Reinventure eyes next frontier with new fund

Westpac has committed a further $50 million to Reinventure as the venture capital group rolls out its third fund that will explore opportunities in the fast-growing Asian fintech market and blockchain technology.

After making 20 investments in companies from two funds, Reinventure this week officially unveiled plans for fund three that included another $50m commitment from Westpac, taking the bank’s total commitment to $150m.

Danny Gilligan, who co-founded Reinventure with Simon Cant almost five years ago, said the strategy for the third fund would remain based around how financial services was being embedded in different industries and that more of banking was being delivered by specialist technology companies. Recent investments from fund two included cyber security company Kasada and verification platform Everproof.

“The strategy is largely the same built on our core thesis around disruption, which is embedded financial services, the modularisation of the banking stack and the third fund will probably have a little more flavour looking at decentralisation/blockchain. And also in Asia, where there’s high growth and some interesting growth opportunities and new kinds of disruption,” he said.

To enable potential offshore deals, Reinventure’s third fund is structured through a unit trust alongside an “early stage venture capital limited partnership”, which have restrictions around the types of investments and geographies. It comes at a hot time for the broader industry in Asia – Asia-based venture capital investment soared to an annual high of more than $US48bn in 2017, propelled by three large deals in China late last year including to electric car company Nio, according to KPMG.

Mr Cant said any investments in Asia would likely be “later stage and co-investments” with other leading investors.

In a briefing to investors this month, Westpac chief executive officer Brian Hartzer labelled Reinventure’s pool of investments a “strategic asset” at a time when banks globally were adjusting to rapidly changing customer demands, technology and regulation. He cited Westpac’s recent launch of “Presto Smart”, a system that integrates business customers’ point of sale systems with the bank’s merchant terminals that was built in partnership with Assembly Payments, one of Reinventure’s first investments.

“There are more of these sorts of developments in the pipeline and it means that while we do have a lot of effort going into the here-and-now of risk and compliance management, we’ve absolutely got an eye on setting Westpac up to thrive in the future,” he said, adding it could also open up global opportunities for Assembly.

“These investments have helped build Westpac’s reputation as a good partner for FinTech companies, and this is now paying off in our core business.”

Reflecting on the first two funds and after Reinventure recently published its mission and values, Mr Cant it was critical to invest in ventures – or companies – that were best in breed, rather than on the sole basis that they could fit with Westpac. Mr Cant and Mr Gilligan co-invest in the funds.

“I think it’s confirmed the strategy that you have to be building these ventures to be best ventures in their market and be standalone, self-sufficient if they’re going to be good partners for Westpac,” he said. “You can’t just be building these with an eye ‘that looks good in Westpac, let’s fold it in’. You really need to be building them to be successful in their own right. It can create tension, but it’s a healthy tension and the right tension to have.”

Four and a half years since the launch of fund one, Mr Gilligan added:  “Building companies is hard and so it’s actually sometimes easier to build something that’s really ambitious than something that’s seemingly not, which is counter intuitive but for the equal amounts of pain you often get more support from talented employees, investors, partners etc when you’re trying to do something really ambitious.”

According to KPMG, there was $US130.5m of venture capital investments across 16 transactions in the first three months of 2018, including Canva’s $US40m Series C funding round. Divestments have however been relatively low given “muted” investment activity by funds between 2010 and 2013, according to the The Australian Private Equity and Venture Capital Association.

Mr Gilligan welcomed the impending planned float on the stock exchange of small business fintech lender Prospa as a sign of the evolving and maturing market. He also flagged that Reinventure could make its first exit in the next 12 months.