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Next phase of #Fintech and #Insurtech is coming in 2017

Beginning of the year I blogged about the Outlook on #Fintech and #Insurtech in Europe here. I…

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Beginning of the year I blogged about the Outlook on #Fintech and #Insurtech in Europe here. I predicted a shift in this space for the first generation of fintech companies:

  • A slim, focused B2C model needs to pivot or to be extended towards higher value products
  • Customer gain via feature driven USP’s will become unsustainable because traditional players will catch up quickly and keep their incumbent advantage in the pure banking and insurance play.
  • B2B tech players will be the winner in the first phase with highly profitable earnings. They will attract funding from VCs due to the scalability of their business models.
  • B2C investments will have a hard time to convince financial industry experts of their success but will blend the public opinion with good PR and customer numbers. Many VC investors will try to save their initial investments with follow on bridging to win the survival game for now.

Watch out for the Trend

The investments in the Fintech space is still ongoing and keeping pace from the many seed investments in 2015/16. But as in all VC investments currently and in the first quarter of 2017 we see the drop in follow on investments for A-rounds and B-series. We are on a good track to reach the same level as last year which is in comparison a rather weak signal for now.

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Investors across all stages have learned to select the better companies. So expect well educated VC partners when talking to them in fundraising. The first phase was the hot new thing as usual and everybody went for it. Now the first fingers are burned and rational thinking is back in the partners room when making investment decisions. Focus will shift to the more challenging topics and more industry driven. A horizontal approach is nice — but not winning the game if you are not the next Albert Einstein in tech. Platforms already taking over the horizontal spaces like mobile payment (Apple, Google, Alipay) and peer-to-peer payment (facebook, WeChat). Merchants will follow the customer’s money (Alipay, WeChat building on Chinese tourists abroad) and mass markets (Android and iOS devices). A simple P2P app will never reach critical mass to become significant nor will the business behind that become profitable anytime. Merchants also follow cost optimization so there is only one way to enter those product segments: do it for free! If a merchant doesn’t need to pay for an additional payment method he will eagerly try it out. No additional costs means: no fees and no additional hardware. So if you can do it with standard NFC terminals you can win a new merchant. Some banks already started their whitelabled apps being compatible with the NFC chips of Android handsets either smartphones or wearables/watches/fitness tracker.

Focus on industry segments but Mobile wins.

Deloitte published their view earlier this year and draw a picture of potential business models. There are more like this outside.

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What all of those are missing is the impact of Mobile. Mobile will eat everything — because there is no difference between online and mobile. You get the same processor power, storage, speed and networks but all of this instantly and everywhere. Still the biggest game changer in this world and for all industries is Mobile.

T-Mobile US launched SynchUp with Mojio in November. First batch of products were sold out within days because customers liked the bundle of connectivity, pricing plan and feature set. There are a lot of those products and services out there in various regions. However only a few companies have the reach and customer base to build on to drive down customer acquisition costs and marketing spending. Partnering is always a good option for those B2C models — so becoming a B2B supplier wins markets which drive to commodity very fast. Without mobility in the core of the product it is hard to win a space. Connecting traditional services like car insurance with mobility and fast networks will allow to keep your margin and attack the competitors customer base on the move.

It’s all about Changing the Workflow

When disrupting an industry it is about changing the way we use a service. MyTaxi gained the market when it changed the way how people ordered a cab/taxi and paid for the ride all on the mobile phone visualizing every single step. A whole new experience of a service we know for over a hundred years.

“If you want to win in disruption change the way a customer uses your service and make it easier as well as more transparent. Technology in the background will create the new customer experience.”

This is true for Insurtech as well as Fintech:

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Digg deep into the old traditional products and rethink the way a user in a mobile world will use it. Big Data analysis of every step and data, AI for all the steps and data a user will provide and Automation to create a higher flexibility will lead the way in successful products which new market leaders will grow from.

McKinsey’s view on the overall space gives some guidelines where to look for chances:

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But be aware: Don’t underestimate the incumbents — They can buy technologies from B2B fintech and insurtech startups and build a piece by piece a much faster and stronger service platforms. There is no time for a shiny UI/UX if those can be build easily by others as well. As in every industry it comes down to price and value of a service from a customer’s perspective.

