Serendipity brings power of the Rolodex to early-stage investment
A Singapore-based investment vehicle fronted by former Commonwealth Bank of Australia CFO Rob Jesudason aims to invest in financial disruptors that will complement the industry without reinventing it.
John O'Sullivan, former executive chairman at Credit Suisse Australia. Mark Machin, former president and chief executive of the Canada Pension Plan Investment Board. Christian Brun, founding partner of top headhunters Wellesley Partners. Ian Narev, former chief executive of the Commonwealth Bank of Australia. A dozen others with senior roles everywhere from UBS to AIA to blockchain company Block.one.
What links this network of high-flyers? All serve either as board members or senior advisers to a Singapore-based firm called Serendipity Capital, a venture capital-like vehicle investing in disruptive trends in financial services. The strength of the CVs, and the Rolodexes they bring, is part of the whole pitch.
Serendipity is led by Rob Jesudason as chief executive and founding partner. Jesudason’s previous role was president of Block.one, but prior to that he was an investment banker with a CV including JPMorgan, Barclays, McKinsey and head of global emerging markets within the FIG investment banking team at Credit Suisse. For seven years he worked at Commonwealth Bank of Australia (CBA), holding a number of roles from strategic development to chief financial officer, and while there he came to a realization.
Jesudason’s role at Commonwealth Bank exposed him to cybersecurity issues on a new scale. “A financial institution like CBA, as the largest bank in Australia, is on one side of 50% of payments in the country, across retail and institutional,” he says. “These kinds of financial institutions from a government perspective are seen as national security infrastructure.”
After Block.one, he decided the time was right to put together an enterprise investing in financial disruption: solutions to new challenges of the sort he had become aware of in Australia. He founded Serendipity with Sean Harpur, another CBA alumnus who then worked with the privately owned investment company Amelius; and Anton Jerga, now the chief operating officer of Serendipity, who also worked in CBA, in M&A, as well as Citgroup.
“We invest in the thematics we feel are disruptive to financial services on a global basis: AI and machine learning, DeFi [decentralized finance], climate change and quantum computing,” Jesudason says.
The risk profile of these thematics varies: AI is an immediate disruptive force, quantum computing longer term, for example.
The fund is an early-stage investor specializing in B2B rather than B2C.
“We like companies with a technology capability model rather than a business model of innovation. We’re not looking at neobanks or things like that.”
We invest in the thematics we feel are disruptive to financial services on a global basis: AI and machine learning, DeFi, climate change and quantum computing
Serendipity is not a fund but a permanent capital vehicle: in other words, a corporate structure, in which one becomes a shareholder rather than a unitholder.
“The reason for that is that financial services is obviously a leveraged bet on the economy – and cyclical,” Jesudason says. Redemptions from funds, particularly in the early years, can cause a fund to sell its best assets. “If that happens, by definition you are cyclical, and if you don’t pick the right time to launch your fund it will define your returns.”
The structure has another advantage. “Because we are corporate and have shareholders, we are focused on having a networked shareholder base.”
And that’s where O'Sullivan (who serves as chairman), Machin and the rest come in. Steve Roder, audit chair, is another key figure; he was chief financial officer at Manulife Group, a co-founder of Peak Reinsurance, and served as CFO of AIA.
“A shareholder base like that helps with origination and selectively with due diligence,” says Jesudason.
A look at the roster of senior advisers makes it clear how far these deep links go. Amy Gershkoff Bolles, for example, has held senior roles at Bitly, Zynga, eBay and in Barack Obama’s 2012 presidential campaign. Paul Schulte of Schulte Research has worked for all three branches of the US government, including the National Security Council, and teaches at three universities. Michael Jordaan was chief executive of pioneering South African firm First National Bank. Andrew Connell, now of Better.com, has held positions at HSBC, Nokia, American Express and O2. There are 12 senior advisers with records like this.
A look at the portfolio helps to explain how this all works. Serendipity targets 10 investments at a time and tries never to exceed 15. Current holdings include Deep Labs, which uses proprietary solutions for transaction authentication and authorization, and is based in San Francisco; Encompass, based in London, which automates information and news discovery for know-your-customer (KYC) requirements; Mirato, an Israeli third-party risk management platform; Pollination, a specialist climate-change advisory and investment firm; and Quantinuum, a quantum computing company.
“Pollination is a really good example of our model in action,” says Jesudason. “Think of it as a climate change merchant banking business.”
