerce and media group Naspers, invested directly while software provider Microsoft took part through subsidiary M12. Enterprise-focused venture capital firm Goldfinch Partners and blockchain investment firm and hedge fund Pantera Capital filled out the round. Originally formed by Intercontinental Exchange, Bakkt has developed a range of digital currency products. Its core offering is a digital wallet that can hold assets as diverse as crypto tokens, loyalty points and in-game assets.
US-based robotic process automation (RPA) technology producer Automation Anywhere raised $290m series B round, led by customer relationship management software provider Salesforce, which also featured Goldman Sachs and the SoftBank Vision Fund. The round valued Automation Anywhere at $6.8bn.
Founded in 2013, Automation Anywhere has created an intelligent automation platform that enables organisations to automate some repetitive or manual processes using software bots. The product combines RPA with analytics tools and artificial intelligence and machine learning technology. The company has also built a version tailored for Salesforce users called Automation Anywhere Salesforce Connector, which is available through the latter’s AppExchange marketplace.
US-based online insurance platform Next Insurance collected $250m in series D financing led by CapitalG, the growth equity arm of Alphabet, and with participation from reinsurance provider Munich Re. Venture capital firm FinTLV also took part in the round.
Founded in 2016, Next Insurance specialises in policies for small businesses and the self-employed, running an AI-powered online portal that enables customers to purchase coverage in 10 minutes.
The company offers policies across areas such as general and professional liability, business insurance, commercial auto insurance and worker’s compensation insurance. It has grown to more than 100,000 customers throughout all 50 US states. Next plans on hiring an additional 200 members of staff across its offices in Palo Alto, Austin and Israel. The money was to be used also to improve its offering and add additional products to target industries such as accounting and construction.
Confluent, the US-based data streaming platform developer backed by social network LinkedIn, completed a $250m series E round that was led by investment management firm Coatue Management.
Investment firms Altimeter Capital and Franklin Templeton also participated in the round, along with VC firms Index Ventures and Sequoia Capital. The money was raised at a $4.5bn valuation. Founded in 2014, Confluent has created a software platform that allows enterprises to stream current and historical data in order to track digital activity in real time. It is built on Apache Kafka, the open source event streaming platform developed by the company’s founders.
US-based mobile bank Varo Money completed a $241m series D round that included automotive insurance provider Progressive. Investment firm Gallatin Point Capital co-led the round with private equity group TPG’s The Rise Fund, while private equity firm HarbourVest Partners also participated. JP Morgan was placement agent. Varo operates a digital bank that offers bank and savings accounts with no overdraft, transfer or foreign transaction fees, through a partnership with financial services firm Bancorp. The company became the first digital bank in the US to receive a national charter.
There were other interesting deals in emerging fintech-focused businesses that received financial backing from corporate investors from other sectors.
India-based mobile payment platform Paytm received $1bn in a series G round featuring and Ant Financial, the financial services affiliate of Alibaba and the SoftBank’s Vision Fund. Ant Financial contributed $400m to the round, while Vision Fund supplied $200m. Asset management firm T Rowe Price led the round, which included venture capital firm Discovery Capital and valued Paytm at $16bn.
Paytm has built a mobile wallet enabling consumers in India and Japan to pay in brick-and-mortar stores, add credit to smartphones and settle utility bills. It has also entered the e-commerce, gaming and ticketing sectors and increased its focus on signing up merchants in small Indian cities and towns.
US-based digital payment tech provider Stripe upped the size of its series G round to $850m after it scored an additional $600m from a host of investors featuring GV, the corporate venturing unit of Alphabet. The funding was reportedly provided at a $35bn pre-money valuation and was to support growth in the company’s operations as it dealt with large amounts of commerce migrating online due to the pandemic lockdown.
Founded in 2010, Stripe has developed a mobile platform that allows online merchants to accept payments and oversee their businesses more effectively by providing help with functions such as fraud detection, revenue management and international expansion.
Mobile bank operator Chime has completed a $485m series F round backed by Access Technology Ventures, an investment vehicle for diversified conglomerate Access Industries. Coatue Management, Iconiq Capital, Tiger Global Management, Whale Rock Capital, General Atlantic, Dragoneer Investment Group and DST Global also took part in the round.
The US-based company was valued at $14.5bn, more than doubling its $5.8bn valuation in December 2019. Founded in 2013, Chime is a challenger bank that offers financial services through a mobile app and does not operate physical branches. Customers have access to a current account, debit card, overdrafts and features such as receiving their salary early. The company has trebled its transaction volume and revenue this year as people rely increasingly on digital products amid the pandemic.