It needs to be a long term advantage — short term can easily be bought with deep pockets.

Source: https://thomasgr.tumblr.com/post/154437823395

Private Equity

MEDIA RELEASE: SAVCA Responds to Medium-Term Budget Policy Statement

The Southern African Venture Capital and Private Equity Association (SAVCA) agrees with the concerns raised by Finance Minister Tito Mboweni and the current economic outlook as outlined during Wednesday’s Medium-Term Budget Policy Statement (MTBPS). While SAVCA welcomes the transparency around the long-term effects of the COVID-19 pandemic and the continued strain which the fiscus is…

The post MEDIA RELEASE: SAVCA Responds to Medium-Term Budget Policy Statement appeared first on SAVCA.

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The Southern African Venture Capital and Private Equity Association (SAVCA) agrees with the concerns raised by Finance Minister Tito Mboweni and the current economic outlook as outlined during Wednesday’s Medium-Term Budget Policy Statement (MTBPS).

While SAVCA welcomes the transparency around the long-term effects of the COVID-19 pandemic and the continued strain which the fiscus is under, it is clear that there is a long road ahead to ensure the economy recovers. The private equity and venture capital sectors stand ready to support all efforts for economic recovery through their investment and interventions in companies outside of the listed sphere, and mainly in small and medium-sized businesses seeking to grow and recover.

These sectors can provide much needed relief to ease government spending and increase job creation through attracting local investment to the asset class and foreign direct investment into the country. This will not only assist with closing the funding gap which the country currently faces, but will also allow the economy to climb out of a downward economic spiral, as investment can be directed to where it makes the largest impact.

Amendments to Regulation 28

SAVCA welcomes the announcement made that the government has initiated a process to review Regulation 28 to make it easier for retirement funds to increase their investment allocation into infrastructure. It is a step in the right direction and SAVCA and its members stand ready to serve to support government with this process.

The 2020 Private Equity Survey reported that R25.4 billion was invested by SAVCA members in 2019, with the top two sectors being infrastructure and energy. Investments made into infrastructure accounted for 34.7% of the total investments, indicating the increasing role private equity plays in infrastructure investments.

In June, SAVCA released a position paper on Regulation 28 speaking to the current restrictions in place which constrain the investments which pension funds can make into private equity as an asset class. The SAVCA paper proposed recognising private equity as a separate asset class and instead of the catch all “alternative investments” category and over time increasing the 10% allocation limit which is currently in place.

We do not view Infrastructure as a separate asset class, but rather cutting across multiple asset classes, including private equity. government’s proposed amendment may increase the allocation of funds into infrastructure, but we should not lose sight of the significant role which private equity can play when it comes to investing directly in the real economy and supporting small and medium-sized enterprises (SMEs) in their growth and recovery post COVID-19.

SMEs have been particularly hard hit during this crisis but are also fastest creators of new jobs, which could underpin the country’s much-needed economic recovery and growth. SMEs should not be excluded from the conversation about economic growth.

Loop Structure Constraints

We note that the full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa, subject to reporting to Financial Surveillance Department of the South African Reserve Bank (FinSurv) as and when the transaction is finalised.

This reform will be effective from 1 January 2021 for companies, including private equity funds, on the condition that the entity is a tax resident in South Africa.

SAVCA has for many years engaged with National Treasury and the SARB on the negative impact that restrictions on ‘loop structures’ have particularly as it relates to the ability for high growth South African companies with global growth prospects to internationalise and expand their offering and indeed to raise foreign capital.

These companies are often required by international funders to establish a foreign-domiciled holding company from which to operate their international business and through which foreign investors are prepared to fund their investments in the South African company.

We are therefore pleased to see the removal of the restrictions on ‘loop structures’ but are concerned about a requirement for the foreign holding companies to be tax resident in South Africa, if that is what is intended by the statement in the explanatory memorandum, that this “reform will be effective from 1 January 2021 for companies, including private equity funds, provided that the entity is a tax resident in South Africa”.

For most jurisdictions in which a holding company would be domiciled, such as the United States where much of the global venture capital and growth capital derives, and for most investors, this requirement is quite simply a non-starter.

