The $100 Million Club

Banks and other financial companies have not been shy about putting their collective hands into their pockets. Amex Ventures was part of financial planning company LearnVest’s $28 million Series D round in April. Citi Ventures was behind big data analytics company Platfora’s $38 million Series C Round as well as the $32 million Series C round in Betterment, a financial advice service. Similarly, Spain’s BBVA acquired digital bank Simple for $117 million.

But while these one-off deals continue, this summer both HSBC and Santander joined the club of banks that have announced $100 million in funding to bankroll mainly early-stage companies (investments typically in the $1 million to $5 million range) in the hot fintech sector. The founder members include Russia’s Sberbank through its venture arm SBT Venture Capital and Spain’s BBVA, through its Valley-based venture arm BBVA Ventures.

BBVA HSBC Santander Sberbank
Program size $100m up to £200m $100m $100m
Date announced January 2013 May 2014 July 2014 February 2012
Typical investment $1m-5m All stages $3m-5m Early stage
Area of interest We want a venture return on the $100m by investing in companies within our areas of strategic interest. The acceleration of innovation, driving the creation of technology which can benefit HSBC, and potentially the industry more widely. The key objective
is to enhance the value proposition of the bank.
We don’t invest in anything that does not have a potential for a huge return
on investment.

HSBC will be potentially even more ambitious. “While a total investment of $200 million is certainly possible, we have not committed a specific figure to invest,” says James Stickland, Director Innovation and Investments at HSBC Global Banking and Markets.

The four banks are taking different approaches to investing in fintech start-ups. At one end is Santander. In an interview earlier this year Santander’s Victor Matarranz was relaxed about returns. “The key objective of the fund is actually not to get a financial return,” he told Financial News, “the key objective is to enhance the value proposition of the bank.”

On the other end sits Russia’s Sberbank. Mircea Mihaescu, Managing Director, SBT Venture Capital. took a rather harder-nosed approach. “We won’t invest in anything that does not have a potential for a huge return on investment,” he says. “We don’t want to invest in something that may help Sberbank be a player in a niche that will bring in $3 million in revenue. That’s a lifestyle company. We are not interested in those. We are interested in large impact companies — that goes hand-in-hand with huge returns.”

Mihaescu says Sberbank’s interest in start-ups is limited to what they can do to enhance the bank’s position. “Any portfolio company has to “have the potential for being used by Sberbank. Now or in the future,” he says. Similarly Jay Reinemann, BBVA Ventures executive director, says the Bilbao-headquartered bank prefers to forge strategic relationships with start-ups rather than take stakes in portfolio companies.

All four banks make much of the main thing they have to offer to start-ups: access to their considerable customer bases. “HSBC’s strength has always been its global footprint,” says Stickland. “In particular, our reach into the world’s fastest-growing emerging markets. We’re a link to these markets for start-ups.” Likewise Sberbank would open up doors in eastern Europe and especially “in Russia when we have something like 100 million retail customers,” says Mihaescu.

But what of the start-ups? Is there not the risk that by going with one bank, that would close out every other one to them, a real risk for a fintech company that might be looking to many different partners? It is a risk that a start-up would have to take, admitted BBVA’s Reinemann. “This risk could be present with other strategic investors; however, as part of our investment we do not restrict our portfolio companies from doing business or taking investments from other banks.”




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