US-based digital health insurance provider Oscar completed a $225m round featuring Alphabet that took its total funding to $1.53bn. Venture capital firms General Catalyst, Khosla Ventures, Lakestar and Thrive Capital also took part in the round, as did investment management firms Baillie Gifford and Coatue Management.
Oscar operates an online health insurance service with 420,000 members across 15 states, offering plans tailored for individual, family and business. Users can also access telemedicine treatment free of charge and schedule medical appointments through the app.
Financial services firm Commonwealth Bank of Australia invested $200m in Sweden-based digital payment technology provider Klarna. The investment followed a $100m contribution by Commonwealth to the company’s $460m funding round in August 2019. It increased the bank’s stake in Klarna to 5.5%.
Formerly known as Kreditor, Klarna provides a range of payment services including in-store payment technology, instalment payment options for consumers and an app that shoppers will be able to use to manage their retail purchases. The deal was made alongside Klarna’s entry into Australia. The bank’s customers will be able to connect their accounts to the Klarna app and it will own 50% of the company’s Australian and New Zealand businesses.
Payments technology firm Visa paid $200m to take a 20% stake in Nigeria-based electronic payments company Interswitch at a $1bn valuation. Visa becomes a cornerstone investor through the investment, as Interswitch prepares for an IPO rumoured to be scheduled for this year. Interswitch has confirmed the valuation but not the size of the investment.
Founded in 2002, Interswitch supplies Africa-centred electronic payments services. Its flagship product is the Verve payments card, which lets Nigerian customers pay at a range of merchants in a country where payments fraud is still rife. Verve is reportedly Africa’s largest debit card programme with more than 19 million accounts active at present.
Exits
Corporate venturers from the financial services sector completed 106 exits between October 2019 and September 2020 – 59 acquisitions, 32 initial public offerings (IPOs), seven other transactions and two mergers.
The total estimated exited capital in those transactions was $3.56bn, reflecting exits of some financial investors from large acquisitions and IPOs not necessarily related to fintech. We registered 84 exits by financial services corporates in 2019, worth an estimated $19bn, up 50% from the 56 recorded the previous year, worth an estimated $18bn.
US-based financial data network operator Plaid agreed to a $5.3bn acquisition by one of its corporate backers, Visa. The deal will give an exit to other corporate backers, including Visa’s peers Mastercard and American Express, financial services firm Citi and Alphabet. Visa plans to expand its services and access through the transaction, broadening its reach across the financial services space.
The news came only four months after Visa and peer Mastercard invested an undisclosed amount in Plaid in September 2019. Founded in 2013, Plaid has developed a technology which allows users to transfer their data to third-party financial technology platforms. When a customer opens an account with a finance management platform, Plaid’s software enables them to link their bank account to the app for convenience. Plaid’s software supports some 2,600 fintech developers.
Online food delivery service Delivery Hero agreed to buy South Korea-based counterpart Woowa Brothers in a $4bn deal that will allow internet companies Naver and CyberAgent and Goldman Sachs to exit. Woowa Brothers has built a food ordering app that had 365 million orders in the year ending September 2019. It has more than 110,000 restaurant partners. Delivery Hero intends to expand its Korean activities through the acquisition and access areas where Woowa Brothers is active, such as cloud kitchens and adjacent on-demand services.
Li Auto, a China-based electric vehicle producer backed by corporates insurance firms Taiping, and Ping An, mobile services portal Meituan Dianping, steel producer Shougang, digital media company Bytedance, department store chain InTime, and Pump and gardening equipment maker Leo Group, priced its shares at $11.50 to raise $1.1bn in its IPO. The company issued 95 million American Depositary Shares (ADSs), representing 190 million ordinary shares. Shares opened at $15.50 on the first day of trading and reached a high of $17.50, before closing at $16.46.
In addition to the initial public offering on the Nasdaq Global Select Market, Meituan Dianping and Bytedance committed to purchasing $330m and $30m in a concurrent private placement. Formerly known as Chehejia and then CHJ Automotive, Li Auto is developing a hybrid electric sports utility vehicle known as Lixiang One.
Retirement services provider Empower Retirement agreed to buy Personal Capital, a US-based digital wealth manager backed by financial services firms BBVA, USAA and Power Financial Corporation, for $825m. The deal was $825m upfront but Empower plans to commit up to $175m more to drive business growth. Personal Capital has built a digital wealth management platform that aggregates a user’s financial accounts and offers financial planning tools and recommendations from investment advisers. It has more than 2.5 million customers and manages more than $12bn in assets.
