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How to build a CVC fund — advice from ABN AMRO Ventures

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ABN AMRO Ventures was a €10m fund. Now, Bonger's has built it into a €100m investment vehicle with a portfolio of 13 investments including Tink, Privitar and Trifacta.

Hugo Bongers Band W

04 Jun 2020

Hugo Bongers, director of ABN AMRO Ventures, believes corporate venture funds can do as well as traditional VC if they are focused on delivering added value

Three years ago, ABN AMRO Ventures was a €10m fund run on a part-time basis by the European bank. Now, Hugo Bongers, the fund’s first full-time employee, has built it into a €100m investment vehicle with a portfolio of 13 investments including Tink, Privitar and Trifacta. Bongers told Sifted what he has learned in the process.

What kind of investment thesis do you have?

The solution needs to be applicable and strategically relevant to us as a bank. We will invest in companies like Trifacta (data analytics) and Privitar (data privacy), which are not pure fintech offerings, but they are solutions that are relevant to financial services. We typically invest Series A and onwards, somewhere between €2.5m and €10m per start/scaleup. As a (corporate) investor, you need to have something you can add to the company, beyond money. My pitch is simple: I can deliver ABN AMRO as a customer, distributor, partner, providing our balance sheet or anything else we can deliver.

There is a downside, of course. As is every investor, I am under pressure to deliver on my promises. It can be strange to have the bank on the cap table of a startup but not be an active client. If I cannot deliver on that promise, the industry will soon see you as just adding logos instead of building valuable strategic relationships where we can jointly grow together in the industry.

What do you look for in a startup when you are making a decision to invest?

We look for companies that solve a real pain point and where VCs or other CVC groups are involved. Of course, it is not a guarantee — even top VCs end up writing many of their investments down to zero — so we always do our own analysis. I am looking for investments where we can expect to make at least a 5x return as a rule of thumb.

I look for teams that are experienced — whether from an industry perspective or second or third-time founders. I also look for more diverse teams — if it is just a 40-something white male board composition, that doesn’t really help. Having multiple lenses on the same problem is a value-add.

What is the best way to meet great startups?

References from our other portfolio companies are extremely valuable. Next to that we interact with our wide network of VCs and CVCs to create good lead funnel. Secondly, opportunities come in from different business divisions inside the bank.

Corporate venture capital sometimes has a bad reputation for not delivering good returns - you think it really can compete with traditional venture capital?

It is an interesting debate and I am only three years into this. But it is so far so good in our portfolio. For long-term survival, it is necessary to deliver a healthy return. We try to have a broad spectrum of early and more late-stage investments to create a balanced portfolio. On the later investments we will most likely not get a 5x return, but they offer some protection in a down cycle.

Should banks build their own startups or partner with existing ones?

I think the 80/20 rule applies. In 80% of cases we should be able to partner with a startup.

In some cases, such as mobile banking apps, it can make sense to keep it proprietary. But most of our problems have already been solved by the market and the era of developing everything ourselves is past. Tink was a good example. We were seeing a clear demand from retail customers for a solution that showed them how they were spending their money. We could have built that ourselves but it would have taken time and money, and by that time Tink already had 300 people working on the problem. There is no way we could have put that kind of resource in. On the other hand, being an early-stage investor in Tink put us in a powerful position. We have always had great access to the company’s founders.

What have you had to learn about CVC the hard way?

When I joined ABN AMRO, my friends said to me, ‘now that you are joining a big bank, you will have a big staff’, but it wasn’t like that. I did everything by myself for the first year. Of course with a lot of support from a various people within the bank. It was just a €10m fund at the time and most people were doing it part-time.

When I started I thought everyone at the bank would have heard of the fintech investment fund, but, in fact, not many people were aware of it. This job is partly a constant internal PR and marketing exercise. I have to spend a lot of time connecting with senior people at the different business units, asking about their needs and how we can help them. I am always asking “what is your biggest problem?” because if I can solve that for them, they will be more willing to be involved with the project.

What advice would you give a company setting up an investment fund now?

Right now might be quite challenging to start a CVC fund. Of course, investing in a down cycle can deliver better returns but it could be hard to get a corporate to commit funds right now. If you do raise a CVC fund my strong advice is to think carefully about your specific angle. You need to be more than the money, you have to be able to provide value-add to the startups you invest in.

Then, start small but scale fast. My first investments were Tink and Cloud Lending, which had an early exit one year later. That was good because it showed that we could get money back in the bank. You need a bit of luck like that for sure.

How much will an economic downturn after coronavirus affect corporate venture capital?

The whole CVC scene has seen such an influx of capital recently that there will be a shakeout. There will be an increased pressure to justify your value to the rest of the business — whether it is lowering costs or bringing in new revenues. I expect there will be a stricter focus on strategic rationale, and that will affect some investments at the boundaries.

Completely new deals might suffer if I am only able to meet people over Zoom. I don’t feel comfortable wiring companies a couple of million euros based on a few Zoom calls. We still have a pipeline of deals, however, and where I already know the founders it is easy to continue engaging with them. Covid-19 is really harsh but the world won’t come to an end because of it.

What further plans do you have for the fund? How much further would you like to see it grow and expand?

I feel comfortable with a portfolio of about 20 to 25 investments — we wouldn’t have the capacity to manage a portfolio of let’s say 40 in the current setting. We have shifted away a little from client-facing investments now and are spending more on infrastructure startups. I am a bit more sceptical about B2C propositions because they are expensive to grow. I really love boring companies — they may not come with a fancy pink card but they are more profitable and deliver a sustainable return.

Hugo Bongers, ABN AMRO Ventures & Maija Palmer, Sifted