In April of 2023, we did the first closing of Tenity Incubation Fund II, our second FinTech fund. Our fund has a target of US$100 million, and our current investors include companies like Julius Baer, UBS and Generali.

We are one of the few European FinTech-only early-stage investors that also run an incubator program.

In this article, we will be going through our investment thesis, the history of the fund and what investors get when participating in the fund.

Key information about Tenity Incubation Fund II

• Our first closing of our Tenity Incubation Fund II was in April of 2023.
• We only invest in companies that go through our incubation programs in Singapore, Estonia and Switzerland.
• We offer CHF50k / SGD70k / EUR50k in return for a 2.5% stake in the company.
• We are targeting angel, pre-seed and seed-stage companies.
• Our next closing will be in Q1 of 2024.
• As of November 2023, we have already made 47 investments in companies.
• Our fund so far has received investments from SIX Group, UBS Next, Julius Baer and Generali’s House of Insurtech.

Our investment strategy and philosophy: our incubation program and the power law
At Tenity, we do not operate similarly to traditional VCs. We’re an open innovation ecosystem and early startup investor, where we partner with corporates and startups, match them and help them collaborate and innovate. We do this via corporate accelerator programs, startup scouting, workshops and a lot more.

Here is the investment strategy behind our FinTech fund:

We only invest in startups that graduate from our incubation programs
A key part of what we do is our own incubation programs, which we run twice per year across four different countries. Within these incubation programs, a select group of startups go through five months of masterclasses, workshops, events and hands-on support to help with their growth and business models.

Our FinTech fund only invests in startups that go through our Tenity incubation program, specifically the ones in Switzerland, Singapore and Estonia. We usually get 300 - 400 applications in each of these programs, and select 15 for each program. Those who are admitted into the incubator, automatically get CHF50k / SGD70k / EUR50k in return for a 2.5% stake in the company. 

As the entrepreneurs go through our incubator, we are able to get deep insights into the founding team, how they work together, how they develop their product and their go-to-market strategy. In other words, we are able to do intensive due diligence that few other VCs and providers are able to do and are able to gather proprietary information. We are also able to support them and help them grow their company.

Once a startup graduates from our incubator, we can then decide to do a follow-on investment of around CHF 250k / SGD 350k together with our co-investors from the ecosystem.

The philosophy here is: that we only invest in companies that we have done intense due diligence on and that we’ve been able to support with our network, expertise and tools. This gives us data points that we can use to make a decision on whether to make a follow-up investment or not. 

See what our upcoming programs look like here: Startup Programs

We are able to invest in a high number of startups and take advantage of the power law
The other key part of our investment thesis is that we take advantage of the power law. As is the case with most VC investments, you will get a return on your investment via a handful of startups that do very well. So, the more startups you invest in, the more likely you are to find one that brings an outstanding ROI.

Our fund will be invested in over 300 startups, which is a bigger diversification than most other funds. We are able to do this because we are running multiple incubators in different geographies every year. This gives us access to a very big pool of FinTech and InsurTech startups to invest in.

Whereas most VCs are investing in a handful of cherry-picked technology startups, we are able to invest in hundreds because we are specialised in our sector, and run our own incubator programs.

The philosophy here is: that we can take greater advantage of the power law by investing in hundreds of startups rather than just a handful, which means investors are more likely to get a high ROI on their FinTech investment.

The fund’s track record so far
We completed the first closing of the fund in April of 2023, which means it is too early to talk about the performance of the new fund yet.

We are pleased to say that our first closing was oversubscribed, and we plan to do another in Q1 of 2024. With the initial closing, we were able to support the first cohorts of companies in our incubators in 2023, and we have made 47 investments so far.

Our plan is to do additional closings during the investment period over the next three to four years, and once we have completed all investments, we will set up another fund.

We have been able to support notable FinTech startups via our programs and previous funds that have gone on to raise significant rounds. Some examples include:

• Yokoy’s US$80 million Series B from Sequoia
• Keyrock’s US$72 million Series B by Ripple
• Stableton’s CHF15 million Series A by TX Venture
• Oper’s €11 million Series A by ABN Amro Ventures

Who are the types of investors we’re looking for?
So far, our investors include the likes of SIX Group, UBS Next, Julius Baer and Generali’s House of InsurTech Switzerland.

The ideal fund investors are a mix of corporate companies, family offices, and hand-picked qualified individual investors.

For corporate investors, the fund offers an opportunity to generate both financial and strategic ROI, by getting exposure to startups that may be ideal for a partnership or a future acquisition. Limited Partners that want to work closely with startups in our programs can also do so via our “Corporate Partnership”. You can learn more about how we work with corporate investors in the section below.

What is the story behind our FinTech fund?
Tenity started off as part of the SIX Group, Switzerland’s stock exchange, in 2015. I was heading corporate innovation at the time and helped develop SIX FinTech Ventures as well as the first few corporate accelerator programs in the country.

Back then, we had already started investing in early-stage FinTech companies with our own money. The FinTech sector was just beginning, which meant most companies were very young at the time. This allowed us to build the expertise of what it takes to build a successful company in the financial and insurance space at an early stage. 

As we grew and became more successful, we eventually spun off Tenity as an independent organisation in 2018. 

From then on, we were able to build a portfolio of 150 companies. These first few cohorts of startups allowed us to test and hone our investment skills, and allowed us to learn the best way to support these companies with knowledge and network and create value mostly by supporting them.

