More and more big companies are launching corporate investment funds, a trend which has been under way in the US for some time and is now catching on in the Netherlands. With the introduction of its Digital Impact Fund, ABN AMRO joins the ranks of Eneco, KPN and Aegon as one of the first Dutch corporates to take the plunge. What exactly is the rationale behind the initiative, and what is the bank’s aim?
The bank is actively seeking partnerships with front runners in technology, security and usability.
Menno van Leeuwen Head of the Innovation Centre Focus Team
American corporate venturing in the lead
When I was in Silicon Valley at the beginning of last year to find out more about the climate of innovation in the US, I got the chance to visit a number of accelerators. Speaking to representatives from a whole range of start-ups, I learned that over half of all investments are made by corporate companies. Corporate development teams and investors literally sit side by side in co-working spaces and compete against one another to invest in promising start-ups. This is one of the main reasons so many Silicon Valley start-ups are able to secure high valuations.
Dutch business community also needs corporate funding
At the opening of the TSO Munt Sq. co-working location last month, veteran Dutch politician Neelie Kroes called for more corporate support for Dutch start-ups. In addition to ABN AMRO’s co-working space, KPN was cited as an example with its fund worth €35 million. More corporate venturing can offer a major boost to the Dutch start-up ecosystem. That boost is badly needed, since the country’s aim is to be an international front runner in this area. The Netherlands currently ranks fourth in Europe, and nineteenth worldwide in the 2015 Global Startup Ecosystem Ranking. There’s plenty of work to do, particularly when it comes to available capital.
Investing in start-ups in the financial technology, or FinTech, sector involves multiple factors. The market share held by banks is currently under pressure from online newcomers – peer-to-peer lending being one example. More and more banks are buying shares in this type of platform, thus creating opportunities for growth and profit. Besides a number of defensive considerations, the objectives for investing in FinTech start-ups are primarily offensive. The financial sector can learn a lot from these new players, given their aptitude for responding to, and capitalising on, customer needs, particularly those of the digital generation. Then again, they have little choice as newcomers, since the only way they will secure a place for themselves in the market is by offering products that meet their customers’ needs to a T. Partnering with, and investing in, this type of start-up pays dividends.
More strategic partnerships
ROI is obviously important to corporate entities strategically investing in start-ups. But they also look at potential returns for their own organisation. To increase the likelihood of long-term success, the partnership should be a good match. Corporates shouldn’t be fixated on the FinTech hype, but should focus on seeking out specific products and services that will complement their portfolio. The culture of a given start-up should also be compatible with their own.
If the start-up is successful and grows, the two organisations can then team up to develop a product offering, test markets and revenue models together, and even launch new products via the partnership. On top of that, injecting growth capital into the start-up can generate a healthy return. More importantly, though, the partnership can facilitate the digital transformation of the corporate entity. Aegon’s Venture Fund is an excellent example.
More financing options for FinTech start-ups
Strategic investments made by corporate companies can also help meet the needs of Dutch FinTech start-ups, which need to grow fast in order to compete. If more investment capital is supplied to the start-up, which can potentially enlist the aid of the bank as a launch pad or test client, this only increases its chances of success. The rise of corporate investment funds and accelerators will not only free up more capital, but will also result in more choice. Start-ups can then be more discerning, deciding for themselves what type of investor they want to go into business with. It’s a positive development, particularly in a relatively small market like the Netherlands.
ABN AMRO’s Digital Impact Fund
Through its Digital Impact Fund, ABN AMRO invests in companies which have already launched a product and are currently in the growth phase. The main criterion for investment is that the start-up develops products and technologies that the bank can, in turn, leverage for its customers. Readers of my blogs will know that ABN AMRO is taking various steps to strengthen its ties with start-ups. Through the Innovation Centre, for instance, we’re promoting initiatives that contribute to the bank’s own digital transformation. The establishment of the Digital Impact Fund fits perfectly with this aim. Worth €10 million, the fund will allow the bank to take a strategic stake in a number of promising FinTech innovators. Tactically speaking, we’ll soon be able to provide our customers with even better, smarter and more user-friendly products and services.
Call for FinTech start-ups
The Digital Impact Fund aims to accelerate ABN AMRO’s own digital transformation, broaden its IT-based services and improve its customers’ experience. That’s why we’re actively seeking partnerships with front runners in technology, security and usability – from mobile banking to personal finance, and from payments to e-identity. Our preference is to invest in European FinTech companies which have already launched a product and are currently in the growth phase. If your company’s profile meets these criteria, why not contact me at email@example.com?