Citi Ventures’ Vanessa Colella: ‘No one runs innovation, it’s all about unleashing it’

As one of the largest financial institutions in the world, Citi takes its innovation efforts seriously. Combining internal and external models of collaboration with a disciplined corporate venture arm, the financial services giant ensures that it has a lot of coals in the innovation fire.

Leading those efforts is Vanessa Colella. Vanessa runs Citi Ventures and is the Chief Innovation Officer at Citi. In my talk with Vanessa, we explore how Citi combines internal and external innovation and what role venture investing plays in the overall mix. For her, all this talk and activity around innovation addresses something very simple: how to get the best results for Citi’s clients.

Vanessa Colella is our guest today on the Tearsheet Podcast.

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Below are highlights from the episode, edited for clarity.

You are both Chief Innovation Officer and also run Citi Ventures. What’s your mandate?
My role entails a variety of things, from our venture capital equity investing on a global basis — that’s about bringing the outside in and staying on top technology and new developments in fintech — to working with our internal innovation labs and external and academic partners.

How do you encourage innovation within the organization?
We also run a program at Citi Ventures called D10X, which stands for discovering exponentially better solutions for our customers. We bring the same principles of entrepreneurship and ingenuity into a 206 year old company to unlock the promise of how our employees know they can best serve our clients. Innovation isn’t one single point or approach. We’ve greatly benefited from the perspective that it’s both about internally what we can do to drive better solutions for our clients as well as externally understanding what’s happening in the marketplace, what entrepreneurs are doing and where technology is moving. Sometimes people ask me if I run innovation as the Chief Innovation Officer. No one runs innovation. It’s really about unlocking the creativity and promise of what all our hundreds of thousands of employees bring to work every day to unleash that to drive results for our clients.

What are you looking to accomplish with your corporate venture investing?
We’re strategic investors, so we’re doing this to understand and participate in the technology ecosystem driving change. This isn’t something you can be an observer of. It’s something you have to get in the game and work with entrepreneurs. Our mantra has always been to champion our entrepreneurs, to help them scale their businesses quickly and efficiently. This approach is different than a lot of corporate venture capital firms who think a lot about finding entrepreneurs who can help the parent company. We’ve learned that a company as large and diverse as ours can have enough demands on an entrepreneur and a startup that they can’t keep up. Instead, we find that we’re able to work with them to scale their businesses. It can turn out that they become partners of ours or we’re able to help the launch into new markets.

What drives success in equity investing for Citi Ventures?
It’s two-fold. We understand that venture is both an art and a science. So, we judge success in the strategic impact an investment has on our firm and our clients, as well as the ultimate success as our companies. Today companies in our portfolio employee over 10,000 people.

How Citi’s latest cybersecurity bet veers from the usual model

Financial technology trends come and go but three are here to stay: Everyone has a mobile phone, large businesses are moving their data to cloud systems — and threats to cybersecurity are evolving with and around both behaviors.

As the threat cybersecurity poses for financial services – or any company, since they’re all collecting customer data – isn’t going away, these companies are heavily invested in analytics firms that monitor breaches, defenses and other activity to try to make sense of user behavior and identify patterns to help prepare for the next attack. That space is getting kind of crowded though, which is part of why Citigroup’s startup venture capital arm just invested in a newer cryptographic solution by a company called Dyadic.

“There are established vendors of hardware security models and systems we all buy from. They’re trying to prevent or detect threats. We’ve invested in that,” said Arvind Purushotham, global head of venture investing at Citi Ventures. “The Dyadic opportunity came along and was fairly unique, there are not 10 startups in their area.”

Dyadic is a software company that helps companies manage their cryptographic keys, a long string of numbers required to encrypt private information. Citi Ventures participated in a $12 million growth investment in Dyadic along with Goldman Sachs Principal Strategic Investments and Eric Schmidt’s Innovation Endeavors.

In many current systems, there is a key to encrypt and one to decrypt. Dyadic’s solution effectively splits each key into two and allows them to be stored in different places – one half on a company server and the other on a mobile phone, for example, or one half in the cloud and the other in a data center. This way, even if a hacker somehow obtained the part of the key stored in the cloud, it couldn’t use it to decrypt information without finding its pair. The solution isn’t completely unhackable, but it creates an additional challenge for nogoodniks.

The technology is also easy to implement at the types of large financial institutions that would benefit from the product, he added, which counts for a lot when deciding to invest in a company. It’s rarely ever about how innovative an idea is. Most companies using Dyadic’s solution probably already employ cloud storage and have an increasingly large mobile customer base.

“[Dyadic] plays to the trends of cloud, mobile and enables us to make mobile offerings even more powerful not just at Citi but at any enterprise,” Purushotham said. “It is lowering the complexity and cost of a cryptographic system and if you can make it cheaper and easier to use, enterprises will use it more, and more commerce can happen online more securely.”

However, defending a bank and its customers against cyberattacks is as much – if not more – about how companies identify and verify their customers when asking them to hand over sensitive information as it is about identifying the attackers. Many websites now require numbers, capital letters and special characters of their users’ passwords, in order to make their accounts harder to breach. Some have employed fingerprint authentication and let customers store credit card information so they neither have to enter their credit card information or their password.

But financial services is one of the most highly regulated industries, and it has many reasons for requesting certain sensitive information. Some are business-related, but many come back to regulatory compliance.

“Security is sort of a murky problem,” Purushotham said. “We need to collect what we need to collect for a variety of reasons but it’s also our job to ensure the data stays secure inside the enterprise and make it simple for customers to use our services while still making it secure.”

The Startups: Who’s shaking things up (Week ending January 31, 2016)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming newsletter.[/alert]

Startups raising/Investors investing

Is VC the right money for fintech? (TechCrunch)

Citi Ventures invests in working capital marketplace, C2FO (Finextra)

College Ave Student Loans scores $20m (PE Hub)

Blockchain Capital raises $13m for second fund (CoinDesk)

Leftover currency converter TravelersBox raises $10m (Reuters)

Social investing startup SprinkleBit raises $10m (TechCrunch)

Dopay, payroll company for the unbanked, raises $2.5m (PE Hub)

MIT spinout Insurify raises $2m to replace insurance agents with robots (TechCrunch)

The Startups: Who’s shaking things up

NYT: How roboadvisers stack up against each other (NY Times)

How Robinhood became the first financial app to receive an Apple Design Award (Let’s Talk Payments)

Robo-advisor Betterment launches business platform (Finextra)
Betterment, the largest automated investing service, is launching Betterment for Business. This comes the same week as President Obama is expected to introduce a budget plan making it easier for small businesses to form retirement plans for their workers.

Broken TransferWise all “smoke and mirrors”? (The Memo)

Moven partners with loan refinancers, Payoff and CommonBond (Bank Innovation)

Spare change investment platform, Acorns launches education site (Bank Innovation)

Tencent’s WeChat Wallet lands in Hong Kong, beating Apple Pay to market for mobile payments (South China Morning Post)