Looking back, it’s odd to think that just five years ago, the term “fintech” was hardly used in Australia.
Back then, most Australians would have been hard-pressed to name a fintech start-up, and few were willing to sign up as customers.
Today, there are more than 650 Australian-based fintech companies, including some that have become household names like Zip and Afterpay, a handful are “unicorns” after passing the $1 billion valuation mark and, according to KPMG, almost $US2.3 billion has been poured into the space since 2014.
While countries like the US and UK have far bigger pools of capital invested in fintech, Australia actually has more fintech start-ups per capita than most other countries.
In fact, “fintech” has become so ubiquitous, it’s recently started entering the world’s great English dictionaries.
In the years leading up to this explosion of activity, we’d been closely watching – and participating in – the exciting new ways in which technology and digitisation were improving traditional banking experiences. In addition to building our own digital products, services and apps, we bought early stakes in software and technology companies, such as QValent, which streamlines financial business processes. We still do this, having a range of direct investments, such as Zip, Uno, Open Agent and Assembly Pay.
But we knew we needed to do more as nimble, innovative and risk-taking fintechs increasingly did things very differently, transforming the customer experience and competitive landscape and further entrenching “disruption” as one of the buzz words of our time.
Against this background, Westpac took a decision five years ago – viewed as surprising by many commentators at the time – to back a newly formed venture capital firm, Reinventure, established by co-founders Danny Gilligan and Simon Cant, with a mandate to invest in emerging fintech companies.
Since Westpac’s initial $50 million capital commitment, we’ve topped it up twice and now have $150m spread across Reinventure’s three funds, which have invested in almost 30 fintech companies. And just this month, Reinventure announced Rohen Sood and Lauren Capelin have been promoted to partners, joining the co-founders at the helm of the expanding VC portfolio.
Reinventure wasn’t the first “corporate venture capital”, or CVC, fund to have been set up. But there were a few aspects of the model that made it unique and still relatively rare in Australia.
First, it was the only financial services-focused VC fund and the first to call out fintech as a material new sector of the economy, backing emerging players at the time like Society One, Assembly and Data Republic.
Second, unlike traditional “captive” VC funds, investments are managed independently of the bank. Many people still assume Westpac employees manage the fund, but it’s an “arm’s length” relationship with the fund’s management team, giving them autonomy to apply their expertise and align their interests with the ventures to get the best out of them.
When benchmarked relative to funds at a similar stage, Reinventure’s Fund 1 is sitting in the top quartile of global funds. This is a great outcome given it’s still relatively young and peak returns generally come in years eight to ten.
One of Reinventure’s greatest successes has been one of its first investments, US start-up Coinbase – a digital currency wallet and platform for new currencies like bitcoin, ethereum and Litecoin. Today, it’s valued at $US8 billion – a significant lift from Reinventure’s investment in 2015. Other companies within the portfolio are also tracking exciting trajectories, including Flare, Data Republic and Valiant. But, like all VC funds, not every investment pans out as expected and Reinventure has parted ways with a few companies.
As for Reinventure’s Funds 2 and 3, established in 2016 and 2018 respectively, it’s too early to benchmark returns, but the portfolio includes a set of high-potential companies, including Open Agent, in which Westpac has also invested directly.
Beyond returns, the Reinventure partnership has provided much more.
For one, their investments in start-ups bring strategic capabilities to the bank – perhaps the area of greatest value – and we can explore new territories and take risks through our partnerships with fast-moving, innovative portfolio companies at a pace that would otherwise not always be possible.
It also brings several benefits to the portfolio companies which gain access to the bank’s scale and resources through partnerships.
Assembly Payments is a good example. The Melbourne-based company, which we met through Reinventure and have subsequently invested in directly, was integral to building our new payment solution for businesses. Called Presto, the solution delivers a series of benefits to business owners, like faster in-store transactions, streamlining payments across points of sale, and real time and automated reconciliations.
We’re also gaining insights into technology and banking trends in other markets where we may not otherwise operate extensively or invest. For example, while Reinventure’s Funds 1 and 2 have enabled us to charter new territory in Australia, Fund 3 has a much heavier focus on high growth markets abroad, particularly South-East Asia. There have been investments in India’s buy-now-pay-later company Zest, Singapore-based co-living company Hmlet, Canada’s Flybits, plus a few other opportunities under review.
Over time, these investments will provide further insights into fintech trends in other markets, access to new technologies, different ways of working and provide a better understanding of the opportunities and risks – just like the many portfolio companies before them.
Much has changed in the fintech market over the past five years since Reinventure was formed, and I expect much more is to come. Since the bank took the plunge into the corporate venture capital world though, we’ve got more than just a front row seat – we’ve got a real seat at the table.
By Peter King
Acting Chief Executive Officer, Westpac