Nova Founders Capital, a two-year-old investment fund set up by three veterans of Germany's Rocket Internet, is looking to shake up Asia's stodgy financial services.
Mads Faurholt-Jorgensen, Raphael Strauch and Stefan Bruunthat cut their teeth at Rocket Internet, which is known for its global portfolio of internet businesses developed in good part by taking concepts that had been successful for others in one market and adapting them itself to new ones.
The three men came to Asia to help launch the regional operations of U.S. deals website Groupon. Then as managing directors at Rocket, they helped launch group ventures including both online clothing retailer Zalora and Web-based department store Lazada in Southeast Asia, Indian clothing site Jabong and food delivery service foodpanda, frequently taking stakes in the companies themselves.
In 2012, the three men left to set up Nova, which has its headquarters in Hong Kong and a large operating base in Kuala Lumpur. Now, armed with a $50 million investment it received in August from Hong Kong tycoon Richard Li Tzar-kai's Pacific Century Group, Nova has turned its attention to online banking and insurance.
Most of the companies in Nova's portfolio are based in Kuala Lumpur, including digital marketing agency Lion & Lion, whose clients include insurer AXA; GlassesGroupGlobal, an online eyeglass retailer targeting the Asia-Pacific region; and Red Ape Solutions, a software developer whose customers include Samsung and Hewlett-Packard. Another of Nova's holdings, Hong-Kong based CompareGlobalGroup, operates financial services comparison websites in eight Asian markets as well as Denmark and Mexico.
Like Rocket, Nova mostly launches companies from scratch, identifying entrepreneurs it believes can execute its vision. But Strauch said its business models are more complex, requiring a great investment of time and capital. "When we build, we provide capital and work hand-in-hand with the entrepreneurs, and we are deeply involved in day-to-day execution," he said.
Nova plans to use Li's money to develop and acquire online finance businesses, with discussions already underway with financial services comparison websites in Hong Kong and London.
Strauch recently spoke with the Nikkei Asian Review about Nova's plans for the coming months.
Q: What was Nova's pitch to Richard Li to get him on board?
A: Richard shares our excitement for financial services and is aware that this is the last big Internet frontier. The digital disruption for financial services has already started and we provide [Pacific Century] direct access to the structured investment opportunities in this space.
Q: What kind of companies will Nova be setting up?
A: Fully fledged online moneylenders. Data-driven moneylenders. Completely paperless. Everything happens online. The model we want to do, no one has done it in Asia.
Banks and insurance have been pretty much been untouched from the whole tech development, but this is the last frontier that is about to fall. It has happened with retail. Banks are lending money to individuals and corporates the same way they did 50 years ago. There was no real innovation.
We are looking to [lending] to individuals and SMEs... We plan to lend to SMEs in Hong Kong and Singapore, followed by ASEAN countries later on. ... We are [also] looking at building an online general insurance company. ... We are very focused on winning the B2C space.
Q: Why do you think the current bank methods are inefficient?
A: If you try to get a loan today, what is the bank going to look at? The bank is going to look at your income level. Do you have a house? Do you have any debt? They look at very few data points to come to a decision. The [questions] the banks ask are just a small part of a person's story. On top of that, they charge you incredible interest rates just to finance their cost base.
There are probably thousands of other data points you should put into consideration. Are you paying your telephone bill on time? Are you paying your rent on time? What do you buy on Amazon?
We believe that by looking at thousands of different data points, we can get to a much more informed decision. Once you have the data points, we can come to an instant decision, whereas with a bank, you will need two weeks for them to arrive at a decision.
Q: What are the shortcomings of insurance companies in Asia at the moment?
A: The premiums that you have here in Asia are quite expensive because insurance companies have to finance their cost structure. For new entrants to come in, you are going to have a much lower cost base because you are not built on hundreds of years of old legacy costs.
We are using online as our main distribution channel, and this is a much more cost-efficient distribution channel versus dealing with offline brokers. The way we are going to price the premium is going to be much more innovative versus how the traditional insurance companies are doing it now.
Look at how [Asian] insurance companies are pricing the premium of car insurance for example. They look at the model of the car, how old it is. Is this a pickup [truck] or not a pickup? How much horse power? Then they come to a price. They don't look at [data] like the age of the driver: Did the driver have an accident over the last couple of years? We look at many more data points when it comes to pricing a premium. There's a lot of innovation possible in pricing insurance products.
Q: How long will it take for you to bring your online money lending and general insurance business to the market?
A: About six months
Q: Insurance and lending are very regulated businesses. How will this shape Nova's plans?
A: It means much more upfront research and preparation is required in order to enter new markets or business lines. In some markets, we might enter only with partners, due to local requirements. We are not hesitating on the capital commitments that the regulatory body requires, but see it as a natural entry barrier for new players.
Q: Richard Li has been investing a lot in insurance. Will Nova be competing with him?
A: We will not compete, but work in a partnership with Richard and his companies. There is always a chance of an overlap, but ultimately the sum of the parts is much bigger.