FStech meets: Manuel Silva Martínez, general partner at Mouro Capital

While the Coronavirus crisis has plunged FinTech funding into some disarray, the announcement earlier this month that Santander was to spin-out its venture capital arm and double its capital commitment to $400 million was seen as something of a vote of confidence in the sector.

To find out more about the change and the industry in general, FStech editor virtually sat down with Manuel Silva Martínez, general partner at the newly-named Mouro Capital.

I suppose the first obvious question is why the spin-out from Santander and change of name?

I suppose it comes down to the fact that the industry is very competitive, you need to make sure you’re the most desirable investment partner and that how you are structured is in line with that.

With Mouro we’ve effectively gained investment autonomy, so we make our own decisions and can move much faster and more aggressively than in the past. We may also be a bit more daring in what we invest in – the key is speed to market and execution.

The things that don’t change are that we still keep a close relationship with Santander and are mindful of how our portfolio is useful to the bank and vice versa. However, we don’t think of it as an exit for our companies. That may happen in the future though it hasn’t happened in the past, but if it does it won’t be because we’ve created the situation.

This is an important point, because in a new setting it’s all about maximising the return on investment, which means the entrepreneurs have nothing hindering them maximising the value of their companies.

So, to extrapolate from that, our relationship with Santander is now on an arm’s length basis – we’re close partners in certain things, but there’s no intrusion. There’s certainly some strategic alignment, but it’s not prescriptive, rather it’s based on our own willingness to build a portfolio that reflects our views of the future of financial services, which in itself is very relevant for Santander.

This leads me to one of the new changes is a focus on partnerships and business development opportunities play, how does that work in practice?

Working with the companies we invest in was already a tradition under our previous format as Santander InnoVentures – take the home lending platform announcement of Roostify partnering with Santander US or using Ripple for cross-border payments in the past.

The twist we want to give is that these partnership resources are now on our side, so we can be better aligned with a startup’s success. And it’s about the quality of those relationships. In the past with a lot of investments the relationship was good, but it was plain vanilla commercial – effectively you’re not changing the roadmap of the company.

My ambition is to identify companies we can build joint relationships with, being transformational not incremental, aiming to create intrinsic value. We have around 38 companies in the portfolio and there are also to be a lot of synergies between them, so we facilitate them working together and that’s something we’d like to do at scale.

What else has changed aside from the increased firepower – is the strategy pretty similar to that of Innoventures?

Yes and no. The strategy, from a thematic perspective, is I suppose an enhanced version. We’re looking at businesses covering new corners of the industry, with new use cases.

We’re also elaborating the thesis around the future of the industry – very much aligned with the fact we think financial services will transcend the boundaries of the current industry, with more of a utility driven approach in terms of how value is exchanged. Banking products as we know them today may be rethought and replaced in the future, and we want to invest in those entrepreneurs. We will invest outside of FinTech, and we’re researching how other industries interact with finance – things like PropTech, logistics, trade finance, etc.

Another thing worth mentioning is that we’ll be leading more and more deals, to get more meaningful ownership stakes and get more involved with day-to-day governance and company building. If you look at our most recent deals, we are already in that mode.

How do you see the state of this industry, which sectors and types of firms are winning and losing through the crisis?

The current situation has clearly brought a drive to digital, so if you can enable that then you’ve done very well from the crisis. Our portfolio has probably 30 to 40 percent of companies working on some kind of digital infrastructure and ‘transformation to digital’ solutions for banks, which has seen massive spikes.

On the other side, the world of lending has been more affected, so that’s a sector where we may be a bit more selective, making sure the underlying use cases are resilient.

I’m also interested in the second or third wave of blockchain tech as it’s applied to new models, things like decentralised finance. I’m still getting my head around where’s the business and where’s the hype though.

We’ve already seen your first Mouro investment, with the funding of Uncapped – how typical is that of the kind of moves you will be making?

Fairly typical I’d say. Although it’s slightly on the earlier stage side than what we’ve done in the past, we can add a lot of value at this stage, helping with credit knowledge and regulation, etc. We can add value as a team, and we love the spirit of the company, they’re great guys leading it. Strong personal connections are important. It’s like a marriage, so if you don’t like the bride or groom on day one, then you’ll be in trouble for the long term.

In terms of geographies, we can invest anywhere in the OECD and where Santander has a presence, so that’s EMEA, the Americas, Japan and South Korea, although we’re in no rush to go to the last two. From a priority’s perspective, we’re going to stick to what we’ve done in the past – the US, Latin America and Europe.

On a European level, we want to break out of the London-centric approach and go more onto the continent. Innovation in Europe is well priced, with good banking professionals that have transitioned into tech. Places like Berlin where we already have two companies, Madrid, Lisbon and Stockholm are full of interesting startups.

Finally, you mentioned the competition earlier, but it appears some private equity and venture capital money is retreating – how do you see the funding landscape progressing over the next 12 months?

There was massive hype for FinTech prior to the crisis, with lots of dry powder available and money from a lot of sources, but a lot of it was reasonably uneducated. What I mean by that is that some funds would spot a trend and get in because they sensed a directional agglomeration of capital.

Those same investors will be extremely wary of fluctuations in the market, so my expectation is that for the same reasons that they came in, it may leave in the next year or so.

That’s not necessarily a bad thing, the essence of venture capital is that you want knowledgeable entrepreneurs being backed by knowledgeable investors, for the long term.

Things may shrink, but I think it's boiling down in favour of quality over quantity – that’s my hypothesis and I’m happy to say we’re a part of it.

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