Fund in the News: SBT Venture Capital

The emergence of dedicated fintech funds is leading to increased growth in the sector, but banks need to play more of a part if the sector is to reach its full potential, according to Matteo Rizzi, general partner at SBT Venture Capital.

SBT is a $100m specialised fintech investment fund set up in 2012 and backed by Russia-based bank Sberbank. In the past year it has invested in mobile commerce software developer Sequent, retail analytics provider Walkbase and consumer loyalty platform Red Zebra, and the unit is part of the wider emergence of fintech funding as investors realise the potential for disruption within the financial services industry.

“There have been more fintech-only funds that have been set up in the past 18 months than in the past 18 years,” Rizzi told Global Corporate Venturing. “There were actually no fintech-focused funds until three years ago.

“Everyone seems to understand by now that banking is yet to be disrupted, and until a few years ago there was a question over whether banks would ever be disrupted. I think that now it is not a question anymore, it is a known fact. Now the challenge is to find a balance between disruption and collaboration with the banks.”

The main key will be persuading banks to become more involved in fintech investment, a development gradually beginning to take place as more and more banks launch their own innovation units, though as things stand traditional venture capital investors are still providing the lion’s share of the capital for fintech startups, Rizzi said.

SBT Venture Capital itself generally invests at an early stage and leads the round, a strategy it follows because it prefers to control the terms of the negotiation and, if possible, take a good-sized stake in the portfolio company. Although the fund has provided funding to UK-based accelerator StartupBootCamp, it generally avoids direct seed investments.

“We focus on fintech series A, I would say between $2m and $10m,” Rizzi said. “Usually we like to lead and if possible we even like it more when we syndicate investments with other financial institutions’ fund players. We have no issues in syndicating, especially if we’re talking about series B or C.

“Obviously everyone wants to be in the sweet spot of $2m to $4m for series A, but there are not a lot of companies in this area so that’s the challenge for us.”

The fund invests in both cybersecurity and fraud detection but outside of those it targets what Rizzi calls the ‘magic triangle’ – the point at which the payment, data analytics, and loyalty and customer retention meet. There are several companies, such as Red Zebra, which cover two of the three points but the long term aim is to find startups that can impact the way a customer chooses, buys and comes back for a product.

In the longer term, SBT Venture Capital still has plenty of capital left for investments, but will seek to raise another fund in the future as the sector grows. One difference between SBT and other bank-backed funds is that it operates as a captive fund with Sberbank as the sole limited partner, which means that it has the capability to attract other backers as well.

“We are roughly at 20% of the capital spend,” Rizzi stated. “The objective is to have roughly 20 companies in our portfolio over the course of the next four years.”

“We’ve set aside some money to follow up some of the investments we’ve done but the bank has expressed the intention for this first fund not to be an isolated initiative. We believe the next one will not have only one limited partner but will probably be open to other external partners as well.”

– Photo of Matteo Rizzi courtesy of SBT Venture Capital