The managers of Reinventure says their ‘founder first’ model is unique among corporate venture capital firms and will ultimately produce long-term value for owner Westpac.
Founded five years ago by Danny Gilligan and Simon Cant, Reinventure recently received a third $50 million commitment from Westpac
to take its total investment funds to $150 million.
The fund has so far invested in 20 start-ups and the latest cash injection will allow it to explore opportunities in the Asian fintech market and blockchain technology.
Gilligan says while they invest in organisations that will be able to leverage off the relationship with Westpac, ultimately they are looking for the “most interesting, exciting ventures”.
“We’ll look at ventures that Westpac’s working with. At least you know there’s going to be leverage there. But, ultimately, the discipline is – is this going to be a great venture?” says Gilligan, a co-founder of secure data exchange platform Data Republic and a founding director of fintech hub Stone & Chalk.
“If it’s just acquiring capability and talent along the way, that’s less interesting from a venture point of view and it’s not ultimately a significant insurance policy for the bank.”
Cant says one problem with traditional corporate venture capital funds is that the incentives of the VC executives are aligned with the interests of the corporate owner, which might not always be the same as the interests of the start-up.
But the incentives at Reinventure are based purely on the value of each venture at exit, “and that’s really important because it means our financial incentives are perfectly aligned with the entrepreneur”.
Looking for that ‘unfair advantage’
Further, as a structurally-independent fund – Westpac is a limited partner and its investment is off balance sheet – Reinventure has operational control over its investment decisions and how the fund is run.
“We are pioneering the founder-first corporate venture capital model,” says Cant, Managing Director of Reinventure and Founding President of industry representative FinTech Australia.
“We have a very strong belief in the power of founders to do things that corporations essentially find impossible in terms of creating entirely new markets and completely revolutionising products and services.”
It isn’t just founders who benefit from this independence, but also Westpac because their investments are given the best chance of succeeding instead of potentially having to compromise to meet the bank’s short-term objectives, they say.
“If we back and support entrepreneurs so that they win their market and create the most valuable company possible and they win that particular sector, then we are acting in Westpac’s best interest, just on a different horizon,” says Gilligan.
“We’re acting in Westpac’s best interest on a ten-year horizon which sometimes is at odds with what they feel is in their best interest on a one to two-year horizon, and that’s the critical distinction.”
This is not to say Reinventure doesn’t have a close relationship with Westpac. Senior bank executives sit on the investment committee and the fund works closely with various Westpac divisions. “Each of the ventures we look to invest in, we look to find that unfair advantage that the bank can bring to that venture to help that venture win their space, and then we drive those relationships and that connectivity and make those relationships successful.”
Starting a bank to be like building with blocks
Sometimes this advantage can be having Westpac as a major customer such as for data manager Data Republic
or artificial intelligence data analytics solution Hyper Anna
. At other times, it has introduced products including payments platform Assembly Payments
and debt collection app InDebted
to its customers. Finally, the bank will sometimes distribute the product to its customers. For instance, it has integrated coffee ordering app Hey You
into its own mobile banking app.
When making investment decisions, Gilligan and Cant consider how financial services will transform over the next decade.
One key trend will be that the financial services stack modularises. Instead of banks having most of their capabilities in-house, a lot of capabilities are now being developed and run by third parties who work across multiple banks and can sometimes perform their function more efficiently and better than they can on their own. They work in areas including credit scoring, debt collection, cybersecurity and data.
This means it will be increasingly easy to start a new bank – “it’s essentially like putting together building blocks,” says Gilligan.
“Increasingly, you’re going to see organisations or ventures that own a particular consumer group through a particular journey where financial services are more important, than having a right to essentially offer their own financial services,” he says.
Another major trend is the digital companies which monopolise so much of our time online – such as Google and Facebook – might turn to financial services in a similar way to China’s Alibaba.
In making their investment decision, Gilligan and Cant look to make non-consensus investment and put funds into places that other people don’t see as an obvious opportunity.
“If you’re consensus, you try to make investments in things that kind of seem sensible and obvious, then you’ve still got the same likelihood of being right or wrong, but even if you’re right, you don’t make good returns because your returns get competed away,” he says.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
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