Cryptocurrencies, venture capital trends and more.
Fintech was never out of the headlines in 2017, thanks mainly to the remarkable performance of cryptocurrencies. In particular bitcoin which rose from about £750 on January 1, to double in price by May 19, then double again by August 13, again by November 19, then again 22 days later on December 11 (Source: Business Insider).
In the fortnight before Christmas, it almost reached £15,000 and, at one point, lost almost 30 per cent of its value over six days (Source: Business Insider). Is this a classic bubble, as many suggest, or a true disruption of money? One thing is for sure: the spotlight on cryptocurrency will not dim in 2018.
Investment in artificial intelligence is also booming. Private capital research firm PitchBook found that, in the first 11 months of 2017, there were £16bn of mergers and acquisition deals in the artificial intelligence (AI) sector: 26 times more than 2015. It also noted £5.7bn of venture capital in AI in the first nine months of 2017. In 2016 as a whole, the figure was £4.2bn.
In the first 11 months of 2017, there were £16bn of mergers and acquisition deals in the AI sector: 26 times more than 2015
Some of that venture capital (VC) money came from the Investec Emerging Companies Fund. Run by Dev Kohli and Kevin Chong, the fund looks at start-ups that have secured seed capital but have yet to move up to the early-stage, Series A funding round.
“It’s about making ourselves relevant to the new wave of entrepreneurs emerging globally,” says Kohli, of the thinking behind the fund. “That leads to a new generation of wealth creation, and a new generation of corporate activity, so we have positioned ourselves for that coming new wave.
“Start-ups find it relatively easy to raise money at the friends-and-family round, but after that comes the first big venture capital rounds of, say, £3-4m. Riding the gap between that is difficult.”
Kohli says the unique selling point of the Emerging Companies Fund (ECF) is three-fold. Firstly, Investec Private Bank or its clients will validate as many investments as possible by using the product. “As a consequence,” Kohli says, “we’re leaning towards fintech and areas where we have domain knowledge: power and aviation.
“We know a lot about rapid charging of electric vehicles. We are also the principle financer and funder of aviation globally. And there are other areas in which we feel we have domain knowledge, or that our client base can validate very easily.”
Secondly, the ECF will become an adviser to every company in which the fund invests, taking part in subsequent rounds of capital, through strategic advice, or with a seat on the board. Thirdly, Investec’s strength internationally – especially in India, China, southern Africa, the UK and Australia – will give an advantage to businesses in the ECF that wish to internationalise and multinationals in those markets that want to work with ECF businesses.
Notable investments to date include Curve, a platform that allows users to consolidate all their bank and credit cards on one card, and Bud, which allows banks to more easily build financial products that use other companies’ services.
Curve is used by Investec Private Bank and secured £7.5m in Series-A funding in July 2017, with Investec on the funding roster. Investec also brokered talks between Curve and Alibaba, on how Curve might work with the Chinese internet giant’s mobile payment platform Alipay.
Finding the right companies for the ECF is “not an issue for us”, Kohli says. “We have a strong network. For example, Alibaba doesn’t do early-stage investing but it introduced us to Bud and we invested. We also invested in Seedcamp, which has helped us, particularly with its ability to source deal flow. It does the first £200,000 in a business, but what happens thereafter? For us, that’s a phenomenal use of deal flow.
“We’ve done a couple of investments through our relationship with Seedcamp: Curve and Monese [an app allowing immigrants and expats to more easily use UK banking services] both came through Seedcamp before we invested in them. Between Seedcamp, our own network and business who approach our in-house tech team every day, we have full visibility here.”
Though fintech is the focus of the ECF, Kohli and fund co-head Kevin Chong will look beyond the sector, but not only to improve the bottom line.
“We do keep an eye on other potential growth areas,” says Kohli, “such as virtual reality, augmented reality, AI and machine learning. We have also invested in learning businesses and education technologies that the bank or our clients can use. We’ve invested in a concierge platform, and we’re looking at an influencer marketing business because the bank does some influencer marketing.
“It’s not that we’re doing this to enhance the bank’s product suite, more that if we can demonstrate that a product works, then the bank, with its client base and extensive contacts, can assist a start-up and validate it. That is only good for the investors.”
Into 2018 – with possibly bursting bubbles, volatility and uncertainty as high than they have ever been on investors’ radar – fintech will be an even hotter topic. The trick, with so much heat, will be to avoid getting burned.
For more information on Investec’s Emerging Companies Fund visit: www.investec.com/en_gb/business-advice/emerging-companies.html