For Mastercard, investing is less about commercial partnerships and more about relationships.
"A lot of our investments were driven historically because we wanted a preferred commercial arrangement with a partner, like exclusivity for example. We realized that although the commercial relationship is a key part to why we make investments, we can't let that dictate too much as to why we make an investment," said Jeff Allen, who runs the company's strategic investing function, on this week's Tearsheet podcast.
Edited highlights are below.
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Below are highlights, edited for clarity, from the episode.
Adjusting the investment approach to align incentives
"We need to invest in quality companies first and foremost because if these companies and partners aren't performing on their own, that commercial relationship is worthless.
We've definitely been a lot more disciplined over the last few years in terms of the types of companies we're looking at and getting our business units involved in understanding why we make investments."
Mastercard's investment philosophy and approach
"There are three pillars as to how we go about investing. Our first approach is as a limited partner in several venture capital funds, both within the U.S. and internationally. The idea there is to leverage the expertise, access, and insights that venture capitalists have and to get access to their portfolio companies for potential co-investment and acquisition opportunities.
Our second approach is through Start Path, which we've had for three or four years. Our team kind of bristles when they're described as an accelerator program. They like to view themselves more accurately as our startup engagement program. The idea for startups that go through the program is not necessarily just that they'll be co-located in a working space and get access to a bunch a mentors. It's about the access they get to Mastercard business units and our customers and partners. Because we're a payment network, we sit in the middle of banks, merchants, corporates and governments. It's compelling for startups to get access to all this. We invested in Kasisto, a conversational AI platform, through Start Path.
The third pillar is our strategic investment team. This is more later stage, larger check sized investment. Within this space, we're being more disciplined. We investing in Masabi, a platform for transit agencies to issue mobile tickets. The MTA in New York City is one of their customers, enabling customers LIRR and Metro North riders to buy tickets from a mobile app."
How investments are managed after writing a check
"I stay deeply personally involved. We didn't really have that oversight on the overall investment point of view and that was part of the reason I came onboard. Every investment we make requires a business unit sponsor, who raises her hand to be accountable. If that investment doesn't perform and there needs to be an impairment, that's going to run through her P&L which will impact performance and compensation. We've formalized this process over the past few years and because business unit executives change jobs more frequently that corporate venture capitalists, we want to make sure executives stay committed to their investments."