Earlier this year, Hongkong offered digital banking licenses to Alibaba, Tencent and Xiaomi. Therefore, it is not surprising to hear that the Monetary Authority of Singapore (MAS) are opening up their doors to digital banks too. Applications are open for firms wanting to set up a digital bank in Singapore. The deadline for applications is […]
With a name that sounds like it was lifted from the screenplay of Casino Royale, Lex Greensill, the London based, Australian entrepreneur betting big on supply chain finance, has scored a strong indication his bet might play out, with news this week his company Greensill had cashed in a $800 million equity injection from Softbank.
unassuming boy from Bundaberg (a town more famous for rum than financing) was appointed a
Commander of the Order of the British Empire in 2017, rubbing shoulders with king-in-waiting
Prince Charles, and is still involved with the family farm back in Queensland,
exactly does Greensill work, and what is the opportunity Softbank are
especially keen to get in on?
2011, the business has experienced phenomenal growth, helping over 1.3 million
small businesses get paid sooner. It uses the credit-worthiness of their big-name
customers as part of the risk assessment model, freeing capital up to those who
are most under pressure, and thus ensuring the survival of businesses in places
as remote as Bundaberg itself.
Greensill model relies on the purchase of invoices or trade receivables from
small companies seeking early repayment. It packages these into short-term
bonds and sells them on to investors. Approximately 47 bonds are issued per business
day, supported by the banking arm in
Germany and other fund managers.
estimates approximately $55
trillion of cash is locked up through inefficient payment terms and
structures. Servicing this, and making a
tidy profit in the process, is no doubt part of the attraction for Softbank.
That and the fact that according to Greensill’s white paper, no investment-grade
corporate has defaulted on its payment obligations in the past 20 years. High
demand, low risk and few alternatives makes for an attractive ‘Golidlocks’
Competitors in the space include Taulia, Citi, Orbian(our interview with CEO here) and PrimeRevenue, with more eyeing off the space each year. It is certainly a fascinating space to watch, and an emerging asset class to consider, so long as the big boys keep paying their bills.
Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post. I was a previous employee at Tyro.
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The tech IPO market is having a bonanza year so far and NASDAQ hit an all time high in April. However, confidence in the tech giants and their ethics in dealing with consumer data is perhaps at rock bottom. Cheap money is causing ballooning valuations. With Zoom, Pinterest, Lyft, Slack, Uber, WeWork all going for the big day at the market, are we witnessing a repeat of the dot com boom and bust?
The other question to ask is “Is Technology the new Banking?”. As they say, “Follow the money” to catch the bad guys in crime stories. The other way to look at it is, when people make good money, they are often portrayed as the bad guys. The world loves to see them fall. Behavioural and philosophical points aside, several market trends are shouting out for caution.
Analytics company Intensity’s April prediction puts the chances of a recession happening in the next 18 months at 98.9% and in the next 24 months at 99.9%. They are expecting a recession to happen in October 2019. Out of curiosity, I went through all their previous months’ predictions, to check for consistency. The confidence levels had increased steeply between Aug-Sep 2018, and have stayed high since.
Irrational exuberance in the markets is on display yet again. The Crypto bubble burst two years ago, but didn’t cause much of a pain as the market cap was not big enough. But with tech stocks driven by late stage VCs like Softbank, we have more to lose.
Global debt levels are at an all time high at $244 Trillion, and almost everyday economists are writing about a crisis triggered by debt markets.
One of the key trends over the last two years in the VC industry is the rise of late stage venture funds. Softbank led the boom, with Sequioa and others following up with relatively modest sized funds to catch “Unicorns” before their big day in the public markets. The strategy is to get in, pump the firms with steroids and fatten them up for the markets to consume. In the process, make some huge multiples.
Some stats around the Softbank fund
$100 Billion to invest
~$70 Billion deployed so far in about two years,
$15 Billion more
$10 Billion in Uber and $5 Billion in WeWork
Improbable, NVidia, Grab, Kabbage, Flipkart, Oyo, Slack, PingAn, Alibaba and more recently OakNorth are some big names in the porftfolio
$45 Billion from Saudi’s Sovereign Wealth Fund represents the biggest investor in the Softbank Vision Fund.
However, both Uber and WeWork have struggled to demonstrate a sustainable business model inspite of their rise. The Growth vs Profitability conundrum remains, and these two might well be case studies on how not to spend VC money, if (when?) their “Going-Public” goes sour.
The Softbank Vision fund could also be a case study of “How not to do Venture Capital”. As a late stage Venture Capital investor, they have an opportunity to look for firms with robust business models and help them go public.
One bright spot is their investment into OakNorth, a UK based Fintech, who tripled their profits in 2018.
The strategy with firms like WeWork or Uber should have been to identify where the business model needed tweaking and pivoting. That could be achieved with $100 Billion in the bank. As a fund with so much capital, they have a responsibility to make healthy VC investment decisions. Not just for their investors, but also for the markets.
I am sure Softbank will make handsome multiples when some of these shaky businesses go public. However, the success these firms managed with private money, would be hard to replicate in the stock market. If a few of them fail, that would trigger pain.
There is enough negative PR about the tech industry’s lack of ethics, diversity and how they manage data monopoly. Creating a bubble, riding it and exiting it before a market crash might just make Tech the New Banking. Softbank might have accelerated that process.
The Theme this week is Tech giants are serious about insurance. Tech giants making moves into insurance is not new, but continuing news update can prove that they are pretty serious.
The Insurtech Front Page Weekly CXO Briefing is all you need to know for the week, jargon free for executives, entrepreneurs and investors who want a piece of this huge, fast changing market. Each week we select one theme illustrated by 3 news items, because we know that you are busy. Our job is to filter out the noise, so you can read the signal. We bring you the raw news plus our take on why it is significant.
For this week we bring you three stories illustrating the theme of Tech giants are serious in insurance.
“Softbank’s Vision Fund plans to pump more money into insurance, a sector it sees as both ripe for disruption and a potential booster for its bigger bets in cars, health and financial services, a Vision Fund executive told Reuters.”
Softbank is not a typical tech giant, they have contributed a lot in telecommunications, but they are better known for their investments in Alibaba, Uber, Boston Dynamics etc. They also invested in Zhong An. With Softbank’s huge fund ($100 billion) and successful investments to date, their moves into Insurance will be worth watching.
“Giant Google’s investment arm has purchased a minority stake in Applied Systems, a provider of insurance technology and cloud-based software for independent agencies.
The investment in Applied Systems is being made through CapitalG, the growth equity investment fund of Google’s parent Alphabet, which has also financed companies including Lyft, Airbnb, SurveyMonkey and Zscaler.”
Google’s comparison site didn’t pan out. Fortunately for the industry they are still watching and investing.
Extract, read more on Life Insurance International:
“Vitality has announced a partnership with Amazon with gives its Active Rewards programme a boost.
As a result, members will receive a month’s access to Amazon Prime for every 160 Vitality activity points they earn. This can lead to savings of up to £79 ($104) a year.”
Amazon made several moves before, such as investing in Acko and the joint action with Berkshire Hathaway and JP Morgan into Healthcare. Partnership with Vitality seems relatively a small one, and more like a pilot cooperation. But it might turn out to be critical since it involves actual insurance work.
Since the day the word “InsurTech” was invented, tech giants have been making moves to enter insurance. They have suffered a few setbacks (e.g. Google Compare), but they are the leaders in the “Tech” part. When they have a deeper understanding in insurance, their technologies might start playing major roles.
Zarc Gin is an analyst for Warp Speed Fintech, a Fintech, especially InsurTech-focused Venture Capital based in China.
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