Business of Fintech
‘Fintech VC needs more exits’: Arvind Purushotham, Citi Ventures
- Front-end innovation made fintech exciting but back-end innovation is where real change is made, which is why Citi is aggressively investing in cybersecurity, data and infrastructure startups
- Having so much contact and access to startups is helping them stay on top of the innovation race
Of all the hundreds of corporate venture capital firms out there, Citi's the heavyweight. Citi Ventures frequently ranks in the top 50 most active, according to CB Insights. It also tops its U.S. banking giant peers in number of uniques fintech investments. Of banks ranked by the number of unique portfolio companies, Citi has participated in 30 rounds to 22 companies since 2012. It counts robo-adviser Betterment and PFM app Clarity Money among its portfolio companies, which span almost every area of fintech, but most of Citi's investments are in back-end technology. You can see the results of its aggressive investment strategy in the bank's innovation initiatives. While most banks are now coming around to ideas like mobile-first customer relationships and open banking, Citi delivered on them two years earlier. Having so much contact and access to startups is helping it stay on top of the innovation race. "Traditionally, venture capital has been nuts and bolts oriented -- systems and software," said Arvind Purushotham, global head of venture investing at Citi Ventures. "It became consumer oriented with the advent of e-commerce and social networks. In some ways things have changed forever in terms of how we think about financial services." But front-end innovation can't be sustained without innovation on the back-end too, which is where Citi Ventures comes in. Most of its investments fall into infrastructure categories -- blockchain, data analytics, financial services software. This year it added Dyadic, Data Robot and Feedzai. Purushotham focuses his attention on on financial services, cybersecurity and enterprise infrastructure and his portfolio includes portfolio includes Betterment, small business lender Bluevine and trade finance startup C2FO. Tearsheet caught up with Purushotham to discuss Citi's leadership in corporate venture capital, investment areas he's interested in and how his team contributes to the culture of innovation across Citi. Citi has made more fintech investments than its U.S. peers. Why are you so aggressive? Well, we have a disciplined program in place to do this. Starting around 2010 to 2011 we put together a program where we would find 10 new investments a year. In the last six and a half years we’ve made nearly 50 new investments. The new generation of fintech focuses on areas like cybersecurity and data and on consumer-oriented fintech. Everybody has their flavor of it but nobody does it like we do. What’s your strategy? In the venture business, you can't invest in a small number of companies because there’s a high mortality rate. We build theses around different areas of investment and sometimes, we find companies working in those areas. When we build a thesis it’s in conjunction with Citi’s business so the whole thing comes together. You invested in Dyadic earlier this year. Besides cybersecurity, what has your attention right now? Data and analytics and machine learning. When we started out there was a lot of hype around big data. We started at the infrastructure layer of that stack and migrated outwards — finding ways we can look at the data, ask questions on the data when you don't even know what questions to ask. What would you as a venture investor like to see more of in your industry? More exits; proof of being able to build a venture portfolio for fintech startups where you can have great, successful outcomes. We were investors in square. There are some very scaled private companies out there right now. WePay just got acquired by Chase. All that will drive additional activity in the area. What made you want to go to a corporate VC from a traditional one? I came on board to build the equivalent of Google Ventures or Cisco Investments — nothing like that existed among the big financial institutions. We were one of the first to think about starting a disciplined effort doing fintech venture capital. Bringing financial services and technology together — it felt like it was the right time. The backend is always dependent on a lot of technology in financial services but then the front end was also becoming tech-heavy. Is it hard to bring startup culture to the rest of Citi? We meet 700 startups every year and brings the learnings from those startups into Citi. We’re trying to create a mindset change, a culture change. Part of it is done by driving partnerships with startups, part of it is done by engaging with Citi about how startups think and run. We engage up and down the chain, the hierarchy and the conversation we have with the CEO and his direct reports is different from the conversation we have with the product or business. So what can Citi learn from startups? The startup is the original agile enterprise. It’s agile by design. Traditionally, most startups are people sitting in one room and making decisions fast. When you see something’s not working, you quickly change, fix it and go back at it. Using the venture investing practice as a way to bring that cultural shift has been a key aspect of what we do at Citi Ventures.