Meet Nathan Walsh and Michael Starkey, co-founders at Athena. They know that when people buy a home, they don’t dream of owning a home loan, they dream of paying it off.

We’ve just led a $25m Series B round into Athena, a fintech company who’s purpose is to radically change mortgages so that you own your home sooner.

This is our second investment into Athena and it marks a significant milestone for the team for many reasons (see below!)–especially as they secured an investment by Hostplus, an important endorsement of Athena’s model and its alignment with superannuation funds.

To help you understand the rationale for investing, and celebrate the real improvement that Athena is leading, we’re releasing our investment notes.

This is a long read, with analysis on the market, the model and the team. We hope you enjoy it!

The $1.7tr problem

Buying a home is a pretty huge deal; not only is it likely to be the biggest financial outlay of your life, but it is often an emotional investment. Most people can’t afford to buy their own home outright and upfront — it’s commonly expected that we pay for our home over time using the financial instrument known as mortgages.

Mortgages are the engine of home ownership, helping prospective home buyers fund the gap between the price tag on the house and the amount of cash in the bank.

Some quick stats:

• In Australia, about 34.5% of occupied homes are mortgaged homes — and the industry is valued at a whopping A$1.7 trillion.
• Roughly A$440 billion in mortgages are written every year, of which around A$90 billion are loans being refinanced with another provider.
• On average, consumers stay with a mortgage provider for 5–6 years– the mortgage term itself is up to 30 years.
• The banking system in Australia generated A$52 billion in pre-tax profits last year, the largest chunk of which came from mortgages.

Relative to the size of the Australian economy and our population, these are extraordinary figures when compared with other geographies.

Servicing this enormously profitable and important market are — you guessed it — the big banks of Australia. For historical context: following the Global Financial Crisis, the large banks in Australia moved from a <70% market share in mortgages to a dominating >95%, with the Big 4 taking the lion’s share. The Commonwealth Bank has a 25% market share alone, worth $413B in oustanding balances.

But why does this matter?

Australia's 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry demonstrated a lack of alignment between the banks and their customers.

This is a serious problem. Over the past few years, the Big 4 have charged existing customers 32bp more on average than new customers. Let that sink in. The more loyalty you show to your mortgage provider, the more they charge you. Substantial fees and charges are common both upfront and when you try to switch mortgage providers, making it unattractive to go after a better rate. This also means that the real rate you pay over the life of the loan is materially higher than the headline rate you sign up to.

Another issue is the proportion of mortgages originated by brokers, which is over 50% of the market each year. In many ways, brokers actually help consumers by finding them the best rate and explaining how a mortgage actually works. But they also get paid commissions to bring customers to the banks, which inflates the cost of the loan and means a higher interest rate for consumers. Critically, it means that the bank doesn’t need to build a trusted relationship with you. You’re just another line item for them.

Poor treatment of consumers has created a lot of resentment towards mortgages as a product and the banks that provide them. We think all of that can change.

There are also broader market trends that lead to this market being particularly attractive for disruption. Big banks size and culture are designed to deliver large financial results, rather than focus on customers. As deposit-taking institutions, banks are heavily regulated; their infrastructure and systems are incredibly complex and their cost structures are bloated.

For such reasons, big banks aren’t well placed to maintain their current position against challengers. It’s time for a better solution.

Meet Athena

Imagine a mortgage provider that values loyalty and automatically provides you with the best possible rate, as well as rewards you over time with discounts. Imagine having a single, clear rate with no hidden fees or charges. Imagine a data-driven, simple application experience that can be completed on your mobile, or with assistance from a real mortgage expert where you need it. Most importantly, imagine a mortgage provider that wants to help you pay off your loan faster. Enter Athena Home Loans.

Athena is the first home loan challenger to pursue a truly “full stack” model, controlling the experience end-to-end, from attracting and engaging customers and originating loans, through to its own funding sources. As a digital native without the legacy systems of incumbent mortgage lenders, Athena can offer a high-quality, reliable, flexible and efficient customer experience.

