The Inside Story on Why BBVA Launched Propel Ventures

city_wallBBVA Ventures is no more — the bank has spun off its $100-million venture arm into a separate LLC, Propel Ventures, a $250-million fund.

Propel will be a new entity with a traditional venture capital structure, said Jay Reinemann, partner of the new venture. It will be based in San Francisco, with additional team members in London. “This change will make us a more attractive investor for the companies we want to fight for,” Reinemann said. “Captive bank funds have less freedom, less speed, and even a perceived conflict of interest when it comes to investing in early-stage companies. The bank will get more strategic value from this fund.”

The new venture is off the bank’s balance sheet, which frees it up to do many things it couldn’t previously. “We did suffer from adverse selection, to some extent,” Reinemann said. “There’s a stereotype some VCs hold against corporate investors, and VCs are often gatekeepers to opportunities, so for example you’d hear about a round and the round would already be over.”

Additionally, the Bank Holding Company Act limits the manner in which banks can invest, stating in some instances banks can hold no more than 5% of certain ventures, and for a very early stage company, Reinemann said, “5% may not amount to much at all.” This means the bank may be limited to later-stage companies or some acrobatics to try and fix legal documents to remove voting rights and the like to keep in compliance with bank regulations.

“We’re removing friction,” Reinemann said.

Propel will seek “tech companies focused on financial services, or financial companies leveraging technology” — in other words, slightly more than just “Fintech.” (We might note here that the meaning of “fintech” is a bit slippery. “The word ‘bank’ means something,” James Wester told Bank Innovation. “But the word ‘fintech’?…”)

Propel will, however, need to pay salaries and expense out of its $250-million fund, which was not the case with BBVA Ventures’s $100-million fund. “It now includes the cost of running the business versus the corporate checkbook,” Reinemann said. “It enforces a professional mentality about how we treat the business.”

The team now numbers six, about the same as BBVA Ventures.

“We now have a different set of tools,” Reinemann said. “We have carry the same way startups have equity to attract talent, versus simply bank compensation. The whole venture says a lot about BBVA. Allowing a team to have freedom, trusting the team to allow a better return to everybody — it says great things about the bank.”

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