Fintech
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 some light on this divide. Although he initially saw himself as an unlikely fit for finance, Daoust’s career trajectory paints a different picture. Starting out as an auditor, he moved into mergers and acquisitions, where he honed his skills in financial due diligence and post-merger integration. This breadth of experience ultimately led him to establish a corporate venture capital fund at National Bank of Canada.
The Role of the National Bank of Canada in the Financial Ecosystem
National Bank of Canada is deeply committed to contributing to the Canadian financial ecosystem. Through NAventures, the bank invests in innovative startups and technologies that align with its strategic objectives. The bank’s commitment extends beyond supporting emerging technology companies; it strategically integrates these innovations into its operations, increasing overall competitiveness. By actively engaging startup ecosystems, the bank plays a critical role in driving economic development and technological progress nationwide.
Venture Capital vs. Corporate Venture Capital
VCs and CVCs differ significantly in their objectives, investment approaches, sources of funds, and strategic goals. Traditional venture capital firms primarily seek to achieve high financial returns in a relatively short period of time. Their goal is to identify and invest in high-growth startups with the potential for substantial financial returns upon exit, either through an acquisition or an initial public offering (IPO). These firms operate through general and limited partnerships, in which investors, known as limited partners, provide the capital and venture capitalists, or general partners, manage the investments.
Philippe explains: “Their goal is actually to exit the company within five to seven years.” This short-term vision is typical of traditional VC, driven by the imperative to realize rapid financial gains.
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 objectives of their parent company. This dual focus means that the need for quick financial gains does not drive CVCs alone; instead, they prioritize long-term strategic benefits such as fostering innovation within the company, accessing new technologies, and entering new markets. Funding for CVC investments comes from the company itself, eliminating the need to raise capital from outside investors.
Additionally, the investment horizon for CVCs is often longer than that of traditional VCs. This long-term view allows CVCs to be more patient and flexible with their investments, aligning them with the company’s broader strategic plans. Unlike traditional VCs, who can exit their investments as soon as financial goals are met, CVCs are more likely to hold on to investments that continue to provide strategic value to the parent company.
National Bank of Canada Venture Capital Initiatives
The National Bank of Canada leverages two distinct corporate venture initiatives, NAventures and external initiatives such as Portage, each designed to meet different strategic needs and goals within the organization.
NAventures is fundamentally an internal initiative, meticulously crafted to support and promote the bank’s innovation and strategic objectives. Its core mission revolves around fostering internal growth and enhancing the bank’s core operations. “By focusing on improving IT capabilities, acquiring new customers 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.
“At its core, NAventures is about internal improvement 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 the role, however, is contributing to the startup ecosystem in Canada. “While it may sound a little corny, our ecosystem is not as mature as those in the US, UK or Singapore. To be a part of its development is incredibly exciting for me. If you look at the stock markets today, the largest companies by market cap are technology companies. A country that doesn’t produce technology companies risks being left behind in terms of economic value.”
NAventures: Alignment with the National Bank of Canada
NAventures, as a corporate venture fund within National Bank of Canada, is strategically structured to align with the bank’s broader goals. Philippe explains, “When the previous CEO approached me about starting a corporate venture fund, he assumed we would invest in technology companies. But given my years of experience in mergers and integrations and how companies connect, I decided to create a fund that was truly structured around National Bank’s strategy, helping the bank execute that strategy and find the right partners.”
NAventures supports the bank’s innovation and strategy across four key areas: acquiring new customers, enhancing IT capabilities, improving the employee environment and launching new offerings.
Importance of ecosystem and partnerships
Being part of a larger ecosystem is key to NAventures’ success. Philippe emphasizes: “Corporate venture capital funds will be smaller and smaller, so you need to cultivate the ecosystem and dedicate a lot of time to it. That’s why we need a friendly environment that helps us find the best solutions.”
To achieve this goal, NAventures works with various partners to improve its offerings and services. One such partner is CGI, a Montreal-based consulting firm involved in strategic partnerships with NBC, particularly in areas such as open banking. Another partner is FlowX.AI, which works to improve the speed and capabilities of IT development through AI and new technologies.
Additionally, NAventures has developed strategies with investment firms such as Sagard, which owns several funds, including Portage, a leading FinTech fund in Canada. These partnerships ensure that the bank remains at the forefront of market trends and technological advancements.
Philippe explains: “We’ve been very good at connecting to the rest of the bank to really deliver that value, and the companies we invest in usually end up being useful within the bank. The way I think of it is a bit like gears. National Bank is the main gear, and we have all these smaller gears, which are all the FinTechs that we’ve invested in. When National Bank awards them a contract, it makes the smaller gears turn very quickly. If we only have one small gear turning, National Bank, the biggest gear, won’t turn. But we have 25 of them all turning super fast, you start to move that big wheel as well.”
For example, NAventures is working with FinTech partners to launch new offerings. One such partnership could be with Nova Credit, which would allow NBC to better assess the creditworthiness of newcomers and offer better credit options from the start. Another area of focus is using AI to improve operations within National Bank.
NAventures’ collaboration also extends to healthcare. For example, telemedicine is implemented through the investment in Dialogue to improve the employee environment by offering healthcare services.
Through this broad ecosystem of partners, NBC integrates external innovations and strategic insights, driving long-term growth and maintaining its competitive position in the financial industry.
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