Westpac seeded the first Reinventure fund with $50 million in late 2014. If it returns nine times to the bank – meaning its value would have risen to $450 million – it would become one of the best-performing funds in the history of Australian venture capital.
The expected return for the fund also includes the carrying valuations of other promising start-ups in which it took minority stakes. These include personal lender SocietyOne, which is preparing for an initial public offering on the ASX this year; human resources manager FlareHR; business loan broker Valiant Finance; crime intelligence service Auror; and data-sharing governance platform Data Republic.
Reinventure raised another two, $50 million funds from Westpac – so the expected return from the first fund would be three times the amount invested into the three funds, which have made more than 30 investments in the past seven years.
Westpac will continue to work with Reinventure to manage out investments from the first three funds and may still invest in the new fourth fund. But Reinventure and Westpac have broken their exclusive ties, and Reinventure will now seek funding from a broader pool of investors for a new fund expected to be larger than the previous three.
This will allow it to invest more flexibly and outside constraints imposed by the bank. The philosophy behind Reinventure was for Westpac to help the start-ups it invested in to grow, while the start-ups helped inform the bank about responding to disruptive forces. This has not necessarily worked in practice – for example, Westpac is not interested in adopting or supporting bitcoin, which is not controlled by a central party and hence fundamentally challenging to the monetary system, while some of Reinventure’s other start-ups have grown without needing much input from the bank.
The creation of Reinventure in 2014 triggered a wave of interest in fintech across the major banks in Australia that is still swelling. National Australia Bank and ANZ Bank followed by creating NAB Ventures and ANZi, although Reinventure was managed more independently. Commonwealth Bank followed in early 2020 with X15 Ventures, a different model under which it controls the start-ups through majority investments.
“Back in 2013, when we were pitching the fund, fintech wasn’t even really a word,” Mr Gilligan said. “It’s now one of the most material parts of the start-up sector in Australia and globally, but we still think it’s very early in the innings.”
A lot of “fintech” currently involves creating new digital customer services on the front-end of legacy financial services infrastructure. Reinventure’s fourth fund will seek investments relating to “decentralised finance”, also known as DeFi, where blockchain-based technologies could replace traditional financial intermediaries.
‘Finance at the edge’
“DeFi is re-engineering the fundamentals of finance from the ground up,” Mr Cant said. “It still has a way to go before it starts to be used in a scaled way for real financial applications, but in the meantime, problems around scaling are being worked through and we are particularly bullish on the potential for decentralised finance infrastructure, data and the continued thematic of finance at the edge”.
“Finance at the edge” refers to fintech being adopted by companies outside traditional financial services and banking – for example, half of the revenue of the massive Canadian e-commerce site Shopify now comes from payments.
Rohen Sood, the third general partner at Reinventure, said the valuation of fintech companies only represented 11 per cent of the total market capitalisation of the top 500 financial services companies and “we believe there is still a tremendous amount of upside left and the trend is only accelerating”.
Another theme the new fund will explore will be the foundations for new data infrastructure that will govern both data sharing and also more stringent privacy controls.
Reinventure’s second fund includes bank data aggregator Basiq, as well as investments in automated debt collection innovator Indebted, cyber security venture Kasada and smart receipt solution Slyp. More recently, Reinventure has started to invest in later stage investments in the emerging markets of Asia, including ZestMoney in India and Kredivo in Indonesia.
In addition to Coinbase, Reinventure has realised some other investments from its second fund. These include Fillr, which provides the auto-fill technology used by buy now, pay later providers, and was sold to Rakuken of Japan last year, and Doshi, which helps retailers connect a variety of applications into point of sale systems, which was sold to CBA in January.
Reinventure also helped establish core national fintech infrastructure, including the start-up hub Stone and Chalk, representative group Fintech Australia and the government’s “fintech advisory group”, which advises the Treasurer on policy settings.