In our view, there is little or no benefit to exchange control reform if this requirement is made as there will be no material take-up and the dampening effects on entrepreneurial activity in South Africa will continue.  SAVCA is fully supportive of retaining benefits to the fiscus and are of the view that tax regulations sufficiently protect South Africa in the transactions described above.

In fact, by enabling founders and their private equity or venture capital investors to remain invested through the full growth journey of South Africa’s talented entrepreneurs, the returned proceeds on an eventual realisation at full value will bring much needed flows back to South Africa for reinvestment. We also create the stories that encourage the next generation of entrepreneurs to aspire and take the risks to build businesses in our country.

We would therefore urge government to review this stumbling block which will hinder more foreign direct investments into high growth businesses with the ability to create significant capital gains, reinvestment and jobs in South Africa.

COVID-19 Loan Guarantee Scheme

Regrettably SAVCA members report that since the last regulatory changes to the Covid-19 government loan guarantee scheme, there has been little or no uptake or changed behaviour by the banks after the regulatory changes.

The intended relief and stimulus has not found its intended recipients. In many instances businesses are no longer even applying as they have little confidence of receiving the necessary support on terms suitable to the environment in which they are operating.

Personal surety remains largely required and growth businesses which invest capital for growth have been summarily excluded from the relief. Many of these businesses will survive but the stimulus and relief needed to drive an actual recovery and growth – this opportunity has been missed. We note that National Treasury intends reviewing the scheme again following consultation with the Banking Association and South African Reserve Bank.

We are however concerned that consultation has not been embraced with the intended recipients of this relief and the channels that customarily support these businesses.  Lending criteria has not changed and we see no reason why it would.

We are of the view that National Treasury should consider new approaches like alternative lenders and private equity and venture capital as a new channel, more capable of making the necessary risk-return trade-offs and focusing on the future and not just the immediate recovery of a loan.

Private Equity assisting with positioning South Africa as a Financial Centre

The MTBPS also outlined further measures to assist South Africa in becoming an investment and financial hub for Africa. SAVCA is in full support of this drive and believes private equity and venture capital could significantly contribute to the hub. The benefits that private equity and venture capital can bring to the table are as follows:

•            Job creation on the basis that the ecosystem around private equity in South Africa is extensive, with a strong legal services industry, audit and due diligence services, consulting firms and back office services. These complement other competitive factors like a low-cost business environment, English language and availability of skills domestically;

•            Providing a competitive asset holding structure in South Africa would slow down the flow of entities that are registered by South Africans in other jurisdictions by providing an attractive alternative at home, which can attract back some of the activity that currently occurs offshore. In time, South Africa can build its intermediation role in investment flows from the rest of the world into assets on the rest of the continent and beyond;

•            It represents no cost to the fiscus nor investment requirement from the government, but would result in economic growth and job creation.

SAVCA continues to make itself available for any engagements with government in order to assist with helping to uplift the economy and help mitigate the negative long-terms effects of the global Covid-19 pandemic which our country is facing.

We volunteer our time, resources and access to broad swathes of the economy beyond the listed base of companies and would be pleased to contribute to the Operation Vulindlela on fast tracking structural reforms to bring practical contributions to the forefront as it relates to the real economy and growing SMEs.

About SAVCA                                                                                                                                              

The Southern African Venture Capital and Private Equity Association (SAVCA) is the industry body and public policy advocate for private equity and venture capital in Southern Africa. SAVCA represents in excess of R185 billion in assets under management through 170 members that form part of the private equity and venture capital ecosystem. SAVCA promotes the Southern Africa venture capital and private equity asset classes on a range of matters affecting the industry, providing relevant and insightful research, offering training on private equity and creating meaningful networking opportunities for industry players.

For more, visit our website: http://www.savca.co.za/

Follow us on Twitter @SAVCAssociation and LinkedIn

Source: https://savca.co.za/media-statement-savca-responds-to-medium-term-budget-policy-statement/savca-in-the-news/

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Private Equity

Two weeks left to score early bird savings at TC Sessions: Space 2020

NASA just made history by landing a spacecraft on an asteroid. If that kind of technical achievement carbonates your glass of Tang, join us on December 16-17 for TC Sessions: Space 2020, an event dedicated to early-stage space startups. We’ve launched early-bird pricing, and $125 buys you access to all live sessions, plus video on […]

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NASA just made history by landing a spacecraft on an asteroid. If that kind of technical achievement carbonates your glass of Tang, join us on December 16-17 for TC Sessions: Space 2020, an event dedicated to early-stage space startups.

