SAN FRANCISCO – Not many venture funds, if any at all, focus exclusively on the financial technology market. So when three Montgomery Securities veterans in early 1998 launched maiden fund FT Ventures to back financial software and transaction-related e-commerce businesses, a number of banks leapt at the chance to invest as strategic limited partners.
Twenty-one financial institutions, led by BankAmerica Corp., National City Corp., U.S. Bancorp, Wells Fargo & Co., Banque Nationale de Paris, Credit Suisse Group and Deutsche Bank, ponied up a total of $200 million in commitments for FT Ventures, which had an early May final close. An initial close on $120 million took place in July 1998.
“These are not the passive investment arms of these financial institutions,” said Scott Wu, a former Montgomery Securities vice president and one of three general partners of FT Ventures. “[Limited partners are] interested in identifying technologies they might want to purchase and use.”
There are strategic VC firms that focus on financial technology, such as E*Trade Group Inc. (VCJ, May, page 5) and Thomson Financial’s TF Ventures (VCJ, February, page 6), a sister company to Venture Capital Journal. These firms, however, are corporate VC units that receive money from their parent companies and not from limited partners. Visa International, which is raising a financial technology-focused venture fund in which the credit card company’s member banks will invest as limited partners, most closely resembles FT Ventures.
“We anticipate leveraging all of our L.P. relationships,” Mr. Wu said. “[Portfolio companies] view us as an independent VC firm … and as a strategic investor as well. That’s highly appealing to every company we talk to.”
FT Ventures had little trouble raising capital as a first-time fund. Mr. Wu, James Hale, a former managing director of Montgomery Securities, and Robert Huret, a former senior consultant to the bank, comprise an experienced management team familiar with the market. “The reception was overwhelming,” Mr. Wu said. “[A venture fund] isn’t too far a departure from what we were doing.”
Other L.P.s included Bank One Corp., Canadian Imperial Bank of Commerce, Fifth Third Bancorp, Fleet Financial Group, KeyCorp, PNC Bank Corp., Republic New York Corp., Royal Bank of Canada, Wachovia Corp., Charles Schwab & Co., Chicago Title Corp., American International Group, Sallie Mae and Washington Mutual Inc.
Limited partners could not be reached or refused comment.
FT Ventures will back mid- to late-stage financial software, online stock trading, banking, insurance, fulfillment and payment companies, as well as other peripheral technologies that make all of the above possible. The firm’s deal size will range between $3 million and $7 million, an investment category that Mr. Wu characterized as “expansion-stage” capital for companies with a “limited technology risk.”
While the majority of FT Ventures’ investments will be made in the United States and Canada, Mr. Wu expects the fund’s international limited partners to provide some attractive deal flow. The firm already has participated in the third and fourth rounds of financing for Financial Engines, a Palo Alto, Calif.-based company that allows consumers to plan their personal finances. New Enterprise Associates led each round, the latest of which came in December.
The fund was near to closing several other deals at press time.