Empower facilitates employer-sponsored retirement plans and allows customers to manage individual retirement accounts. It will integrate the company’s capabilities into its own offering but Personal Capital will continue to offer its services to its users.
Mastercard agreed to acquire US-based financial data provider Finicity in an $825m acquisition deal that provided credit scoring service Experian with an exit. The company’s shareholders will also have the chance to potentially get up to $160m in earn-outs depending on its post-acquisition performance.
Finicity’s technology powers Experian Boost, which allows customers to connect utility bill payments to their online bank accounts and improve credit scores. Mastercard is planning to integrate the solution into its open banking. Founded in 2000, Finicity has developed a digital budgeting platform which provides data to aid users in managing their finances more effectively. It also features financial wellness tools and application programming interfaces allowing businesses to build their own financial data apps.
Amwell, a US-based telehealth technology provider backed by insurance group Allianz, electronics and medical technology producer Philips and pharmaceutical firms Teva and Takeda, raised $742m in its IPO. The company increased the number of shares in the offering from 35 million to 41.2 million and priced them at $18, above the $14 to $16 range it had set. Alphabet invested $100m in a separate private placement.
Formerly known as American Well, Amwell has built a telehealth technology platform that links patients with providers and insurers. It manages telehealth operations for 55 health insurance plans and 150 healthcare systems. The company increased revenue 77% year on year to $122m in the first half of 2020, though net losses near tripled to $113m in the same period.
Agora, a China-based video communication technology provider backed by quantitative trading firm Susquehanna International Group, floated on the Nasdaq Global Select Market in a $350m IPO. The offering consisted of 17.5 million ADSs, each representing four ordinary shares, priced at $20.00, above the $18 to $20 range the company had set. The price valued Agora at $2bn. Existing backers
Coatue Management, Neumann Capital and an affiliate of Vitruvian Partners have agreed to buy $50m, $30m and $30m of shares respectively through a private placement concurrent to the IPO. Agora produces software that allows developers to add video engagement functionality to their applications so users can communicate with each other online through video in real time.
OneConnect Financial Technology, the Singapore-based financial technology platform developer spun off by insurer Ping An, closed its IPO at approximately $347m. The company raised $312m when it floated on the New York Stock Exchange, issuing 31.2 million ADSs priced at $10. each. Ping An subscribed for $10m of shares. The extra capital represents the partial exercise of an over-allotment option that gave the underwriters 30 days to buy up to 4.68 million more ADSs.
Spun off from Ping An in 2017, OneConnect offers a cloud-based platform that includes a range of financial technology tools to help businesses digitise their services. The company received $750m from investors including SoftBank, real estate developer Oceanwide Holdings’ Oceanwide Financial Technology vehicle and financial services firm SBI and its SBI Stellars Fintech Fund in 2018.
Lemonade, the US-based online insurance provider backed by insurance firms Allianz and XL Catlin, Alphabet and SoftBank went public in a $319m IPO. The offering consisted of 11 million shares priced at $29 each issued on the New York Stock Exchange. The company initially set a range of $23 to $26 for the IPO before increasing that to $26 to $28. One of Lemonade’s shareholders, investment manager Baillie Gifford, expressed interest in buying up to $100m of shares in the offering but did not confirm the purchase. The IPO price valued the company at more than $1.9bn. Founded in 2015, Lemonade offers property and casualty insurance through an online platform that uses bots instead of human brokers, using artificial intelligence and behavioural economics to combat fraud. The company is present in the US, UK and Germany.
US-based online retail software provider BigCommerce, which has corporates payment services firm American Express, SoftBank and telecoms company Telstra among its investors, closed its IPO at approximately $249m. The company issued 6.85 million shares on the Nasdaq Global Market priced at $24 each. Its co-founders sold another 2.2 million to take the size of the offering to $216m. The underwriters bought more than 2.8 million more shares from the company and its founders through the over-allotment option. BigCommerce provides software that allows businesses to set up online storefronts. Customers include electronics manufacturer Sony, and ice cream producer Ben & Jerry’s. It made a $4m net loss in Q1 2020 from $33.2m in revenue.
Global Corporate Venturing also reported exits of emerging fintech-related enterprises that involved corporate investors from different sectors.
Accounting and tax preparation software provider Intuit agreed to purchase US-based credit management platform developer Credit Karma for $7.1bn in cash and stock, giving Alphabet an exit. The latter first backed Credit Karma via its CapitalG venturing subsidiary in an $85m series C round in 2014. The agreed price of the acquisition nearly doubled the $4bn valuation at which Credit Karma raised its latest round sized at $500m in 2018.