We’ve launched early-bird pricing, and $125 buys you access to all live sessions, plus video on demand. Don’t procrastinate. Buy your pass now before the early-bird reenters Earth’s atmosphere (and prices go up) on November 13 at 11:59 p.m. (PT).

More ways to save: Go further together with early bird group tickets ($100) — bring four team members and get the fifth one free. We also offer discount passes for students ($50) and government, military and non-profits ($95). Looking for out-of-this-world exposure? An Early Stage Startup Exhibitor Package ($360) includes four tickets, digital exhibition space, a pitch session to attendees and the ability to generate leads. Bonus savings: Extra Crunch subscribers get a 20 percent discount.

TC Sessions: Space is an unrivaled opportunity to learn from, connect and network with boundary-pushing founders, investors and officials from NASA, the Aerospace Corporation, the U.S. Air Force and leading space companies spanning public, private and defense sectors.

We’ve packed the conference with outstanding presentations, fireside chats and interviews. Plus, you’ll find breakout sessions on specialized topics, audience Q&As with Main Stage speakers and the expo area for partners and early stage startups.

Here’s a taste of the topics but keep an eye on the agenda, because we’ll add more speakers and sessions in the coming weeks.

Asteroid Rocks and Moon Landings

Lisa Callahan, vice president/general manager of commercial civil space at Lockheed Martin Space, discusses all aspects of scientific and civil exploration of the solar system — from robots scooping rockets from the surface of galaxy-traveling asteroids, to preparing for the return of humans to the surface of the Moon.

Sourcing Tech for Securing Space

Lt. General Thompson is responsible for fostering an ecosystem of non-traditional space startups and the future of Space Force acquisitions, all to the end goal of protecting the global commons of space. He’ll discuss what the U.S. looks for in startup partnerships and emerging tech, and how it works with these young companies.

Bridging Today and Tomorrow’s Tech

Corporate VC funds are a key source of investment for space startups, in part because they often involve partnerships that help generate revenue, and because they understand the timelines involved. SpaceFund’s Meagan Crawford and Lockheed Martin Ventures’ J. Christopher Moran discuss how these funds fit in with more standard venture to power the ecosystem.

TC Sessions: Space 2020 takes flight on December 16-17, but we’re starting our early bird countdown right now. Great savings disappear in two weeks on November 13 at 11:59 p.m. (PT). Buy your early bird passes today and celebrate your savvy shopping with a tall glass of Tang.

Is your company interested in sponsoring TC Sessions: Space 2020? Click here to talk with us about available opportunities.

Source: https://techcrunch.com/2020/10/29/two-weeks-left-to-score-early-bird-savings-at-tc-sessions-space-2020/

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Private Equity

Leon Black offers more details on ties to Jeffrey Epstein – Update

Apollo chief executive raised the issue after questions swirled about his relationship with the late financier

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Leon Black, the billionaire chief executive of Apollo, on Thursday, 29 October, offered a history of his ties to the late financier Jeffrey Epstein, his most detailed public account yet of a relationship that sparked renewed concern among his firm’s shareholders and fund investors in recent weeks.

Epstein was indicted last year on federal sex-trafficking charges involving underage girls.

On a call to discuss the private equity firm’s third-quarter earnings, Black said he wasn’t eager to speak publicly about his personal business, “but this matter is now affecting Apollo, which my partners and I spent 30 years building, and is also causing deep pain for my family.”

The Apollo chief reiterated that he paid Epstein millions of dollars annually to provide professional services to his family partnership and other family entities, “involving estate planning, tax, structuring of art entities and philanthropic advice” from 2012 to 2017.

He said there was substantial documentation of the work and that it was vetted by law firms, accounting firms and other advisers.

“There has never been an allegation by anyone that I engaged in any wrongdoing, because I did not,” Black said. “And any suggestion of blackmail or any other connection to Epstein’s reprehensible conduct is categorically untrue.”

