Happy New Year!
Before we launch into summarising 2022 and outlining key themes for 2023, we asked ChatGPT for a quick primer on what we do at ANZ’s 1835i Ventures:
The primary goal of Corporate Venture Capital (CVC) is to provide the parent company with access to new technologies, products, and services that can be integrated into the company's existing operations or used to develop new business opportunities. CVCs also provide a way for companies to stay abreast of trends and innovations in their industry, and to build relationships with promising startups. - ChatGPT
Accurate and delivered within seconds. We then got a bit more provocative and asked if ChatGPT was a threat to humanity (we are futurists after all) here was what we got (again, in seconds):
ChatGPT, like other AI-powered technologies, has the potential to greatly benefit humanity by improving efficiency, accuracy, and decision-making in a wide range of industries. However, it's important to note that AI-powered technologies also raise a number of important ethical and societal issues that need to be carefully considered and addressed.
One of the main concerns about AI is the potential for automation to displace human workers, leading to job losses and economic disruption. Additionally, as AI systems become more advanced and autonomous, there are concerns about their ability to make decisions that have a significant impact on people's lives without appropriate oversight or accountability.
Another concern is that AI systems can perpetuate and even amplify bias and discrimination that is present in the data they are trained on. Such potential biases can lead to poor and unfair decisions and can also perpetuate societal inequalities.
It's important to note that these concerns are not unique to ChatGPT or other AI-powered technologies, but are rather common to many emerging technologies. Therefore, it's important to continue to research, monitor and mitigate these concerns in order to make sure that the benefits of AI are accessible to everyone and that the technology is used in a responsible and ethical manner. - ChatGPT
Now onto the wrap up of our observations of last year.
If you follow the money, you’ll find that 2022 was an interesting year.
The polycrisis of the pandemic, climate-related disasters, war in the heart of Europe and inflation combined to impact global capital markets. This resulted in a significant drop in value for most sectors, with the tech sector hit particularly hard. This has had a flow on effect that has seen valuations hit across the boards, and a reduced appetite of later stage investment funds to continue to support later stage private companies. It has also shifted funding away from areas that were drawing a great deal of funding in 2020-21.
On the positive side, it put a crashing halt to the “irrational exuberance” of some large investors, and focused founders, management teams and investors on building businesses with rational business models that have near-term paths to profitability.
Within our focus area of fintech, there was a significant loss of value in the BNPL sector and continuing pressure on the remaining neobanks. Most notably, 2022 saw a meltdown of the crypto sector, where the lack of regulation and lack of diligence by some of the largest and most respected financial institutions and investment funds resulted in the FTX bankruptcy. Crypto now can join a long line (perhaps beginning with tulip mania of 1637) of infamous too good to be true financial schemes. Bitcoin and other digital currencies continued to see a decline in value off of their 2021 highs, but investment in Web3 and Defi protocols did continue, though at a slower and perhaps more thoughtful pace.
So what areas of innovation maintained investment flow in 2022 and what can we expect in 2023?
Following the money, SaaS, Fintech, and Healthcare remained the three biggest investment categories in 2022, and we saw investment increase in Supply Chain, Agriculture, and Robotics (despite total funding being small in absolute numbers).
Within Fintech, enterprise, and business-facing categories, such as payments and banking infrastructure, remained strong, while consumer-facing products (such as the aforementioned BNPL) tapered off.
Generative artificial intelligence and CleanTech/ClimateTech are likely to be the main VC investment themes in 2023.
OpenAI’s breakthrough with ChatGPT and Dall.E thoroughly impressed users by illustrating how highly humanised writing and graphic design can be automated by generative artificial intelligence. In 2023, we expect to see continued investments in further research and development of AI and machine learning, as well as a surge of funding for early-stage startups with innovative AI industry applications.
Illuminating transparency and accountability of ESG information is becoming increasingly pertinent, as sustainability weighs more and more in the decision making process of large institutions, small businesses, and consumers alike. Applications of SaaS and blockchain in supply chain transparency, carbon accounting, and ESG verification are also crucial pieces of the puzzle in solving the problem of climate change alongside ClimateTech and CleanTech.
In our sweet spot of fintech, the leading opportunity areas include:
Security: enhancing cybersecurity infrastructure to withstand evolving cyber threats.
Customer engagement: fostering rich and comprehensive customer relationships through tailored services and innovative pricing models.
Banking-as-a-Service (BaaS): building world class banking infrastructures to speed up internal legacy processes, expose banking services, and enable embedded finance.
New product offerings: embracing new growth trends including sustainability financing and ‘beyond-banking’ services such as proprietary data and advanced analytics.
In addition to the these areas, and the ever-present Proptech, SMB, financial wellbeing, and institutional payments and lending, we are paying close attention to a number of fintech themes:
Account-to-account: as businesses and digital consumers seek more seamless ways to pay, spend, and transfer money, account-to-account (A2A) solutions are gaining traction. A2A payments move money faster, without the need for additional intermediaries or payment instruments which promises to reduce fees and combat fraud by relying on account credentials for authorisation (including the potential for two-factor authentication). As such, A2A is an attractive service offering for financial institutions and provides the basis for broader offerings including embedded finance.
Embedded Finance: non-bank companies — including retailers, telcos and software companies — are increasingly offering embedded financial services (such as bank accounts, payments and lending) in order to enhance customer retention and lifetime value. To facilitate this, financial institutions are increasingly offering BaaS to customers and fintechs — bundled banking services delivered via APIs that can be white-labelled or co-branded. This requires new tech and capabilities, while leveraging strong risk and compliance management.
Net Zero: consumers and investors are increasingly scrutinising how companies are mitigating their carbon footprint. ANZ aims to be the leading Australia/New Zealand-based bank in supporting customers' transition to net zero emissions by 2050. In finance, the largest source of emissions comes from ‘financed emissions’ – emissions related to capital like loans, investments and underwriting. Accordingly, we are interested in carbon management, reporting and reduction solutions that can help the bank and its customers tackle this challenge. Areas of application include agriculture (land-based sequestration), business (supporting customers to cost-effectively measure and manage emissions), and real estate (measuring and managing climate risk in portfolios).
Blockchain: despite the global fallout in crypto markets, we are watching out for blockchain projects with strong institutional applications and support from global financial players. These will target unique industry pain-points and leverage the power of blockchain, such as smart contracts and distributed ledgers, to deliver differentiated solutions. We are interested in solutions that support ANZ’s digital asset strategy, including stable coins and custody. Wider solutions of interest include supply chain automation and cross-border/interbank value moments.
As for 1835i? We see 2023 as an opportunity to take bold steps in assisting ANZ build greater resilience and long-term growth through partnerships and investments.