Fund focus: Plugging the innovation gap

Last Autumn, a government-backed report warned that Australia was in danger of being left behind in financial technology race. 

The global fintech sector will more than double in size to be worth $6-8 billion by 2018, the report noted, and other financial centers are already encouraging Australian start-ups to relocate. The country's financial sector contributes 9% of GDP, 18% of corporate tax receipts and 420,000 jobs, most of them in Sydney. The city must act now to stay competitive, the report concluded.

No time has been wasted in making up lost ground. One of the recommendations - the creation of a non-profit fintech hub to encourage collaboration between start-ups, venture capital and established financial services players - became a reality in March with the launch of Stone & Chalk in central Sydney. One of the first tenants in the 1,230 square-meter co-working space was H2 Ventures, an early-stage fintech investor that spun out from listed entity AWI Ventures nine months ago.

Last week, H2 was responsible for another breakthrough as it teamed up with First State Super to support fintech start-ups. The new partnership will receive a portion of the A$250 million ($182 million) the superannuation fund wants to deploy in technology innovation. It has already allocated some of this to Blackbird Ventures' latest fund.

"The challenge the super funds have is they are too large to be able to invest in very small opportunities," says Ben Heap, founding partner at H2. "The advantage of working with someone like ourselves is that we can help super funds sensibly invest in a portfolio to play this sector."

H2 already runs an accelerator program that brings start-ups to Stone & Chalk for six-month stretches. It has supported 11 companies so far and plans to get 100 more off the ground over the next three years. Of those 11, online wealth management platform Stockspot and equity crowdfunding platform Equitise have subsequently raised follow-on rounds from Rocket Internet and Tank Stream Ventures, respectively.

First State Super is predominantly interested in later-stage opportunities where it can put more capital to work. With H2 already covering the very early-stage space, Heap wants to try and fill the gap in between. He is in talks with a number of different investors about a fund that would focus on Series A rounds of A$5 million or above, essentially providing a domestic option for start-ups that would otherwise have to look for capital offshore.

But the significance of First State Super's involvement in an area that many of its peers have avoided in recent years should not be overlooked. "Listening to them talk about it, they want to get into the opportunity and then maybe invest further money in the future," Heap adds. "The important thing is they have made a decision to become an investor in the space and that is very positive for the economy."

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• Topics
• Australasia
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