Black also re-emphasised that Apollo never did business with Epstein, who died by suicide in jail in August 2019, the New York City medical examiner found.

The speech came after the three Apollo board members to who make up the New York firm’s conflict committee last week hired law firm Dechert to conduct an independent review into Black’s business with Epstein. Black said he asked for the review and is cooperating fully.

The moves were prompted by a New York Timesreport on 12 October that Black had paid Epstein at least $50m — more than previously known—in the years after Epstein was convicted in 2008 of soliciting prostitution from a teenage girl.

The article didn’t present any evidence that Black participated in inappropriate activity, but it sparked concern among some of Apollo’s public-pension fund investors and has weighed on the company’s shares.

Apollo’s shares rose briefly after Black’s statement but later fell about 1% in morning trading Thursday, 29 October.

Black, who co-founded Apollo in 1990, said he met Epstein around 1996 when Epstein was advising a number of prominent clients on estate-tax planning. The adviser had been named a trustee of Rockefeller University and served on the Council on Foreign Relations and the Trilateral Commission.

In his network were “luminaries I respected and admired, including several heads of state, heads of prominent families in finance, a US treasury secretary, accomplished business leaders, Nobel laureates, acclaimed academicians and noted philanthropists,” Black said.

The Apollo chief said he wasn’t aware of Epstein’s criminal conduct until it was reported in late 2006 that he was under investigation by state and federal authorities in Florida.

In 2007, Epstein signed a federal nonprosecution agreement, which has since been scrutinised, to resolve that investigation, pleading guilty the following year to two state prostitution counts. He spent much of his 13-month sentence outside prison.

After his release, Epstein went back to his financial-advisory work and once again began associating with prominent people from finance, academia, science, technology and government,  Black said. He said he didn’t learn the extent of the further allegations about Epstein’s conduct in 2018 until after he had already stopped working with him.

“Like many other people I respected, I decided to give Epstein a second chance,” he said. “This was a terrible mistake. I wish I could go back in time and change that decision, but I cannot.”

Whether Black’s explanation and the independent investigation will be enough to satisfy the firm’s jittery investors remains to be seen. Working to Apollo’s advantage is the fact that big pension funds, which typically need to invest large sums of money, have relatively few options for where to do so. And Apollo’s funds have continued to offer them strong returns.

Any defections among investors could theoretically threaten the firm’s goal set last year of reaching $600bn in assets over the next five years. For now, growth in the metric is chugging along. The firm said that assets climbed to $433.1bn in the third quarter, up from $413.6bn in the prior quarter and $322.7bn a year earlier.

Apollo chief financial officer Martin Kelly said the firm’s assets were durable even if the independent review of Black has an impact on fundraising. He noted that 60% of Apollo’s assets are in permanent-capital vehicles—pools of money that don’t need to be constantly replenished—and 90% are either in permanent-capital vehicles or funds with five years or longer from inception.

Kelly said the firm expects some of its investors will pause new commitments until the independent review has been completed. But even if Apollo raises no additional third-party capital this year, its fundraising of $18.4bn from third parties through 30 September already falls within its typical annual range of $15bn to $20bn, he said.

“We have incredibly long and durable relationships with our clients,” Apollo co-founder Josh Harris said on the call. “We’re deeply in contact with them, and obviously they are awaiting the results of the review Leon discussed.”

In response to an analyst question about how long the review would take, Apollo said it hoped the process could be completed by the end of the year, but that it was in the hands of the conflict committee.

Apollo also reported lower net income and distributable earnings for the quarter. It posted net income of $272.4m, or $1.11 a share, down from earnings of $363.3m, or $1.63 a share, a year earlier. The decline was primarily driven by a bigger loss attributable to noncontrolling interests.

Fee-related earnings were a bright spot, climbing 30% year-over-year.

Apollo invested a net $20.9bn across its various investment platforms during the quarter, a metric that reflects investments in vehicles beyond traditional drawdown funds.

The firm said it would pay a dividend of 51 cents per share versus 50 cents a share for the third quarter of 2019.

Write to Miriam Gottfried at Miriam.Gottfried@wsj.com

From The Wall Street Journal

Source: https://www.penews.com/articles/leon-black-offers-more-details-on-ties-to-jeffrey-epstein-update-20201029

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