A seemingly backward wealth management industry is finally starting to accommodate clients’ goals for investment in early-stage technology ventures.
Private banks are increasingly emphasising investment in start-ups, as clients seek more opportunities.
Investing in a start-up can be a risky business, with three or four out of 10 ventures typically failing. According to the Bureau of Labor Statistics in the US, two in 10 businesses fail within the first year.
Despite the odds against start-ups, entrepreneurs continue to make headway. According to the U.S. Census Bureau, 469,557 businesses were founded in the country in the 12 months ending July 2023. And with the rise of AI and, more recently, GenAI, private banks are taking increasingly taking stock of this trend.
Among those taking the plunge are Indosuez Wealth Management, which has made its “StartUp Connections” platform available to clients in Belgium, Luxembourg, Monaco and Switzerland. Indoseuz says the service is designed to simplify access to an international network of start-ups.
“We support entrepreneurship and innovation,” says Benoît Bourdin, head of innovation markets at Indosuez Wealth Management. “Our job in wealth management is to make tailor-made services globally; it’s the reason why we continue to organise directly and individually each connection between founders and clients for a real meeting outside the platform.”
The objective of the platform is to allow clients to identify start-ups “completely independently”. The response from Mr Bourdin’s clients has been positive. “Our clients tell us that our offer is unique, very intuitive, and a real answer to their interest in innovation and entrepreneurship,” he says.
The StartUp Connections platform launched six years ago in France. After some 250 meetings between clients and start-ups, it has resulted in investments of more than €11m ($12m). “The first client who invested through our service was nearly 70 years old at the time, but he was still interested in start-ups because he’s an entrepreneur himself,” says Mr Bourdin.
Investment adventures
Another client eventually became CEO of the start-up in which he invested. “Our clients want to be part of the adventure and bring in not only new money but also their experience, expertise, and network, which generates real value for start-ups,” says Mr Bourdin.
The platform, according to Mr Bourdin, is a “beyond the bank” offer. But he warns that the risk is real and inherent. “It’s important to notice that we let our clients manage the risk: they directly carry out their own final due diligence, and the bank doesn’t intervene in the equity operation,” he says.
Other private banks have also joined the fray. BNP Paribas has a programme called TechUP, offering accommodation and support to young fintech, insurtech, and regtech founders at the start of their business development.
“Private banks have typically not been seen by their client base as ‘leading edge’, especially on the technology front,” says April Rudin, founder and CEO at The Rudin Group in New York. “Showcasing investments in start-up firms, and even offering their clients the opportunity to invest themselves, is a strong way of validating their knowledge and interest in fintech and wealthtech.”
Driven by desire
Entrepreneurial activity is growing significantly, especially in the US market, according to Mark Casady, general partner and co-founder of Vestigo Ventures, a venture capital firm that invests in start-ups.
“This is driven by a desire from talented people to control their own future by founding a new business,” he says. “There is a realisation that the economics for a talented AI-orientated entrepreneur is maximised by owning the company rather than working for big tech.”
Vestigo Ventures invests in the earliest stage fintech start-ups. “There is a great deal of work to be done in fixing the old technology stacks in the financial services industry with start-ups as partners,” believes Mr Casady. This evolves around gaining productivity across the industry and improving customer experience, he adds.
GenAI is also set to be transformational for the wealth management industry. “We have been looking at solutions for this segment for seven years and rarely have found much more than a 20 per cent improvement in productivity. With GenAI we believe productivity gains could be significant,” explains Mr Casady.
He gives the example of an insurance claims company that is nine times more productive because it uses GenAI. “Given this type of impact, it’s an exciting time to invest in start-ups,” adds Mr Casady.