Founded in 2007, the company has developed a platform which allows its users to get free access to their credit scores once a week and online identity status plus file their taxes and finding credit card and consumer loan deals. The platform has attracted 100 million users, 90 million from the US. Its model is based on referral fees.
Data services provider LexisNexis Risk Solutions agreed to acquire Emailage, a fraud prevention technology provider backed by Wipro, reportedly for $480m. The IT services firm’s corporate venturing arm, Wipro Ventures, backed the series B round’s $10m first tranche in 2017. Emailage will be part of the business services group at LexisNexis where its data network will inform the existing digital identity network. Founded in 2012, Emailage offers a software product which uses machine learning and a dynamic data network to analyse emails, issuing digital identity scores to customers to reduce risk from fraudulent email accounts.
US-based banking software producer nCino went public in a $250m IPO on the Nasdaq Global Select Market, providing an exit for software provider Salesforce’s corporate venturing unit, Salesforce Ventures. The offering comprised 8.06 million shares, priced at $31 each, above the $22 to $24 range the company had set. On the first day of trading, the price per share almost tripled to $91.59, valuing the business at more than $8.2bn. Founded in 2012, nCino has an operating system used by more than 1,100 financial institutions. The system streamlines banking practices and provides banks with detailed analytics on their data. The company had increased revenue more than 50% to $138m for the year ending January 31, 2020, while registering a $27.7m loss.
Bill.com, a US-based back-office automation software provider backed by corporates Fleetcor, Mastercard and American Express, raised just over $216m when it floated on the New York Stock Exchange. The offering consisted of approximately 9.82 million shares priced at $22.00 each. Bill had increased the range of the offering from $16 to $18, to $19 to $21 prior to the IPO. The flotation valued the company at about $1.55bn. Founded in 2006, it produces cloud-based software that enables small and medium-size businesses to automate back-end financial processes like invoicing or making regular payments.
Cryptocurrency derivatives exchange FTX acquired US-based cryptocurrency portfolio management network Blockfolio reportedly for $150m, allowing digital currency exchanges Bitmex and Huobi to exit. The $150m was provided through a combination of cash, equity and cryptocurrency. Blockfolio operates an online platform with 6 million users that helps users track their cryptocurrency portfolios, and a tool that enables them to receive direct updates from executives associated with selected currencies. The company’s app will continue to operate independently following the deal and is accepting applications for a retail trading product powered by FTX technology.
Funds
For the period between October 2019 and September 2020, corporate venturers and funds investing in the financial services sector secured over $1.31bn in capital via 21 funding initiatives, which included 10 VC funds, nine new CVC subsidiaries, one accelerator and one other initiative.
On a calendar year-to-year basis, the number of funding initiatives in the financial sector stood at 25 in 2019, down from the 39 in 2018 and the peak at 62 registered in 2017. The total estimated capital in those initiatives also decreased substantially from $3bn to $1.4bn. However, by the end of September 2020 we had tracked 13 initiatives with total estimated capital of $3bn.
Brazil-based investment management and advisory firm XP has committed R$8bn ($1.5bn) from its own balance sheet to a corporate venturing subsidiary called XP Ventures. Founded in 2001, XP runs an online financial product portal offering access to more than 600 investment products including hedge funds, pension plans and bonds, and provides guidance across a number of investor classes.
The unit has not set parameters for the size of its investments or the stage at which it will provide funding, but it will make strategic investments and will also consider business development deals with prospective portfolio companies. By the time of the announcement, XP Ventures had paid an undisclosed amount for majority stakes in online lending marketplace Antecipa and Fliper, the creator of a financial transaction tracking product.
US-based venture capital firm Canapi Ventures launched its first funds having raised $545m in capital from limited partners including several financial services firms. The firm’s LPs are made up of more than 35 banks and strategic investors and incorporate 23 of the 100 largest banks in the US by total asset size, as well as trade boards including American Bankers Association and Independent Community Bankers Association.
Canapi Ventures will invest in early to growth-stage financial technology developers, providing them with distribution leverage through its LPs. Its advisers include Canapi Advisors, a wholly owned subsidiary of banking group Live Oak Bancshares. The close came after the firm began investing.
Rabo Frontier Ventures, the corporate venture capital arm of financial services firm Rabobank, invested in a $500m fund managed by UK-based VC firm Northzone. The vehicle’s other limited partners include unnamed contributors to Northzone’s earlier funds as well as undisclosed new investors. Northzone IX, which has held a final close, is concentrating on series A and B rounds but will also take part in a limited number of seed deals, targeting consumer and business-facing startups in areas like financial services, healthcare, education, mobility and construction.
