Why are fintech VC funds in Australia closing?
AMP New Ventures is the latest VC fund to shut its doors.
This week it was revealed that financial services giant AMP will close its venture capital arm AMP New Ventures. The announcement came after an email sent by AMP to employees was leaked to the Australian Financial Review.
While this is disappointing for the fintech industry in Australia, the most disturbing aspect is that it's not the first venture capital (VC) fund to close. Australia's would-be first listed fintech investment fund closed in October 2015 after it failed to reach its capital raising target.
H2Ocean, the brainchild of H2 Ventures founders Ben and Tony Heap, had only announced the fund in August, along with plans to raise $22,500,500. While it got off to a promising start, with high-profile support from Atlassian co-founder Mike Cannon-Brookes as well as counting former Assistant Innovation Minister Wyatt Roy and David Koch among its board members, the fund was forced to continue as a private fund.
While these two have shut, there have been other developments that show interest in the sector isn't waning
With all the interest in fintech in Australia, why are some fintech-focused VC funds closing? The Heap brothers said H2Ocean didn't reach the level of demand needed to construct a diversified portfolio, along with some institutional investors wanting it to be unlisted. According to the email leaked to AFR, the decision to shut AMP New Ventures was due to not allocate capital to it as it was core to the performance of the business.
However, while these two have shut, there have been other developments that show interest in the sector isn't waning. In September, two super funds contributed to AirTree Ventures $250 million capital raising. Other funds such as Reinventure, backed primarily by Westpac, are still investing heavily in the sector, as are other high-profile company VC funds such as NAB Ventures and Optus-Innov8.
Fintech investment as a whole was strong in 2016, with global fintech VC investment in Q3 2016 seeing a 27% increase to $15.2 billion from Q3 2015. However, herein may lie the problem. Fintech is a global game and investment can come from anywhere. With US investments tipping into million and billion-dollar levels more regularly than in Australia, the investment competition from overseas may be affecting the state of things here.
With CEO of Fintech Australia Danielle Szetho even admitting investment was less of an issue for startups, the closure of these two funds, while disappointing, does not spell the worst for the fintech industry in Australia.