The H2 Accelerator program will use office space at the Stone & Chalk fintech hub in Sydney to host H2 Venture’s entrepreneurs.
H2 Ventures is a spin-off of ASX-listed Australasian Wealth Investment’s accelerator AWI Ventures, which was headed by Toby Heap.
Toby Heap parted ways with AWI earlier this year to start the new venture capital firm with his brother (and former AWI chief executive), Ben.
Speaking to Fintech Business, Ben Heap said he was confident the $10 million needed to fund the project will be raised by the end of 2015.
While AWI Ventures was funded off the AWI balance sheet, H2 Ventures will have to raise capital itself.
“Within AWI we found quite a lot of appetite to invest from third parties,” Mr Heap said.
“We've been talking to those third parties now that we've spun out the ventures business as H2 and we've pretty encouraged.”
Applications for the H2 Accelerator opened last week, Mr Heap said.
“We got a very significant number of applicants, 200, to AWI Ventures last year.
“We anticipate that we'll have a similar number of ventures – which makes it's pretty easy to select a high-quality cohort to take into the program.”
H2 Ventures is aiming to fill something of a gap in the Australian fintech market when it comes to Series A, B, C or D stage funding, Mr Heap said.
“In the Australian market they refer to it as the ‘Death Valley’,” Mr Heap said.
“Australia’s not bad in terms of seed funding. And when you're big enough to list, I think you're okay.”
But “the whole space inbetween” leaves fintech companies a very limited range of options, Mr Heap said. Part of the reason is that fintech is a “very specific vertical” and tends to struggle with regulatory issues and market strategy.
“And as a consequence, traditional venture capital and traditional accelerators struggle a bit with fintech,” Mr Heap said.
“The thing that we saw quite clearly a year ago was this window to really offer both an accelerator and ultimately latter stage investment options in that vertical.”
H2 Ventures will invest $100,000 in each start-up for a 10 per cent stake, Mr Heap said. The Heap brothers are deliberately taking a minority stake, leaving the success or failure of each business up to the founders.
“We have exactly the same term sheet. If you're going to make 100 investments you need to have a replicable structure,” Mr Heap said.
He likened the H2 Ventures program to an MBA curriculum: “But instead of paying $100,000 to go and do an MBA, we'll actually invest $100,000 in your business and give you the chance to do an MBA in practical way.”
When it comes to exits, Mr Heap said that with a portfolio of 100 investments some of them could be as early as a “year or two” – for example, if a bank or wealth firm came knocking.
“We anticipate that the bulk of the exits will be in that five- to seven-year timeframe, either domestically or offshore.
“We anticipate we'll continue to hold some stakes out into the future: 10-plus years. And the reasons we're structured our vehicle as a corporate structure is so that it's an evergreen structure.”
As to the relationship with Stone & Chalk, Mr Heap said they would be a tenant like anyone else.
“We're going to take a number of seats. We support the ventures that we take into Stone & Chalk.”