Portag3 Ventures, the financial technology investment firm formed by diversified Canada-based conglomerate Power Corporation, achieved a C$198m ($150m) first close for a fund backed by a range of corporates.
LPs include insurance providers Intact Financial Corporation, La Capitale Insurance and Financial Group, SSQ Insurance and Great-West Lifeco, as well as financial services firms National Bank of Canada and Equitable Bank. Power Financial, the investment management arm of Power Corporation, also contributed capital, as did asset management firms Guardian Capital and IGM Financial.
Portag3 Ventures II is expected to raise at least C$300m but has a substantially larger target, the firm said. The fund will make early-stage investments in the fintech sector internationally, seeking to stakes of 10% to 20% in portfolio companies.
American Family Ventures, the corporate venture capital arm of US-based insurance firm American Family, raised more than $162m for a VC fund, according to a securities filing. The fund, AmFam VC Fund III LP, has taken in $162.5m from four investors and has set a $200m target for its close.
The unit emerged from stealth in 2014 with a $50m first fund, but has not disclosed details concerning the size of its second fund or whether it featured external LPs. It operates as an early-stage investment vehicle, typically supplying up to $5m per deal at seed to series B stage. American Family Ventures has 22 companies in its portfolio including online auto insurance provider Clearcover, which raised $43m in a January 2019 series B round, and insurance price comparison platform CoverHound, which secured $58m the following month.
Spain-based financial services group Santander spun off its corporate venturing subsidiary, Santander Innoventures, into a venture capital fund called Mouro Capital, doubling its commitment to $400m in the process.
Santander Innoventures was formed by the bank in 2014 with $100m in capital, before its allocation was doubled to $200m two years later. The unit has built a 36-strong portfolio including trade digitisation technology provider Tradeshift, consumer lender Creditas and mobile operating system Cyanogen that will be managed by Mouro Capital.
The switch means Mouro Capital will be managed autonomously, as opposed to being a direct subsidiary of Santander, though its investment team will make use of internal resources. It will provide about $15m for initial investments in early and growth-stage companies and is actively looking to lead deals.
Rabo Frontier Ventures (RFV), the strategic fund formed by financial services firm Rabobank, provided an undisclosed amount of capital for UK-based growth equity firm Greyhound Capital’s $195m second fund. Founded in 2015, Greyhound Capital invests in growth-stage technology-focused companies. Its portfolio includes finance-focused N26, the digital bank valued at $3.5bn, and Marqeta, the payment card issuer that most recently raised money at a $4.3bn valuation. RFV is interested in leveraging its links to investments in the financial, insurance and software technology sectors.
Citi has launched its $150m Citi Impact Fund to make equity investments in local “double bottom line” private sector companies that have a positive impact on society. The fund will invest up to $10m per startup but also at seed level.
Its areas of focus include technologies that provide workforce training and development, expand access to finance, improve sustainability in water, energy and manufacturing, and enhance infrastructure such as housing, mobility or healthcare.
Citi said it would “actively seek opportunities to invest in businesses that are led or owned by women and minority entrepreneurs”. As part of that commitment, the seed funding will be allocated exclusively to investments in businesses led or owned by women and members of minority groups.
Japan-headquartered electronics producer Panasonic launched the $150m second fund for Conductive Ventures, the US-based growth equity firm it sponsors. Conductive Ventures launched its first vehicle in April 2018 with $100m in capital provided by Panasonic as sole LP. Its portfolio includes semiconductor provider Ambiq Micro, electric bus manufacturer Proterra, marketing software producer Sprinklr and additive manufacturing technology provider Desktop Metal, which is pursuing a $2.5bn reverse merger.
Conductive Ventures II will invest in expansion-stage technology developers in areas such as financial technology, artificial intelligence, digital health, advanced manufacturing, commerce, autonomous vehicles as well as the future of work.
US-based financial technology provider FIS announced a $150m commitment to corporate venture capital subsidiary FIS Ventures. The amount is represents a target level for the unit’s investment over the next three years, and its priority areas include distributed ledger technology, financial inclusion, artificial intelligence and machine learning, data and analytics, security, privacy, digital enablement and automation.
The unit will be oversee the fifth iteration of FIS Fintech Accelerator this year. FIS was also revealed as one of the investors in the $35m series B round closed by Africa-focused payment technology provider Flutterwave.
University funding
By the end of 2019, we registered 17 rounds raised by university spinouts developing fintech-related technologies, a slight drop from the 18 recorded in the previous year. The level of estimated total capital deployed in 2019 stood at $386m, up 66% from $233m in 2018. By the end of September this year, we had already tracked 13 rounds, worth an estimated total of $209m, which suggests that valuations of fintech enterprises emerging from academia have largely remained high despite headwinds from the pandemic.
