Royal Bank of Canada and Franklin Templeton partner with EvoNexus to build the fintech incubator.
San Diego is getting its first startup incubator dedicated solely to financial technology companies — and it’s being backed by two massive financial institutions with trillions of dollars in the bank.
The new incubator is launching next month under the leadership of EvoNexus, the already existing tech hub that’s long served as a nerve center for San Diego startups. EvoNexus is expanding its 20,000-square-foot office in University Town Center by an additional 6,000 square-feet to house the “fintech” incubator. The new space will be provided by The Irvine Company, a longtime benefactor of EvoNexus.
The space can hold up to 15 new startups, each with two to five full-time employees. EvoNexus is taking applications to join the incubator now.
Rory Moore, CEO of EvoNexus, said the fintech incubator will largely admit software companies — an interesting expansion, considering the organization has mostly focused on cultivating hardware, robotics, chip and wireless startups in the past. Moore said the fintech category “stretches a mile wide,” and will include things like blockchain startups, cybersecurity, mobile payments and insurance technology, among other areas. The incubator is also interested in how 5G technology will influence the “digitization of financial transactions.”
Two mega financial corporations back the new project: Royal Bank of Canada, which is the largest bank in Canada with $1.3 trillion assets under management; and Franklin Templeton, a global investment fund based in Silicon Valley with $753 billion in assets.
“We want to have a better understanding of how technology like 5G and IoT (internet of things) will evolve, and what impact it will have on financial transactions and banking,” said Eddy Ortiz, vice president of solution acceleration and innovation at Royal Bank of Canada.
EvoNexus’ proximity to — and relationship with — Qualcomm was a big draw for the financial organizations. Ortiz said backing the incubator will allow the bank to “stay close” to the evolving technology so that it can later decide how to create value at the bank. The organization is interested in acquiring or partnering with startups, he said. They’re also interested in finding good software engineers to recruit.
For Franklin Templeton, the motivations are similar. They hope partnering with EvoNexus will give the bank access to new technology that might “improve business outcomes” for its investors.
“Such relationships enable us to expand our learnings in this evolving space and position us to further leverage these capabilities to gain an information advantage to drive investment performance,” said Joe Boerio, chief technology officer for Franklin Templeton
Evolving at EvoNexus
Big corporations are increasingly looking to outsource their research and development to incubators like EvoNexus, and Moore is more than happy to take advantage of the need.
“It’s something I’ve been pushing for quite some time, but now the timing is right,” Moore said. “As budgets cut back at big companies, they’re starting to narrow their focus on their core products.” Everything else, he said, gets pushed out into spin-off companies. A recent example of that is Qualcomm’s sale of its health tech subsidiary Qualcomm Life.
This new partnership with the banks is the latest in a string of efforts made by EvoNexus to get money flowing into the incubator so that it can gain financial sustainability.
Founded in 2010, the organization has leaned on the support of The Irvine Company and various corporate sponsors since its inception, allowing startups to incubate there for free. But in 2018, EvoNexus adopted a more common model for startup incubators: taking a portion of a startup’s equity in exchange for space and support.
Before making the switch, EvoNexus had incubated 26 startups that were eventually acquired. If the incubator had owned even a small portion of those companies, it might have had a strong revenue stream. When asked if EvoNexus had reached financial sustainability yet, Moore said, “We’re getting there.” He hopes to see returns begin to roll in within two to three years.
In the meantime, the organization is forging new corporate partners. In February, EvoNexus announced partnerships with Cubic, ViaSat and EMD Materials, the high-tech materials arm of drug conglomerate Merck. All partnerships have a similar theme: companies sponsor EvoNexus in hopes of discovering startups working on technologies they can use. EvoNexus then puts out a call for startups that might make a good match for its corporate sponsors, and hopes to see good applicants line up to join its next cohort.
When asked if EvoNexus was still admitting startups that don’t pair well with a corporate sponsor, Moore said yes. “We’ll look at any new company, 24/7 and 7 days a week, even if they don’t match a sponsor,” he said.