Understanding Venture Capital with National Bank of Canada
Exploring the realm of venture capital reveals notable distinctions between traditional venture capital (VC) and corporate venture capital (CVC). Philippe Daoust, Vice President and Managing Director of NAventures, the CVC arm of National Bank of Canada, recently shed light on this divide. Despite initially seeing himself as an unlikely candidate for finance, Daoust’s career trajectory paints a different picture. Beginning as an auditor, he transitioned to mergers and acquisitions, where he honed his skills in financial due diligence and post-merger integration. This extensive experience ultimately led him to establish a corporate venture fund at National Bank of Canada.
National Bank of Canada’s Role in the Financial Ecosystem
National Bank of Canada is keenly committed on contributing to the Canadian financial ecosystem. Through NAventures, the bank invests in innovative startups and technologies that align with its strategic goals. The bank's commitment extends beyond support for emerging tech companies; it strategically integrates these innovations into its operations, boosting overall competitiveness. By actively engaging with startup ecosystems, the bank plays a pivotal role in driving economic development and technological advancement nationwide.
Venture Capital vs. Corporate Venture Capital
VC and CVC differ significantly in their objectives, investment approaches, sources of funds, and strategic goals. Traditional venture capital firms primarily aim to achieve high financial returns within a relatively short period. Their focus is on identifying and investing in high-growth startups with the potential for substantial financial returns upon exit, whether through an acquisition or an initial public offering (IPO). These firms operate through general and limited partnerships, where investors, known as limited partners, provide the capital, and the venture capitalists, or general partners, manage the investments.
Philippe elaborates, "Their goal is really to exit the company in five to seven years." This shorter-term vision is characteristic of traditional VC, driven by the imperative to realise financial gains swiftly.
In contrast, CVC is driven by both financial and strategic objectives. While CVC units seek financial returns, their investments are also closely aligned with the strategic goals of the parent corporation. This dual focus means that the need for quick financial gains does not solely drive CVCs; instead, they prioritise long-term strategic benefits such as fostering innovation within the corporation, gaining access to new technologies, and entering new markets. The funds for CVC investments come from the corporation itself, eliminating the need to raise capital from external investors.
Additionally, the investment horizon for CVCs is often longer compared to traditional VCs. This longer-term vision allows CVCs to be more patient and flexible with their investments, aligning them with the corporation’s broader strategic plans. Unlike traditional VCs, which may exit their investments as soon as financial targets are met, CVCs are more likely to maintain investments that continue to provide strategic value to the parent company.
National Bank of Canada’s Venture Initiatives
National Bank of Canada leverages two distinct corporate venture initiatives, NAventures and external ventures like Portage, each tailored to fulfil different strategic needs and purposes within the organisation.
NAventures is fundamentally an internal initiative, meticulously crafted to support and advance the bank's innovation and strategic goals. Its primary mission revolves around fostering internal growth and enhancing the bank’s core operations. “By focusing on improving IT capabilities, acquiring new clients, and enriching the employee environment, NAventures aims to integrate innovative solutions directly into the bank's framework,” says Philippe. This approach ensures that the initiatives undertaken are closely aligned with the bank’s long-term strategic objectives, creating value for both the institution and its customers.
“Essentially, NAventures is about internal enhancement and strategic alignment, aiming for a sustainable, long-term impact on the bank's overall performance and competitiveness,” he adds. What excites him most about this role, however, is contributing to the startup ecosystem in Canada. "Although it may sound a bit cheesy, our ecosystem isn't as mature as those in the US, UK or Singapore. Being part of its development is incredibly exciting for me. If you look at today's stock exchanges, the largest companies by market capitalisation are tech companies. A country that doesn't produce tech companies risks falling behind in economic value."
NAventures: Aligning with National Bank of Canada
NAventures, as a corporate venture fund within National Bank of Canada, is strategically built to align with the bank's broader objectives. Philippe explains, "When the previous CEO approached me to start a corporate venture fund, he envisioned us to invest in tech companies. But given my years in merger and integration and how you connect companies, I decided to create a fund truly built around National Bank's strategy, helping the bank deliver that strategy and find the right partners."
NAventures supports the bank’s innovation and strategy through four key areas: acquiring new clients, enhancing IT capabilities, improving the employee environment, and launching new offerings.
Importance of Ecosystem and Partnerships
Being part of a larger ecosystem is crucial for NAventures' success. Philippe emphasises, "Corporate venture funds are always going to be smaller, so you need to nurture the ecosystem and spend a lot of time on them. That's why we need a friendly environment to help us find the best solutions."
To achieve this, NAventures collaborates with various partners to enhance its offerings and services. One such partner is CGI, a consulting firm based in Montreal, involved in strategic collaborations with NBC, especially in areas like open banking. Another partner is FlowX.AI, working on enhancing IT development speed and capabilities through AI and new technologies.
Additionally, NAventures has developed strategies with investment firms like Sagard, which owns several funds, including Portage, a significant FinTech fund in Canada. These collaborations ensure that the bank stays at the forefront of market trends and technological advancements.
Philippe explains, "We've been very good at connecting ourselves to the rest of the bank to really deliver that value, and the companies we invest in usually end up being useful inside the bank. The way I compare this to is a bit like gears. National Bank is the main gear, and we have all those small gears, which are all the FinTechs we have invested in. When National Bank gives them a contract, it makes the small gears turn very fast. If we only have one small gear turning, National Bank, the bigger gear, is not going to be turning. But we have 25 of them all turning superfast, you start moving that big wheel as well.”
For example, NAventures is collaborating with FinTech partners to put out new offerings. One such collaboration could be with Nova Credit, which would allow NBC to better determine the creditworthiness of new arrivals and offer better credit options right from the onset. Another focus area is leveraging AI to improve operations within National Bank.
NAventures' collaboration extends to healthcare as well. For instance, telemedicine is implemented through the investment in Dialogue to improve the employee environment by offering healthcare services.
Through this extensive partner ecosystem, NBC integrates external innovations and strategic insights, driving long-term growth and maintaining its competitive position in the financial industry.
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