SIX FinTech Ventures – from Incubator to Business

Andreas, you are Head Corporate Ventures. Can you tell me what SIX FinTech Ventures is all about?

SIX FinTech Ventures invests in fintech firms at an early stage in their development. We seek to drive forward innovative business ideas that can make an impact on Switzerland as a financial center. As an infrastructure service provider, SIX has a duty to keep the Swiss financial center competitive and fit for the future. SIX FinTech Ventures can make a decisive contribution to that.

What criteria does SIX FinTech Ventures apply when selecting its investments?

Essentially, the business idea needs to fit into the broad fintech framework. This is obviously a very diverse area, ranging from payments through to the capital markets – i.e. covering wholly different areas of the financial industry. The business models also need to be scalable and achieved through technology, as that is what creates scalability. Finally, the idea must also be relevant in some way for Switzerland as a financial center.

Can you give us any more detail?

We have defined four focus areas where we think there is a considerable need for digitalization. These are wealth management, regulatory technology or “regtech”, tokenization and capital markets. These are the main fields on which we concentrate, but we are not limited to them: we have our eyes peeled for any opportunities within the fintech sphere. We seize these wherever we find them at the right price. Pragmatism is the watchword.

You mentioned scalability: what exactly do you understand by that?

When we talk about scalability, we mean achieving the greatest possible leverage from the fewest resources. This leverage can, for example, relate to sales, profitability or market potential. Scalability is low where the model serves only a limited market or audience. This means that we look for companies whose ideas and products can serve the financial industry on as broad a basis as possible. That also means that the company will ideally be of interest to as many investors as possible. A start-up that only one company would consider investing in does not normally have a product with good scalability.

A good example from a wholly different industry is a spark plug. Every car with an internal combustion engine needs one. If I manufacture spark plugs, I can theoretically sell them to any car owner – no matter who made the vehicle. This means that the market is as big as the number of cars with combustion engines. There are no restrictions. That is the ultimate in scalability.

When you invest, you provide money to start-ups – in return for shares, obviously. What else can you offer?

The financial investment is pretty basic: the money allows the start-up to make investments of its own, to develop and to grow. This is not something that sets us apart from other investors, but we still do it. SIX FinTech Ventures is able to draw on the assets and tremendous expertise within SIX and also the very diverse capabilities that we have in-house. Our distribution channels and contacts are also an enormous advantage for a start-up without the necessary channels and network of its own.

I have a mental image of a nerd in a hoodie being led by SIX into the serious world of finance and making it big with their idea or product. Is that a fair description?

Not really. The nerd in a hoodie would probably not be able to bring his idea to the public without SIX intervening. We would not want to invest in that nerd. We want to team up with those that would have made it without us one way or another. We want people who know the market and have a good product in the pipeline. If SIX can help their success to come sooner or the product to make an even greater impact, then we are in the right place. Essentially, the company should be capable of survival and growth even without us. We are not willing or able to solve all of a start-up’s problems; the entrepreneurs must have the skills to do that themselves. Our role is to support them on the path to achieving their goals.

Which start-ups have you won over so far; where has SIX FinTech Ventures invested?

We have taken five holdings since March 2019. They are in Shift Cryptosecurity, vestr, PassOn, Value3advisory and Tradeplus24.

Will you be able to achieve the desired returns?

We only invest in attractive companies that have the potential to generate a return on investment (ROI) for us. However, ROI is not our primary driver, but rather a happy by-product of our work, as we invest first and foremost to support Switzerland as a financial center and the role of SIX as a central infrastructure service provider. It is really important to understand that we have a dual objective: our priority is to invest in companies that will safeguard the future competitiveness of our industry through innovative ideas, technologies and business models. These companies will also return money to us in the event of a successful exit, thus paying off our financial investment. By supporting its chosen ventures, SIX FinTech Ventures strengthens the Swiss financial center as a whole. SIX benefits from this whatever happens – whether directly or indirectly is a secondary concern.

Swiss banks are shareholders in SIX. Do you invest in companies that could end up choking off these banks?

We are essentially free to operate and invest as we see fit. So in theory we could end up investing in ideas that bring about a fundamental change in this industry. Why not? That is precisely how SIX keeps its finger on the pulse, learns about emerging businesses and undertakes a form of hedging. If such a start-up were indeed to have such a great influence one day, it would most likely become a takeover candidate for the big players operating in this market. In such a scenario it would of course also be financially advantageous for SIX to be involved. However, there is no sign of any such disruptive innovation on the market at present. But if there were, we would already be too late to invest. Our philosophy is to invest in the early stages of a company’s development – a time when the end effect of an idea or technology is not normally fully visible.

We have been talking a lot about business models, ideas and products. But ultimately behind all that you have people. What do I as a company founder have to bring to the table to convince you to invest?

You should already have brought your innovation to a certain level. Specifically, I am looking for the level that you would have reached in successfully completing the F10 program. In this way you demonstrate to us that you believe in your own idea and that you are capable of achieving major milestones independently. This feeds directly into our philosophy that you would be able to turn your idea into reality even without our help. A team mentality and the ability to learn go without saying, as no one gets to the top alone and those who embrace teamwork tend to learn along the way. You would need to be solution-oriented and of course flexible. No idea ends up being implemented exactly as it was first conceived. You need to be able to adapt to new circumstances, fast. This requires you to grasp in good time that circumstances have changed. Then you prove that you can recognize and understand a changing market. We are talking about the classic entrepreneur profile here. That’s when everything comes together.

When will we see the first IPO of a unicorn in which SIX FinTech Ventures has invested?

(laughs) That could take a while yet. As I have already explained, our primary motivation is not to make a fortune, however nice that might be. We invest with a long-term horizon. We take stakes in potential champions at an early stage. These companies need time to develop – I am talking about a time frame of four to seven years, and we are still right at the start of that process. We must not lose sight of the fact that we only made our first investments in 2018. It would be unreasonable to have high expectations just yet. Even innovations take time to penetrate the market: just because a technology has certain benefits does not mean that everyone will adopt it overnight.

Some years ago you took the first steps in your own development with the F10 Incubator. What is the status now?

That’s right, we didn’t begin with SIX FinTech Ventures. We have developed step by step over a number of years. Similarly to the Swiss value chain, we cover all links in a chain – but ours is a chain of innovation rather than a traditional value chain. We are able to discover ideas, win them for F10, accelerate their development there and ultimately make the requisite investments where there are good prospects of success. This framework has taken some years to develop and was designed to function in just this way. I hope that it will enable us to eliminate some the doubts that existed early in its development. From a purely structural point of view, we have reached our destination with SIX FinTech Ventures. The subject matter is of course another matter: here, we learn more every day. Which is just how it should be!

Many thanks for your time.