Tl;dr: The investment thesis of InnoCells which is the corporate venture arm and digital innovation hub of Banco Sabadell.
InnoCells investment thesis
In the height of the fintech revolution, it is essential for banks to be connected to the startup ecosystem in order to adequately approach the new challenges and opportunities that are being presented to the financial sector. From increasingly prevalent and sophisticated cyber threats to the regulatory requirements imposed by PSD2, incumbents are implementing solutions from new technology providers to evolve into this new age.
At InnoCells, Banco Sabadell’s digital ventures hub, we invest and partner with companies that operate in areas related to Sabadell Group’s core business. We believe that it is through collaboration with such companies that we can deliver the best possible services and experience to the Bank’s clients, expand the value chain, and improve back-end processes to optimize the efficiency of the enterprise.
Our primary mission is to find opportunities that can provide us with both strategic and financial return. We primarily invest in Europe (Spain, UK), Israel and Mexico, given the more obvious capacity to generate synergies as these are geographies within Sabadell’s footprint. From InnoCells we are able to facilitate the entry of companies into new markets, driving partnerships and introducing innovative models with the help of Sabadell’s brand.
InnoCells’ investment focus lies primarily in Series A − we look for companies that have already developed a complete product that has already achieved some market traction, and through average ticket sizes between €500k – €3M, we carry out minority-stake investments. Given our double-objective approach that requires a strategic rationale, we prefer that a traditional VC leads the deal, providing robust validation from a financial perspective.
As a corporate venture capital fund, we inherently lean towards B2B (or B2B2C) models that are solving real problems. These type of businesses are generally easier for a large enterprise, like Banco Sabadell, to work with (and provide value to). However, we do analyse B2C startups on an opportunistic basis, where we pursue companies that have an extraordinary team or are effectively targeting a genuine and unmet need in the market.
Due to the dynamic nature of the sector, our requirements and focus points are continually under review. However, there are some key areas where we are looking to become active over this year:
- Data-driven platform banking − Digitization of the industry and new regulatory frameworks are increasing competition and transparency within the sector, forcing the commoditization and optimization of financial services, and thus requiring incumbents to explore new strategies. The relevance of traditional players will largely be determined by their ability to create innovative value propositions, even outside of the conventional financial sphere, to promote customer engagement and loyalty. BigTech companies are dominating this approach, diversifying their revenue streams and transforming into loyalty platforms that offer all in one place − helping to take advantage of data-centric approaches and enhance cross-selling opportunities.
- On-demand Banking − The professionalization of online sales channels and an increasingly competitive marketing environment forces companies to accommodate different models to increase touch-points with their clients, optimising the experience in each part of the customer journey. Given the essential nature of financial services to people’s lives, we consider that the human factor will remain a core aspect of many sub-verticals (e.g. wealthtech, conversation banking…). Here, we want to promote hybrid approaches, that combine the transparency and fluidity of the digital component together with the more trust and relationship-based human aspect, helping to tailor the experience for clients based on personality, age, or preferences in real time.
- Cybersecurity − As we move further into the digital space and its independence continues to grow with the development of AI, IT security will become ever more relevant. Digitization of the sector and capacity to create sustainable models will ultimately depend on data and infrastructure security, generating confidence that will allow us to move towards automation. Companies that are able to tackle this aspect from a predictive standpoint, or that offer cyberintelligence platforms are particularly interesting for us.
- Alternative Data Sources − Although traditional banking data has been utilized for some time, the incorporation of unconventional data sources in the financial sector is in its infancy. We see the value this information allowing us to offer the most relevant and personalized service to our clients, or improve scoring processes to increase loan acceptance rates, and are actively searching for solutions that will enable Sabadell to obtain, transform, and extract insights from this data.
- Insurtech − Despite a slower expansion relative to ‘pure’ fintech, we see great potential in the insurtech space moving forwards. There is clear room for new digital players in the sector to transform the customer experience − through new models for distribution, communication and innovative product lines. Similar to banking, we also expect significant development in back-office optimization, from improvements in underwriting to fraud reduction and claim management.
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