Fairfax Financial Holdings Ltd. plans to invest in startups to boost its businesses as more corporations wade into the venture capital scene.
The Toronto-based insurance and investment company formed FairVentures as an answer to the two big tech challenges many financial firms are grappling with: how to better serve and reach customers using technology, and how to avoid being knocked off course by emerging "disruptive" businesses.
"We're looking for technologies, innovations, that our companies would like to use, but that we can also invest in," said Paul Rivett, president of Fairfax, at a shareholder meeting in Toronto on Thursday.
Fairfax's foray into venture capital (VC) comes amid a race for innovation happening at other large North American companies trying to stave off their own industry's equivalent of Netflix, Uber and Airbnb.
That's especially true south of the border where the likes of Google and Facebook drive plenty of activity.
Still, Canadian energy companies and financial firms have been increasing their exposure to these investments as well in recent months – the big banks in particular have been in hot pursuit of agile financial technology startups.
"A lot of what's spurring it, frankly, is returns," said Mike Woollatt, chief executive officer of the Canadian Venture Capital and Private Equity Association. "But then really what they're after, a lot of the time, is strategic partnerships." Having such a dual mandate can be limiting from an investment perspective, but it's often an appealing model to the startups that are more frequently targeting their businesses at corporate buyers.
FairVentures is among those chasing long-term partnerships as well as performance, and has already committed a few million dollars.
It's seeking technologies that are a good fit not only for its insurance businesses around the world, but also for its investments in restaurant, retail, travel and other financial brands.
It took less than six months for FairVentures to establish its plan – and two offices. The first is an innovation and research lab at the Communitech Hub in Kitchener, Ont. The site is close to the University of Waterloo, where Fairfax's founder and CEO Prem Watsa was a chancellor for six years, as well as a few minutes' drive from the company's controversial BlackBerry Ltd. investment.
The second office is in Toronto, housed in the same building that is home to Fairfax's Northbridge Financial Corp. insurance business. This is where a team will look for ways to invest in technology startups.
Fairfax's venture capital push comes as other big names are also wading in for the first time. Storied mining investor Seymour Schulich put more than $50-million into a venture capital fund earlier this year. And last month Former Dragons' Den star Arlene Dickinson's scored a $5-million commitment from George Weston Ltd. for a VC fund that backs consumer-packaged goods.
Insurers of all stripes have also been deepening their investments in technology. An Ernst & Young study of both the life insurance market, as well as that of property and casualty insurance, found that technology was likely to be the greatest external force reshaping the industry this year.
"Digital technologies, such as social media, telematics and analytics, are redefining the insurance market. The impact will affect most business areas, from marketing and distribution to customer service and pricing models," the study noted of the property and casualty industry, where Fairfax operates.
"If I were [in] insurance I would be nervous. But I'd also be investing like crazy," said Mr. Woollatt.
And FairVentures has already zeroed in on that market, making its first investment of an undisclosed sum in a tech company called Encircle Inc. It's a firm that makes software to help property and casualty insurers, as well as claims representatives, document losses in real time, among other services. The idea is to improve accuracy in the underwriting and claims processes, as well as bring down costs.
Other investors are keeping an eye on the Canadian corporate players exploring VC investing. "We are very happy to see them get involved in the ecosystem. Not only do they bring money, but access to the market," said Jacques Bernier, a partner with Montreal-based Teralys Capital, one of Canada's largest venture investment firms.
With a report from Sean Silcoff