For customers. the simplified value chain means that they’ll be able to remove layers of cost like brokers and manual handling of documentation, enabling sustainably lower rates.

On the funding side, the business is exploring direct funding of their loan book via superannuation funds and other institutions, a model that has worked successfully in the Netherlands. This would allow the removal of numerous financial intermediaries, providing better returns to institutional investors and sustainably lower pricing for consumers.

We think the combined impact of these innovations is huge for consumers — real examples from the pilot to date show this impact. A single mum will pay off her home loan 19 months earlier and save $130,000. A family with three young kids who have saved $40,000 on their home loan are taking their first family holiday in years. These are powerful stories highlighting the real impact of Athena.

But let’s not underestimate the challenge here: pitching yourself against some of Australia’s largest institutions is a real David and Goliath battle requiring an exceptional team with huge ambition…

So, meet the team

We first met Nathan and Michael in early 2018, Athena was a pre-product, pre-revenue company. Their deck was 24 pages long, and their team featured right at the front; here’s why…

Michael and Nathan are a rare combination of strong financial services expertise with a sober, driven and focused approach to executing on a really ambitious vision.

When we meet founders, we want to hear about their past experience and think “Yes, their whole life has been about consciously or unconsciously laying the foundations for this company”. That’s because the best companies start with a really deep understanding of the problem. This is exactly how we felt when we first met this team.

Nathan Walsh, Athena’s CEO, is a former NAB executive who started his career with BCG before taking senior roles at Citi and NAB in wealth management. At NAB, Nathan founded Nabtrade and built it from an idea into a $40 billion platform over 7 years, winning multiple innovation awards along the way.

Michael Starkey, Athena’s COO, has an entrepreneurial background, having been the co-founder of iSelect in AU. He spent 7 years at NAB in personal banking, was a board member of the Australian Payments Council and former director of the New Payments Platform (Australia’s new real-time payments network).

If you were to build a mortgage company in Australia, you’d want Michael and Nathan at the helm. This is a founding team who understands what’s broken in mortgages from within the machine. They know how and why mortgages are broken and are pioneering a new business model to solve it.

But wait, there’s more

Dynamic, diverse and capable teams drive success in startups. Founders who can convince exceptional people to join their team have a better than average chance at building a really significant business.

Nathan and Michael’s team are the exact kind of executive leadership that we love to work with: a unique blend of technical, corporate, startup and scaleup experience necessary for building an industry-disrupting Fintech company.

Meet five senior members of the team

• Peter Georgiou (CTO) — Former Head of IT at Atlassian (10+ years) and senior IT manager at Macquarie Bank (10+ years).
• Natalie Dinsdale (CMO) — Co-founder Ubank and digital marketing experience at Tyro, Virgin, Citi, Egg Banking.
• Esse Turnbull (CXO) — 20+ years in UX/design roles with customers such as BT, NAB, Westpac, AMP, OFX and Macquarie.
• Mira Hohn (CPO) — Change management and transformation at financial institutions such as Deloitte, NAB, HSBC. A former head of platform development at Nabtrade.
• Joe Seychell (CRO) — Significant experience in Risk at NAB (9+ years) and ANZ (3+ years), most recently in collections, hardship and valuations.

Investing in the future of fintech

Joining the ranks of companies such as Airwallex, Canva and Culture Amp, who have raised over $20 million this year, this $25 million Series B takes Athena’s total raised to $45 million — a great position to be in as Athena looks to launch their brand in the first half of 2019. We are thrilled to be joined by Hostplus and Airtree in this round.

In addition to Athena, we’ve invested in Prospa (small business lending), Airwallex (FX payments), Finaccel (consumer lending in Indonesia), AgriDigital (agri-financing) and Stripe (payments).

If you’re building an outstanding, industry-defining company — be that in fintech or not — we’d love to know you.

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