UK-based digital bank Monzo completed a £60m ($75.9m) funding round backed by Vanderbilt University. The round included telecoms firm Orange, digital payment processor Stripe, Y Combinator, General Catalyst, Accel, Goodwater Capital, Thrive Capital, Passion Capital and Reference Capital. It valued the company at approximately $1.57bn, down roughly 40% from its previous round.
Monzo offers personal and business bank accounts accessible through its mobile app. Customers can access savings accounts, overdrafts and loans, and there are also money management options such as utility bill splitting. The economic crisis caused by covid-19 and the attendant social distancing measures has impacted the company’s business, and it has furloughed nearly 300 members of its UK workforce and closed a US customer support office in Las Vegas.
Scalable Capital, a Germany-based digital investment manager co-founded by Ludwig Maximilian University of Munich, received €50m ($58m) in a series D round.
The round included all existing backers – backed by Tengelmann Ventures, a corporate venturing vehicle for retailer Tengelmann, as well as HV Holtzbrinck Ventures, Blackrock, Monk’s Hill Ventures, German Startups Group, MPGI, Reiner Mauch, Rahul Mehta and Steffen Pauls and an unnamed new investor. The company was reportedly valued at $463m post-money.
Scalable Capital allows investors to build tailored investment portfolios based on their inclination to risk, with the ability to trade either through a robo-adviser or directly through the broker. It has a total of 80,000 customers in Germany, Austria and the UK, and more than $2bn under management.
Kin Insurance, a US-based insurance technology developer, raised $35m in a series B round featuring University of Chicago’s venture capital fund Startup Investment Program. VC firm Commerce Ventures led the round, which also attracted Hudson Structured Capital Management, Flourish Ventures, QED, Alpha Edison, Allegis NL Capital, August Capital and Avanta Ventures, the corporate venturing arm of CSAA Insurance.
Founded in 2016, Kin Insurance sells home insurance policies to consumers, relying on data analytics to recommend appropriate coverage. It has set up its business as a reciprocal exchange, meaning it shares underwriting profits with customers. Kin Insurance was co-founded by Sean Harper, who graduated with an MBA from the univeristy’s Booth School of Business in 2009, making the company eligible for the Startup Investment Program.
People
Brittany Skoda left her position as vice-president of investments at Workday Ventures, the corporate venturing arm of human resources software producer Workday, to join investment bank Morgan Stanley. Skoda has been appointed managing director and global head of software banking for its technology division. Workday Ventures hired Skoda in May 2018 to lead the unit’s strategic investing and drive growth for portfolio companies. Its investments included a $157m series D round for adult education provider Guild Education and a $60m round for carpooling platform Scoop Technologies.
Rob Salvagno, the head of networking equipment manufacturer Cisco’s corporate venturing subsidiary, Cisco Investments, joined private equity firm KKR. Salvagno had worked for Cisco since 1999, managing venture capital and mergers and acquisitions deals on its behalf, and held the role of head of corporate development alongside his leadership of Cisco Investments. The post involved overseeing the launch of Cisco-sponsored venture capital firm Decibel in April 2019 and the acquisition of cybersecurity technology producer Sentryo two months later. Salvagno featured on Global Corporate Venturing’s Powerlist in 2016, 2017, 2018 and 2019, and also took on the chief strategy officer position at Cisco when Hilton Romanski left in 2018.
Martha Notaras left her partner position at XL Innovate, insurance provider Axa XL’s corporate venturing unit, and joined VC firm Brewer Lane Ventures as a managing partner. XL Innovate – then a subsidiary of insurance firm XL Catlin prior to its acquisition by Axa in September 2018 – hired Notaras in 2015 to invest in insurance technology startups with data and analytics focus. Notaras sat on the boards of portfolio companies including property data provider Cape Analytics and risk management platform developer GeoQuant. Before joining XL Innovate, she had been executive vice-president of DMG Information, the investment arm of UK-based media company Daily Mail and General Trust, from 1994, conducting merger and acquisition deals as part of her role.
Paul Ark (Polapat Arkkrapridi) left SCB Digital Ventures, the venture capital vehicle he helped set up for Thailand-based financial services firm Siam Commercial Bank in 2016. Ark had been managing director of corporate venture capital since its inception. He formed its investment strategy and built the team, focusing on increasing women’s representation in the domestic VC scene. He also sat on the boards of portfolio companies including 1QBit, IndoorAtlas, Pulse ID, Pagaya Investments and Ripple. Ark later began working as an advisor for Gobi Partners .
