FinTech Investing: how to learn while not burning money
Financial Technology may have been elevated to the status of 'investor darling' in some circles. For Aegon, backing FinTech is about learning from others, while also generating a decent return on investment.
Amid the world of fast money, Transamerica Ventures — the venture investment arm of Aegon — chooses a striking tactic when deploying the pot of $140 million earmarked for FinTech.
"My team is often annoyed with me," Transamerica Ventures CEO Georg Schwegler said recently. "They tell me, 'the price is good now, we have to act quickly'. But what then?' If we are not really sure an investment fits Aegon, then we simply do not do it. Another opportunity is sure to come along."
Schwegler made the comments during an interview on Aegon's FinTech investment strategy with Dutch financial newspaper, Het Financieele Dagblad.
Rational and risk-averse
FinTech — which stands for Financial Technology — is an ever-growing sector that encompasses new software and technologies that makes banking and financial services quicker, more secure, more readily available and effective.
Institutional and private investors are keen to seize the opportunities offered by FinTech. According to KPMG's Pulse of FinTech report, just under $58 billion was invested globally in 875 FinTech deals during the first half of 2018. This represented a 52% increase on the $38 billion total for the full-year 2017.
But Transamerica Ventures, Schwegler told the Dutch newspaper, is more about learning from others rather than generating enormous returns. The fund has made 18 investments in various FinTech companies, mainly in the United States, since it began looking at Fintech start-ups. The focus of the investments is on artificial intelligence, risk acceptance and smart tools to better serve the customer.
Investing from the backyard — rational and risk-averse — is how Schwegler describes the strategy. The fund is less interested in the size of the investment round or the stake, and more interested in who's sitting around the table and how the technologies developed by new companies can be used on behalf of Aegon and Transamerica's customers. Schwegler: "We have a strategic focus and not a desire to sit at the table as the dominant party."
Schwegler is keen, however, to dispel any misunderstanding that investment returns are not important for the fund. "It would be naive to suggest that we are only interested in advancing the company strategy. Of course strategy is an important element, but we are not on the planet to burn money," he said.
The investment per round can run to several millions of dollars. Over 60% of the total fund size of $140 million has been deployed. Successful participations include Next Capital from Chicago. Transamerica Ventures invested in this digital savings and investment platform, alongside US investment fund Oak HC/FT and insurance comparison company Policy Genius.
Transamerica Ventures in principle avoids 'seed investments' of a few $100,000 as they can entail too much work and too much risk. But it has taken stakes in several seed investors active in FinTech for the insurance industry.
Schwegler is also very enthusiastic about a new area: preventive care. "Voluntary programs in which policyholders give us insight into their personal situations allow us to come to a totally different risk profile."
A potentially sensitive subject is using gene technology to determine the health of policyholders. Since customers have to provide a lot of data already to get an insurance policy, Schwegler questioned why they would not want to make the process more accurate and potentially cheaper.
As an investment manager you do not signal reality, but you actively build on it, Schwegler told Het Financieele Dagblad. "This also means that you sometimes have to take a "slippery road" or stand on ground that is not yet totally solid."
Aegon's Corporate Venture Capital and Growth Capital businesses