Venture capital is pouring into fintech, with $105.3 billion invested across 2,861 deals in 2020 and two firms are taking things into their own hands.
Within a few weeks of each other, payments fintech Rapyd and partner bank for many top fintechs, Cross River announced the launch of their new venture arms, following the paths of some industry staples like Square, Stripe, Paypal, Amazon and more.
In early June, Banking-as-a-Service platform Rapyd announced the launch of its venture capital arm, Rapyd Ventures, which will invest in two types of businesses locally and globally: capability providers and end-user platforms. The former encompasses startups that are in the business of developing core infrastructure in areas where there is potential for market expansion such as money movement and embedded financial services. The latter includes companies that will directly develop financial services for customers and businesses alike.
“The impact we’re driving towards isn’t just financial returns for ourselves,” says Joel Yarbrough, managing director of Rapyd Ventures. “It’s about really making sure the gaps we see in the market are being met, and then matchmaking between solutions and our network to make sure their impact is felt.”
Yarbrough, who concurrently serves as the Asia Pacific vp of Rapyd, has some experience in strategic investments and acquisitions. He was the head of corporate development and integration at Grab, a Singaporean tech-driven transportation service, where he identified and matured acquisitions and investments to integrate into GrabPay, its premiere mobile wallet.
Yarbrough says that RV sees itself as a strategic investor that wants to support early and growth stage startups following their seed round and through their Series B funding. Yarbrough believes Rapyd Ventures capital is most effective after the seed round and up to B, when companies are either trying to figure out their product or may have done so but need to ‘supercharge it’.
RV’s investment target is between $100,000 and $5 million for now.
In addition to providing capital, Rapyd will also offer resources such as its own BaaS capabilities. It also provides access to its partner network so startups in Rapyd Ventures’ venture pool can take advantage of their expertise and experience. So far, Rapyd Ventures has only announced one investment with GoTrade, a stock trading platform.
“We’re investing in capabilities that complement where we think the market is going, in some cases alternative approaches to how we’ve built solutions, and in other cases areas where we aren’t investing heavily ourselves,” says Yarbrough.
While Rapyd has made other investments, it’s not ready to disclose information about them.
More recently, fintech-forward community bank Cross River launched its venture capital firm, Cross River Digital Ventures. Cross River’s interest in the space isn’t new, having already made a few informal investments in the sector. Phil Goldfeder, svp of public affairs at Cross River, says having a formal venture arm will help Cross River better explore what’s out there and identify companies that need the extra investment to make them successful.
At the moment, Cross River has no limits on the kinds of startups it wants to invest in, with a broad, sweeping ‘all of the above’ attitude as far as their investment interests and priorities are concerned. Unlike Rapyd, Cross River has not capped its investments either. Goldfeder says “it would be silly to set parameters” that would potentially limit the companies that would come through Cross River’s doors, so Cross River was ready to ‘explore anything and everything’.
“We’re looking to change the future,” says Goldfeder. “You can only do that — number one — by innovating [in-house]…but also investing in companies that are doing the same thing and have a shared vision.”
Cross River announced three investments across different fintech sectors including payments, personalized financial services, and real estate financing advisory services. This includes Lev, a fintech that’s trying to automate the commercial real estate process. Goldfeder says that while Cross River has a traditional commercial real estate lending business, its investment in Lev was based on holes in the industry that Lev is trying to address with automation, technology and innovation.
Typically, when companies launch venture arms, it’s either to partner with third parties or to integrate new solutions and technologies into their wider portfolios, says lead analyst at Juniper Research, Nick Maynard. He says this allows companies to increase their offerings without having to develop their own capabilities, which can sometimes be costlier. Some companies also use venture arms to scout for potential acquisitions.
“The fintech market has recently become dominated by partnerships to a greater extent than ever before,” says Maynard. “This means that the race is on for fintechs to partner as widely as they can, and create the most attractive ecosystem possible.”