Flourish Ventures may fund Indian firms in embedded finance, neo-banks this year

Flourish Ventures managing partner Tilman Ehrbeck

Bengaluru: Flourish Ventures, a venture firm focused on financial services and fintech, may back companies in neo-banking, gig economy, embedded finance and insure-tech, in India this year, its managing partner, Tilman Ehrbeck, said.

In March last year, Omidyar Network, the philanthropic investment firm started by eBay founder Pierre Omidyar, had said it had spun off its financial inclusion initiative to launch Flourish Ventures. Flourish makes investments in personal finance management tools, challenger banks, regulatory innovations, and technologies that foster an inclusive economy.

Till 2018, Omidyar Network globally had invested $200 million across more than 45 startups in financial services including 13 in India. Flourish continues to be invested in the 13 portfolio companies and is actively engaged with them, including continued board engagement, the firm said, in a note.

From 2019, Flourish started having a capital pool of around $300 million to invest in global frontier financial services companies, over a five-year period. Of the $300 million, they have invested around $60 million so far, globally. In India, Omidyar Network has invested between $15-20 million on an annual basis over the last few years.

In 2019, Flourish invested in two new start-ups (neobank Yelo and Shubhloans, a digital lending startup) in India and made follow-on investments in fintech startups ZestMoney, Indifi, Kaleidofin and also in Toffee, an online insurance platform. These were co-investments with Omidyar Network India.

“The investments (in 2020) depend on market conditions and opportunities,” Ehrbeck said in an interview.

Last year, Omidyar Network India and Flourish invested around $16 million in Indian startups. “We would expect that to continue. If the opportunities are great, now that we are two funds and we are doubling down on India, we might do more, but if the opportunites are less exciting, we might do less,” he added.

“Our mandate is that we want to push the global frontiers in our field. In that context, India is a very exciting market because there is a lot of innovation that is coming out of India that is relevant to the rest of the world. And there are other frontier themes that we see in other parts of the world where India can help in proving that this new theme is working,” he said.

A theme that emerged from India, according to Ehrbeck, that is relevant for the rest of the world is unsecured credit underwritten on the basis of new data sources that were previously not available. “As our life becomes more digitized, more and more information becomes available, that people can use to underwrite credit. It could be on the consumer side, or the micro or small business side. And India really created a powerful environment in which this can happen – all the digitization efforts in India…created these new data sources,” he said.

Referring to their portfolio companies such as ZestMoney, Indifi and Toffee, he said that these “are models that we now export and invest in other markets like in Latin America and in Africa.”

“We are taking these ideas and we are looking for entrepreneurs who have similar ideas in other markets,” he said.

Similarly, in models that have worked well in the rest of the world, Flourish is looking for entrepreneurs who may be doing similar work here. “In neo-banks or challenger banks, for example, we have a portfolio of 8 or 9 companies…We have now made two neobanking-like investments in India (Yelo and Kaleidofin),” he said.

Apart from neo-banking, Flourish Ventures is likely to focus on gig economy workers in India. “We see great opportunities helping gig economy workers improve their earnings and the financial support they are getting,” Ehrbeck said.

Flourish, he added, is also interested in embedded finance or financial functions integrated with software applications (for example, payment feature in a ride-hailing app or ledger entry, vendor payments on an SMB app).

“Increasingly, as our lives digitize, and we interact more with social media, or logistics companies, or e-commerce platforms, good chunks of financial services can get embedded. The payments option, the credit option, and insurance can be integrated…so you could imagine a world where, in particular, transaction finance gets integrated more and more into our daily digital lives, as consumers or as small businesses,” he added.

[“source=livemint”]