During the technology bubble, banks bet investing in start-ups could give them solid financial returns, partnerships with newcomers and software that would be too hard to build in stuffy corporate environments.
Unlike traditional venture capital funds, the corporate model allows them to offer start-ups access to big bank customers, infrastructure and deep pockets as a potential acquirer.
But industry insiders say fintech in particular has underwhelmed as an investment category, with the major banks initially motivated by the fear of disruption, before embarking on a wave of partnerships.
That factor, combined with a sharp technology downturn and tensions between fast-moving start-ups and bureaucratic institutions, has prompted several of the banks to adjust their strategies.
ANZ’s 1835i initiative, which operates off the bank’s balance sheet, lost its chief executive Ron Spector earlier this year, with his replacement, Justin Greenstein, widely seen as having less influence in the sector. It has hired other more junior staff recently.
The Commonwealth Bank’s x15ventures also uses its parent company’s cash directly, with a remit to make investments, put existing companies through an “accelerator” to help them expand and launch its own businesses.
However, the Financial Review can reveal it is not on track to hit its target of launching 25 companies by 2025, instead shifting gear to put more of its resources towards a smaller number of in-house companies.
Toby Norton-Smith, managing director of x15ventures, says companies backed by the outfit get more than just funding. Jessica Hromas
The head of x15ventures, Toby Norton-Smith, said that while x15 would keep launching and investing in new companies, it also planned to put more money towards growing its most successful bets in line with the broader bank’s strategy.
“That’s more important than reaching a specific portfolio size and ensures we can point to ventures that have real standalone strategic and commercial value – and after three years in market, I’m pleased to say we already have a number of those examples in our portfolio,” Mr Norton-Smith said in a statement. A bank spokesman said its investment in x15 had grown annually since its launch.
The trend for non-VC firms retreating from venture investing is also apparent at IAG insurance, which made 70 of its digital innovation employees redundant last month. The software giant Salesforce similarly axed its Australian venture business in January, as part of a global round of redundancies.
Culture clash
Aside from the funds required to back companies, a complication for the banks is that the relationships between fast-moving start-ups and bureaucratic institutions are difficult to maintain.
“There’s a difference between being compliant, which is completely fair enough, and being beholden to whatever the bank says,” said one Sydney-based start-up founder with an investment by a major bank, who spoke anonymously because of that relationship.
“They liked our idea, couldn’t be bothered to build it in-house, and then invested in us and decided they’d just tell us what to do every day. If they’re really pulling out of venture investing, that’s not a bad thing because they’ve not been great.”
The Financial Review understands that Westpac has refused to approve a fourth fund for Reinventure amid a stand off between its team and the bank over terms.
A Westpac spokeswoman would not comment directly on discussions about Reinventure’s fourth fund, but in a statement the bank’s head of strategic investments, Anthony Potts, said the fund had helped it access experts and leading fintechs.
“We’re focusing more on directly acquiring digital capability and scaling partnerships to position Westpac well in the emerging digital environment,” Mr Potts said.
Reinventure partners from left Simon Cant, Rohen Sood and Danny Gilligan will not get a fourth fund from Westpac.
Mr Spector remains a representative of 1835i on the boards of two companies it invested in, and the fund has hired new investors with technology industry experience.
Mr Greenstein said 1835i had hired a series of new and experienced investors, including one from overseas. “Despite recent international headwinds, we continue to look for new partners, and where it makes sense, new investments,” he said in a statement.
ANZ’s strategy chief, Antony Strong, said that 1835i was continuing to invest in start-ups, but listed a series of investments that ANZ has made directly.
Commonwealth Bank partnered with residential property management start-up :Different in 2021, alongside AirTree Venture’s and US-based Foundation Capital.
The bank added the property management function into the Commonwealth Bank app, but a failure to secure more capital earlier this year saw :Different placed in the hands of administrators in June.
CBA notified the union of 38 likely job cuts to the x15 team in May as part of a wider round of redundancies.
NAB ventures managing director Amanda Angelini, whose fund has made 28 investments, said its model worked because it put money into companies that could lead to partnerships with the bank.
