Why BBVA is investing in a Chinese venture fund

BBVA is making a $50 million investment in artificial intelligence — by investing in a venture capital fund. The Spanish banking giant said Tuesday it will invest $50 million into the Chinese venture capital fund Sinovation Ventures IV, which has $500 million to give to early-stage artificial intelligence companies in China and the U.S. “China has been one the greatest beneficiaries from the development of artificial intelligence solutions,” said a BBVA spokesman. “Investing in a reputed venture capital fund was an attractive alternative to gain knowledge and access to the Chinese tech market.” BBVA has a short history of finding innovative ways to invest and partner. In 2016 it made an equally unusual move spinning off its own corporate venture fund, BBVA ventures, which launched in 2003, into a separate LLC called Propel, which is based in San Francisco with team members in London. Propel counts companies like Coinbase, Kasisto, Personal Capital and Prosper in its portfolio. Executives from BBVA were unavailable to comment on the Sinovation strategy by deadline. The agreement will offer the bank the potential to co-invest in Chinese AI startups BBVA might want to add to its own list of partnerships. It currently finds and nurtures talent through the Open Talent competition, its San Francisco-based incubator as well as Propel. It has also made equity investments through its M&A department in startups including the German banking-as-a-service platform Solaris Bank. BBVA is also betting on a strong return on investment. “Sinovation Ventures is also one of the most reputed VC funds in China and has a solid track record, with IRRs outpacing industry averages,” he said. “SV’s other funds have an estimated internal rate of return above 25 percent — between 26.6 and 36.6 percent. SV has also been responsible for the creation of six unicorns startups.” Banks have been investing more and more in technology over the past decade through their own corporate venture capital arms — a trend that’s not specific to the banking industry as every company in the world works to become more digital. Earlier this week, Barclays in the U.K. launched a “venture capital-style unit.” Corporate investors accounted for 18 percent of venture capital deals globally last year 2017, according to data from PitchBook and Global Corporate Venturing, compared to 8 percent in 2011. Santander, Credit Suisse and UBS have the most active corporate VC funds among European banks, according to CB Insights. Like its industry peers, BBVA is working on creating a more customer-centric banking experience by offering an entire suite of services around the main banking products it continues to sell. For example, when customers apply for a mortgage in their home-buying process, the banks should be able to pull third-party data to show them how likely the value of their new home is likely to increase or decrease in the near and far future, how much they can expect in renovation costs based on their own data and compared to what other people pay and how much they can reasonably expect to spend on utility bills or insurance. BBVA already provides these insights for customers in the car-buying experience. It also has a program called Baby Planner, which provides the same for expecting parents and families. “All of that has to be underpinned by clever machine-learning algorithms and matched to similar profiles we have on other people to give you insight into what it will cost you overall — not just the mortgage,” the spokesman said. “As you move from a pure bank to a digital company that offers a marketplace-banking-type product, you become more valuable to customers by giving insight into their data, recognizing that they own their data.”