Anthemis Group, an early backer of robo-advisor Betterment, took an unconventional path to investing out of traditional LP-backed funds.
The London firm was founded in 2010 by Sean Park, previously a senior executive at Dresdner Kleinwort, and Amy Nauiokas, former CEO of Barclay’s Stockbrokers, with the mission to help reinvent finance for the information age.
“We knew the ‘why’ of our goal, but the ‘how’ evolved over time,” says Park, the CIO, about setting up Anthemis and initially investing off the balance sheet.
In addition to backing early-stage fintech start-ups, Anthemis consulted large banks on their digital transformation efforts. Park says the consulting practice not only paid the bills, but had strategic value by helping the firm build trust and develop relationships with the world’s largest financial institutions.
“We felt that we were at the dawn of a multi-decade transformation of financial services,” he says. “Our experience in finance was deep. But if we only invested in start-ups from the beginning, our knowledge of the industry would quickly go stale.”
In the meantime, several of the firm’s early bets had successful exits. These included the Climate Corporation, a weather insurer, which was sold to Monsanto for $930 million in 2013, and banking platform Simple, which BBVA bought for $117 million in 2014.
In 2015, armed with a strong track record, the firm decided to exit its consulting business and focus on investing in fintech companies via a traditional fund structure.
Anthemis closed its first institutionally backed venture fund at the end of 2016 with $106 million in commitments. The LPs were primarily strategics, with European Investment Fund and UniCredit anchoring the vehicle.
At the same time, the firm established three single-LP funds on behalf of UniCredit, South African insurer MMH and Swiss insurance company Baloise.
Park says the firm had the following pitch to LPs: “If you want to run a CVC, we have a strong view that it is very difficult for corporates to do that well. Give us some capital and we can deploy it in a manner that you want.” He adds that the challenge with direct corporate venture is recognizing substantive industry transformations.
“We knew the ‘why’ of our goal, but the ‘how’ evolved over time”
The firm’s first VC vehicle backed 24 companies. Anthemis has already started investing out of its second early-stage fund, which Park expects to be a little bigger than the first.
One of the firm’s evolving themes is backing companies that are not players in the financial sector, but which use embedded finance tools such as payments processing.
Park says that in February, Anthemis also had a first close at $90 million of its late stage insurtech fund, which is targeting up to $250 million.
“Insurtech has a little bit of a hype cycle and we may be at the top of it now,” he says. “But what is unique to insurance is that technology is enabling us to insure things that were not previously possible. The whole market can grow by an order of magnitude.”
Opportunities on tap
Park offers an example of the firm’s investment in Flo Technologies, a company that helps detect water leaks.
“Water damage is expensive,” he says. “Flo’s IoT sensor helps home property insurers underwrite policies at a lower cost.” Flo was purchased by faucet maker Moen for an undisclosed amount in July. The early-stage fund invests from $250,000 for pre-seed companies up to $6 million for start-ups raising Series A rounds. Meanwhile, checks for the insurance fund range from $10 million to $20 million for Series B and C companies.
Since its founding, Anthemis has amassed more than $670 million in AUM and invested in over 100 start-ups across Europe and the US.
Despite managing traditional venture funds, Anthemis still operates as a company with shareholders and employees, Park says. “We have more empathy for our portfolio investments because we are also working on building our company.”