Eventually, at the end of 2022, we decided to set up a new fund to allow us and our corporate partners to capture the value of the startups that were going through our program. The best way to capture value is to get skin in the game and invest, and so Tenity Incubation Fund II was born. We are now able to give startups what they need most: cash and mentorship, and we are also able to continue to invest in those that we select.

So far, we have set up incubators in multiple countries, including Singapore, Estonia, Switzerland and Spain. This diversification of regions and ecosystems allows us to get access to a larger variety of early growth-stage startups and technologies, and therefore have a portfolio management strategy that is more likely to succeed.

Why invest in Tenity Incubation Fund II?
There are three key ways our fund is different from other VCs and how it benefits investors:

An investment is more likely to generate a higher ROI as every startup goes through deep due diligence via our incubators 
As mentioned above, a big part of our investment philosophy is that startups must go through our incubation program in order to receive investment. There are multiple benefits of this as an investor:

• You are invested in high-quality startups: we are able to gather data points and do due diligence for information purposes in a way that no one else can. That means that when we decide to do a follow-on investment, it is based on incredibly high-quality, proprietary information which assures the quality of the startup.
• You can meet and talk to the startup founders: Since every startup in our program automatically gets a small investment, you can start meeting and getting exposure to the startups while they are going through the startups. This opens the doors to direct investments or partnerships.
• You are invested in startups that have the right support: Our global ecosystem and support help startups with key skills such as fundraising, going to market, product development and more, which in turn gives them tools and connections to succeed better, thus increasing the chances of them being successful.

It is more likely to get a higher financial ROI thanks to the power law
If one is investing to get a financial return, our fund provides an attractive possibility of high returns while also limiting downside risk. Thanks to the power law described above, by investing in hundreds of startups rather than just a handful, one is a lot more likely to be invested in a startup that succeeds. 

With the fund, we invest in companies that we believe have the potential for a good financial return. There is downside protection and effective risk management, because the pool of startups is large, and the upside is still there since it is based on having a few outliers and our large portfolio. 

It is an especially good time to invest now as markets are going through a downturn, and we are able to invest at much more attractive valuations.

It is important to mention that besides all the measures mentioned above, such investment remains high-risk and there is no guarantee for a positive ROI.

It also creates a strategic ROI on the investment
One of the key benefits of investing in our fund is that we do not just offer a high financial return: corporations will also be able to get a strategic return on their investment.

A strategic return, to us, means:

• A partnership or collaboration with a startup
• Direct investment into a startup
• An acquisition of the startup

Investing in our fund means you’re also getting exposure to the latest trends, technologies and startups that could open the door for a collaboration, a direct investment or even an acquisition. 

The fund creates a pipeline for corporates to later do direct investments. This could either be because:

• You want to invest in a specific type of startup and get a larger stake that is relevant to you.
• You may want to eventually acquire the business
• You want to gather insights into what does and doesn’t work

For corporates in the finance or insurance industry, the fund can be used alongside and complement other later-stage investment vehicles like corporate venture capital or M&A. The fund also gives you enough lead time to evaluate opportunities on the strategic value of a startup without feeling the pressure to make any big investment decisions.

Julius Baer and vestr are a great example of a collaboration that happened after vestr came through our incubation program in Europe. The two companies worked together to develop a solution to digitise AMCs, and as a result of the partnership: 

• Vestr was able to secure CHF10 million in financing
• Vestr was able to enter the American and African market
• Vestr reached a trading volume of over US$1 billion
• Julius Baer was able to get a solution within a shorter timeframe and at a lower cost
• The two companies are still working together

You can read the full story here: How Julius Baer and vestr successfully built a platform to digitise AMCs

By having both financial and strategic returns, you have got the best of both worlds: as a corporate, you have the time to find startups that you could collaborate, partner with or acquire, and you also get a financial return which can then cover the costs of innovation. 

Jnry: an example of a startup we invested in via our fund
Let’s look at a real-life example of a FinTech startup that we invested in via our fund, and that completed our incubation program and we invested in via our fund.

Jrny is a FinTech startup based in London that was founded by Nick and Vince, the two co-founders. Jrny is a rent-to-own platform that allows renters to contribute rent towards equity until they get a big enough deposit to own their home. The platform sits between aspiring homeowners and institutional investors who are looking to invest in the UK rental market. 

Jnry joined Tenity’s Batch 10 incubation program in early 2023. Once they completed the incubator, we participated in their pre-seed round alongside other VCs and angels. 

Here is how the co-founders describe their experience: “Tenity helped us shape the way we run and build our company. We won the jury award for best pitch during Demo Day and became the first follow-on investment from Tenity's incubation fund. During our masterclasses, there was a strong focus on the importance of moving quickly as a startup and selling before you build. Although we are still preparing to deliver our product, we speak with customers all the time and have them go through the application process to demonstrate strong purchase intent. Tenity is a very impressive platform, especially with the incubation fund, and has great corporate partners like UBS, SIX, Julius Baer, and so many more - this can be a real game changer for any startup in the finance space.”

Jnry is a great example of a FinTech company that we were able to get to know intimately via our incubation program as well as support with our network, masterclasses and expertise. Based on these insights, we were then able to participate in their follow-on round and provide growth capital via our FinTech fund. 

Learn more: Founders with a purpose: Jrny is on a mission to make homeownership accessible

The Tenity FinTech fund: invest to get strategic and financial ROI
Although our fund is relatively new, we’ve been able to ramp up quickly and make a lot of successful investments. Our methodology and philosophy of investing in incubator graduates, along with the power law, allows us to provide LPs with a whole host of strategic and financial benefits.

Read the original article here.