Austria-based financial services firm Raiffeisen Bank International (RBI) separated its corporate venture capital and partnerships units. Maximilian Schausberger had managed RBI’s fintech partnership programme, Elevator Lab, and corporate VC unit Elevator Ventures, but has moved to managing director of Elevator Ventures, which invests in early and growth-stage developers of financial and adjacent technologies in Central and Eastern Europe. Christian Wolf, former head of group transformations at RBI, stepped up to head of strategic partnerships and ecosystems, equating to Elevator Lab’s activities. Schausberger had spent 18 months as head of fintech partnerships prior to his last role.
Ron Arnold left his managing general partner position at IAG Firemark Ventures, the corporate venture capital subsidiary of insurance firm Insurance Australia Group (IAG) he helped form in 2014. Arnold joined IAG in 2008, where he held a series of strategy-based roles. Firemark Ventures targets insurance-related technology developers at series A stage and beyond. Danielle Handley has succeeded Arnold and will oversee the unit alongside general partners Scott Gunther, Mark Baragwanath and 2017 GCV Rising Star Mike Dovey.
SoftBank hired Taiichi Hoshino to head up a newly formed investment planning department. Hoshino had previously been a managing director at Japan Post Bank, rising in mid-2018 to oversee a $1.9 trillion investment portfolio with senior managing director Kunio Tahara. The two jointly replaced Katsunori Sago, whom SoftBank had hired as chief strategy officer. Hoshino had previously co-founded Golvis Investment, the hedge fund where he also served as chief operating officer.
UK-based financial services and insurance provider Legal & General (L&G) named Jasan Fitzpatrick managing director of principal investment for its corporate venturing arm, L&G Capital (LGC). Fitzpatrick joined LGC in July 2018 as general counsel after more than two decades of in-house legal practice at companies including banking firm Northern Rock, insurer Premium Credit and homebuilder Cala Group. He oversawthe unit’s compliance with legal and regulatory requirements and governance principles, and served as company secretary. L&G began conducting direct investments in late 2016. LGC invests from its parent company’s corporate balance sheet and has dedicated £600m ($780m) to venture capital and small and medium-sized enterprise financing.
Amrish Rau left his position as head of financial technology ecosystem partnerships and investments at India-based payment technology provider PayU to join commerce services provider Pine Labs as chief executive. Rau joined PayU in 2016 when it acquired a company he co-founded, Citrus Pay, for $150m. Prior to Citrus Pay, Rau had been CEO of First Data’s merchant solutions division, covering its retail electronic payment services business in Asia. Pine Labs started out offering payment technology for brick-and-mortar retail before expanding into areas like consumer credit, loyalty systems and data analytics.
Michael McFadgen left his managing director role at Nex Opportunities, a corporate venturing vehicle for brokerage group Nex, to join UK-based investment firm Element Ventures as a partner. McFadgen joined Nex Opportunities’ predecessor, Euclid Opportunities, in 2016 from Barclays Capital, the investment banking arm of financial services firm Barclays, where he was director of strategic investments for six years. Nex Opportunities focuses on developers of innovative financial technology.
Joshua Agusta joined Mandiri Capital, the VC arm of Indonesia-based financial services firm Bank Mandiri, as director of fund investments. Mandiri Capital hired Agusta following a stint of more than four years at MDI Ventures, telecoms firm Telkom Indonesia’s corporate venturing unit. He had been head of portfolio from early 2017 to September 2018 before being promoted to vice-president of investments. Formed in 2015 with a reported $36.5m in capital, Mandiri Capital targets financial technology developers located in Southeast Asia and also oversees an incubator known as Digital Business Incubator. The unit is reportedly in the process of raising $50m to $100m in capital for its second fund, which is set to expand its focus outward from fintech while also seeking higher financial returns.
Wells Fargo Strategic Capital, a corporate venturing unit of the US-based bank, hired Rodney Altman as a managing director in its healthcare unit. Altman had spent eight years as a managing director at Spindletop Capital’s growth equity team. His deals at Spindletop included Soros Medical and Valeritas. Wells Fargo’s strategic healthcare team includes John Ryan, Christine Guo and Robert Rein.
Tony Idugboe became head of mergers and acquisitions at Nigeria-based digital payments and commerce company Interswitch Group. Idugboe had spent nearly three years as head of investments at Itanna, an impact initiative that invests in disruptive tech-enabled businesses in Africa. Mitchell Elegbe founded Interswitch in Lagos in 2002 and is reportedly planning an IPO.
