In crowded fintech space, BBVA searches for diamonds in the rough

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Anthemis Group likes white spaces: areas in financial services it defines as having a lack of innovation from banks, wealth managers and startups.

So as the venture capital firm struck a deal to build companies out of a studio jointly run with BBVA, Interim CEO Amy Nauiokas knew she wanted to draw on the bank’s vast research of customer behavior to discover innovation targets in banking, wealth management and insurance.

The startups that make it through Anthemis’ development process — which the firm calls “Anthemis Foundry” — will have an opportunity to gain seed investing from both Anthemis and BBVA’s strategic investment arm, Propel Venture Partners.

In an interview with American Banker, Nauiokas outlines the Luxembourg-based venture capital firm's investing thesis, what its foundry effort entails and how it plans to work with BBVA under their new multimillion-euro deal.

Can you talk about your partnership with BBVA?

AMY NAUIOKAS: We’ve known BBVA for several years. In 2014, BBVA acquired one of our portfolio companies, Simple. Since then, we’ve worked together on a handful of digital advisory projects and have looked to co-invest alongside Propel, BBVA’s venture investment arm.

At Anthemis, we spend a lot of time and attention on what we call our foundry efforts. It’s the business we use to identify white spaces that exist in the market, where big banks or startups aren’t doing something specific. We look to build companies or founders in that white space.

I’m excited to use the wherewithal that Anthemis has from the early stage and company structuring perspective and combining that with BBVA’s footprint to innovate together.

From a foundry perspective that’s how we operate. We do a lot of work with the [company in its] early days. Once the investment thesis is credible, we bring it out to the market with seed funding but also try to partner with other seed funders as well so we can give the company even more credibility.

How early is that?

Very early stage. We look at it from two perspectives. Sometimes it’s about finding founders and finding talent that has some ideas that are early in development and we work very closely to design their products and understand their markets. Help them test ideas, product develop and build a company around them.

In other cases, it’s leveraging the insights around white spaces and coming up with an idea. Once we’ve found an idea, we go to the market and find founders who can touch the idea or the product. So it’s either idea- or founder-led.

Can you give one example of a white space Anthemis identified and the company that entered the space thereafter?

We’re quite interested in longevity financing — financial services that support an aging population. Through our efforts in this space, we identified Kindur, an early-stage company in our portfolio that looks to service the decumulation of assets for the retirement community. Kindur looks holistically at all aspects of a retiree’s financial life, including the implications of rising longevity and the growing cost of long-term care on financial wellness in retirement.

How many sectors is Anthemis working across?

We are a financial services firm exclusively. We look across wealth management and risk and insurance to commercial and consumer banking or capital markets.

For this partnership, we’re really excited about how consumers continue to interact with financial services products and the impact that open banking is having on the financial services landscape and trying to understand what BBVA finds fascinating about customer behavior and customer appetites and combine that with our knowledge about trends in the marketplace to build the next generation of financial services companies.

We believe we have a competitive edge because we get so early in the space. We’ve been in this for 10 years now; we have a really good scope.

What’s the challenge of being early-stage investors?

A lot of these companies are not market-ready for quite some time and in many cases when they become market-ready, they may have to pivot or make changes to their product based on appetite or early tests.

It’s hard to just back someone’s idea or market opportunity, but it’s never hard to back people. So with early-stage investors we are focused on the people and the teams. That’s why getting founders into our ecosystem, leveraging the networks that we have across Europe to find people that can deliver and execute on some of these ideas, is a huge part of the work of the foundry and a huge part of our partnership.

Previous entrepreneurs are a great tap into new networks and we have a great list of entrepreneurs to pull on to find the next generation of entrepreneurs, and we do a lot of scouting. Early-stage investing is all about people.

Who do you look for to lead a fintech company?

Historically, we’ve had a position toward co-founders. It gives you a chance to bring in partners and founders with different skills.

Two heads are always better than one, and co-founders with complementary strengths help balance the risk associated with investing in early-stage companies. When great ideas are presented to us at the pre-seed stage by a single founder, we’ll often use our venture-building studio, the Anthemis Foundry, to match them with partners.

We are one of the few VCs that pay attention to the diversity of backgrounds. Something that is becoming much more in vogue right now for all the right reasons — the reality is, it is just good business.

You have to work harder because the diversity of the people you’ve built up is not always obvious. At Anthemis, diversity in people, ideas, styles and experience is key to building companies for the long-term future. Our companies must, at the very least, resemble the markets we serve. From there, every effort to diversify thinking, cultures, gender and experience within a team can only lead to stronger, more resilient companies.

Generally, our fintech entrepreneurs tend to skew a little older. That’s partly because of the industry we’re trying to innovate in. We often attract industry executives that want to try something in financial services.

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