Founded by Martijn Wilder, who was head of Baker & McKenzie’s global climate change law and sustainable finance practice for 20 years, and Tony O'Sullivan, who ran the O’Sullivan Partners investment bank in Australia up to its acquisition by Lazard Freres, Pollination describes its skill as connecting dots and seeing around corners others can’t when it comes to getting funding into climate transition.
We’re investing in businesses where we know, having sat inside financial institutions, how big a problem is, and we know the inherent demand for a solution
“They realized that the gap in the market is a market failure in the quality of products in the climate space,” says Jesudason. “It’s not that governments don’t want it [climate change mitigation through investment] to happen, nor that the private sector is unwilling to allocate, but you need the products.”
Examples of Pollination’s work include a new strategic partnership with ANZ to support net-zero transition in Asia Pacific, and the sale of carbon credits from the world’s largest mangrove restoration project, in the Sindh province of Pakistan.It ticked the right boxes for Serendipity.
“Ultimately, we took a view that climate change [alleviation] isn’t going to happen unless the financial institutions in the world allocate capital in a slightly different way,” says Jesudason, who serves as Pollination’s chairman, with Pollination founder Wilder becoming a senior adviser at Serendipity on March 30. “Having a business that helps the financial services industry pivot creates value for the world and for portfolio companies.”
Encompass has a different appeal.
“It does the AI of whether a company should be onboarded or not,” Jesudason says. “KYC AML [anti-money laundering] is an incredibly expensive process, manually intensive. Banks spend hundreds of millions of dollars basically hiring humans to process data. This platform automates it.”
Encompass raised $33 million in funding in March through Perennial Partners, an Australian investment management company.
What links these, and other investments, is that the firm and its advisers recognise the problems that are being solved from personal experience.
“We’re investing in businesses where we know, having sat inside financial institutions, how big a problem is, and we know the inherent demand for a solution,” Jesudason says.
We like companies we feel will embed into the existing financial services system. We want to keep the current hierarchy alive
“Our business model is to selectively invest in more experienced entrepreneurs, people who have typically run something in financial services and left to start something because they have seen a gap in the market.”
Serendipity will invest, come on to the register, join the board, “and then we open our Rolodex,” Jesudason adds, particularly to the shareholder base of C-suite executives from large financial institutions.
“Financial services is a small world with a high barrier to entry,” Jesudason says. “It means that for people who’ve been in the industry for 20 or 30 years there’s one or two degrees of separation. It’s a highly connected world, and startups tend to come from people within the industry.”
Serendipity’s own networks originate 10 to 15 ideas a month.
And there’s one other crucial point: they’re not trying to tear down the industry they all made their names in.
“Lots of venture capitalists are backing companies that are saying: 'We’re going to reinvent financial services, destroy the system',” he says. “Our view is that, although financial institutions do have to innovate, we like companies we feel will embed into the existing financial services system. We want to keep the current hierarchy alive.”
Part of the reason Serendipity was formed was out of a sense of dissatisfaction with existing models.
“VC is often spray and pray: it will invest in 80 companies and embrace the fact that most of them will fail,” Jesudason says. “There is a debate on whether VCs add as much value as they say they do, and that has led some people to come in and say: 'We’ll back a thematic, and back lots of people within that thematic, but not waste too much time on due diligence'. They manage risk through portfolio diversification at scale.
“When we formed, we had the same conclusion but went the other way.”
Specifically, specialization: “One industry, everyone in the business comes from that industry, maximum 15 investments, and get involved in those investments.”
A model like this requires commitment, hence the corporate rather than fund structure.
“We only sell shares to people who understand it’s a long-term venture,” Jesudason says. “Basically, we are a smaller version of someone like Berkshire Hathaway or Naspers.
“The medium-term path for us is to list the company. We can recycle capital through share buybacks; we have all the avenues to liquidity to investors that any corporate has.”
So far the results have been impressive. On March 23, Serendipity announced its annual results, reporting an internal rate of return since inception of 75.4% through to December 31, against a medium-term target of 18%. Net asset value per share climbed by 133% through 2021.
And why Singapore? The advantages obviously include tax and infrastructure, but also the quality of local universities, the local expertise in blockchain and quantum computing, and the view that “Singapore today is a B2C town, but over the medium term will probably evolve into B2B.
“Singapore could be a really interesting B2B infrastructure play.”