Financial services firm Union Bank of the Philippines appointed Matthew Kolling as chief investment office for its corporate venturing arm, UBX Philippines. UBX formed the unit in February 2019 and it made its first investment, in logistics software provider Shiptek Solutions, three months later. Kolling joined diversified conglomerate Aboitiz Equity Ventures, the majority shareholder of Union Bank, in August 2019 as head of venture investments, assisting UBX investment decisions. He had previously spent two decades conducting technology deals in the US, the Philippines and Southeast Asia.
Susquehanna Growth Equity (SGE), the growth equity firm sponsored by US-based quantitative trading and technology firm Susquehanna International Group, hired Adam Feigenbaum as a senior adviser. SGE provides funding for software, information services, internet and financial technology developers in growth-stage rounds. It has backed 55 companies including credit management platform developer Credit Karma and accounting software producer HighRadius. Feigenbaum spent almost 19 years at recruitment software provider iCIMS, most recently as chief customer officer. The news came after Colin Day, founder, chairman and formerly chief executive of iCIMS, joined SGE, also in a senior advisory role.
Paul Holland, a general partner at venture capital firm Foundation Capital, was brought on board by corporate-oriented innovation incubator Mach49 as a US-based managing director and VC-in-residence. Holland had worked for Foundation Capital since 2001, concentrating on consumer, clean technology and IT deals. He will continue working on his existing investments after joining Mach49. Founded in 2013, Mach49 helps established corporations set up corporate venture capital teams and to develop intrapreneurial growth initiatives such as internal incubators. Mach49’s clients include Convivialité Ventures, JetBlue Technology Ventures, TDK Ventures and SE Ventures, corporate venturing vehicles for liqueur group Pernod Ricard, airline operator JetBlue Airways, electronics producer TDK and energy-management equipment provider Schneider Electric.
Sector specialist: Jacqueline LeSage Krause, Munich Re Ventures
Jacqueline LeSage Krause is founder and managing director of Munich Re Ventures (MRV), the strategic investment arm for Germany-listed reinsurance firm Munich Re including its US-based Hartford Steam Boiler (HSB) Inspection and Insurance arm and its Europe-based Ergo primary insurance subsidiary.
LeSage Krause joined the company to form the venture group in 2014, initially with $50m from HSB. Over the past five years, MRV has expanded to work strategically with all Munich Re business groups and grown to more than $500m in capital committed across four funds and 12 investment themes.
At MRV, LeSage Krause has applied her insights to drive the firm and industry forward. This is demonstrated by the strategic success of Munich Re’s initial three business unit-driven funds – Munich Re Fund, HSB Fund and Ergo Fund. All of their portfolio companies have had strategic engagement with a Munich Re business. And two of the companies went on to either be acquired by Munich Re/HSB (Relayr) or had a significant investment from the parent company (Next).
Munich Re’s newest fund – a strategic optionality fund – is governed by MRV and invests in strategic investment themes ahead of the businesses. A robust portfolio development team within MRV takes over the strategic relationship initially, nurturing potential future opportunities for mutual strategic value between the portfolio company and Munich Re businesses to fruition. The first three investment areas for this fund are insurtech, energy transition and next-generation transportation.
Sector specialist: Arvind Purushotham, Citi Ventures
Arvind Purushotham leads the venture investing group at Citi Ventures, the corporate venture capital (CVC) unit of financial services provider Citi, where he manages corporate venturing initiatives and invests in strategic deals.
Vanessa Colella, Citi’s chief innovation officer and head of Citi Ventures, said: “Arvind believes that emerging technologies and forward-thinking startups can drive innovation and push companies like Citi forward, but he also understands and appreciates the business challenges and constraints our colleagues face. He tactfully builds connections and has proven himself to be a tireless advocate for our portfolio companies while also serving as a trusted adviser to our Citi colleagues.
“Under Arvind’s leadership and dedication to partnership, Citi Ventures has helped over 50% of our portfolio companies sign commercialisation deals with Citi and the team has continued to embed itself deeper and deeper into Citi’s core businesses.”
Earlier this year, Citi launched Impact Fund. Purushotham said: “The $150m fund will make equity investments in ‘double bottom line’ private sector companies that have a positive impact on society. This is the largest fund of its kind to be launched by a bank using its own capital. Investments of up to $10m will primarily be made in post-product companies that have demonstrated proof of concept, built an existing customer base, secured prior rounds of funding and exhibited the potential for scale in multiple markets. There will also be an emphasis in funding businesses that are founded or led by women and minorities.”
The GCV Analytics definition of the financial services sector encompasses payment technologies and cryptocurrencies, personal finance and wealth management, insurance, alternative lending and crowdfunding, client and risk analytics, social investing and other related services.