Almost a year in the making, GMAC-Residential Funding Corp. unveiled a venture capital arm last week that will make later-stage strategic plays in the asset-backed and mortgage-backed securities space. While the corporate venture vehicle has actually been scouting and completing investments for the past few months, the official launch was delayed due to corporate red tape surrounding the use of the tightly-controlled GMAC brand name.
The fund's investments, which will come in at the low end of a $5 million to $15 million spectrum, will focus on companies involved in the origination, processing and secondary trading of asset-backed and mortgage-backed securities. Examples of this type of play include business-to-business exchange portals, Internet processing outfits and digital signature technology.
"We're not looking at business plans, not looking to do seed rounds," said Nathan Kornfeld, managing director of merchant banking for GMAC-RFC and head of the new vehicle. "Our focus has been on technology to date, but it's not a requirement. We're looking for asset creators, realtor plays, bricks and mortar types [and] others that make sense."
Indeed, the venture arm hopes to leverage GMAC-RFC's core mortgage, securitization and asset management capabilities.
Late in May, GMAC-RFC invested $4.1 million through a private placement in Basis100, Inc., a Toronto-based e-commerce technology solutions provider for financial institutions that enables them to build, distribute and create a securities market. Although Basis100 is already traded on Toronto's stock exchange, the company met key investment criteria for GMAC-RFC: good management, strategic positioning and solid and applicable technology operating in a space with a high barrier to entry. GMAC-RFC also recently made an undisclosed investment in HomeAdvisor Technologies Inc., a Microsoft Corp. spin-off that automates the process of approving and financing a mortgage online and eliminates the closing cost of a mortgage.
The investments, like any GMAC-RFC deals which follow, were funded solely through GMAC capital. Kornfeld, however, is the only full-time professional in the venture arm, and all investments must be approved first by senior executives at RFC, and then approved by senior executives at GMAC. It is a slow-moving vehicle, with only two or three more deals expected to close by year-end. Still, it is not limited in the capital it has to spend in that GMAC-RFC is eager to jump if a strategic investment appears.
"There's strong corporate support for the effort," Kornfeld said. "If we're able to show there's a track record, we will be able to expand the scope. Right now we're focused on what we know best."