Digging Deeper with Citi Ventures: Helping Startups Climb the Mountain of Payments
Andrew Barnes’ series, “Digging Deeper” is based in Silicon Valley and focuses on key innovators and startups, and how they are disrupting digital payments and commerce.
The name of the game for startups in Silicon Valley is disruption, especially in payments. So what are the global venture groups at major multinationals like Citi looking for in an investable startup?
Andrew dug into the subject with Vanessa Colella, Managing Director, Head of Global Investing for Citi Ventures in their Palo Alto offices to get the skinny on the secret sauce of startup success, how she leads a team of sherpas, and Citi’s investment in a hot Valley startup, Jumio.
Andrew Barnes: What are the intangibles you’re looking for in startups? What’s the secret sauce that you believe is predictive of success?
Vanessa Colella: Broadly, what we look for Andrew, is a set of entrepreneurs who are tackling big challenges or opportunities, and could benefit from Citi working alongside them. Our view is that talented, successful entrepreneurs have many, many places for them to raise money. We have to offer them that extra piece nobody else can, which is our geographic reach and financial services expertise. We think that a win for everyone is if we can really champion the entrepreneur and bring something from Citi to them in the same way that the knowledge, inspiration, and innovation that they’re driving brings something back to Citi.
The magic happens when the opportunities that we see as a 202-year-old corporation, and opportunities that these entrepreneurs see as a couple-year-old companies, intersect.
You referenced traction. Give me an idea of what qualifies as traction in a marketplace?
Any business starts out with an idea that gets prototyped, built, and tested with clients or in pilots. It’s really easy to get very excited about the ideas. We say to entrepreneurs that it is hard for us to bring value at the idea stage, so by traction I mean a working product that is either being piloted or ready to be piloted in market.
Entrepreneurs and startups tend to pivot as they’re figuring out how their idea works in the marketplace, the available white space, and the problem they want to solve. As they learn there tend to be pivots early on.
We find that we can be most helpful to an entrepreneur, and they can find the most success in working with Citi when they’ve already gone through some of those early pivots and they’re now settled on the product and the market that they are going after. That’s what we look for when we talk about early traction.
I suspect that when you’ve got internal constituencies you can’t be championing X and all of a sudden it changes the Y. The process of re-socializing and re-integrating isn’t pretty is it?
Yes. Here’s how I describe it to people. Part of my team acts as Sherpas. Our job is to help make the magic happen, and that magic is leading a startup at the right time to a place where they might be able to engage with us to pilot something or test something in a way that is an opportunity for Citi and an opportunity for them.
Like a Sherpa, our job is not to say, “There is the mountain. Go climb it and when you get to the top, call Bob.” Our job is to figure out the time of year, the week, and the time of day to start that climb. Identify who you need along the way to ensure success. Figure out the supplies needed to make sure that when that critical meeting happens, it is the most productive for Citi and for startups who are resource constrained and can’t burn cycles figuring out who to talk to in a big company.
We take that part of our job really seriously and sometimes, that means that we invest in a company and we don’t engage with them right away because we know that they’re working on something and it isn’t quite the right time. Other times, it means that we engage with a company well before we ever invest because we think it would be a great thing to understand what they’re doing in order to solve a challenge that we’ve got a Citi. And then we may or may not invest in them down the road.
Say I’m a startup and you’ve got an interest in me. You make an investment. Is my access primarily with someone on your team who is front running the interface in Citi or am I interfacing directly with units within Citi over time? How does that look?
That’s a great question. Our aim is never to be a bottleneck where you can’t call somebody at Citi without talking to us first. During that first climb, there can be quite a bit of interaction as we’re introducing the startups to people at the right level within Citi. We’re making sure that both sides are speaking the same language and that there’s an understanding of how we might be able to work together.
Of course Citi is a huge company. We operate many different businesses serving nearly 160 countries, so as a company starts to get traction within Citi, they start to have contacts within the organization. We’re always there to be a resource but that second, third, fourth climb, they already kind of know the route and it becomes much easier for them to interact directly with the business.
What about reaching beyond Citi, to other companies that might be good for their business?
We think the network is extraordinarily important. Our team consists of professional people from across the venture capital ecosystem. We think it’s important to understand what the network is like for an entrepreneur and we believe that this isn’t about just the startup and Citi. No startup is going to be successful only talking to Citi.
This is all about how we can we help get them going, and there’s other people that we know in common that would be good for them to be involved with. For example Andrew, what you find if I take service security as an example, is that we aren’t looking to acquire these companies. We’re looking for security companies to be successful so that overall, they’re increasing the safety and soundness of our financial system.
We’re very happy when they find success with us and then they go on to be successful with other companies because we are all in a race to stay ahead of the bad guys.
Right, and you’ve achieved the strategic objective of bringing in best practices while also improving your investment from an ROI standpoint as well, correct?
That’s right. What we really measure in terms of ROI here is strategic and different than some corporate venture units. I always say, and as every entrepreneur knows, that a bankrupt startup is not strategic. I think it’s a false dichotomy when people talk about measuring financial return or strategic return because if the company is not in business, I can guarantee you it’s not strategic.
Let me drill down on that last comment and how you might be different from other investors. Can you talk to this?
Yes. I think we are unique in a couple ways. Probably the most obvious way is that Citi has an unparalleled global footprint. There’s not many corporates, particularly on the financial side, which can help with access to the kind of markets and regions that we can.
I also think that we’re trying to be unique with the notion that we are not a one-and-done kind of operation. Frankly, if we have a startup who does one successful pilot with us and has a commercial deal with one of our business units in one region, we shouldn’t view that as a success for Citi and for that startup unless it is a completely centralized piece of technology because the reality is that there probably are many places around Citi that that same technology could be quite impactful.
We always look for scale. We look for entrepreneurs who are interested in scaling their businesses because we think that that’s something that we can help bring to the table and help them through that beginning process. Dealing with large companies can be a bureaucratic challenge and so if we can help build skills and capabilities to make that easier, then that helps accelerate the success of the company.
From an economic standpoint, is there a difference between yourself and corporates?
We don’t do seed investing. There are some other corporates that do very early seed investing. That would be slightly different. Obviously as a bank, we work very closely with our regulatory, compliance, and legal colleagues because there are some limitations on how much of a stake we could take in a company.
Down the road from us is Jumio, another Silicon Valley startup in which you have invested. What do you love about what they’re doing in the marketplace?
We’re excited about companies that are thinking about ways to improve the customer’s ability to interact. In Jumio’s case, you don’t have to type in all of your information, it gets pulled in and then filled out so that you can say, “Yup, you got it right. That’s all the information and it’s correct.”
For us, it’s exciting because fundamentally it’s a great experience if you’re a consumer. It is easier than having to key in all of your information especially if you’re on a mobile phone, which is so challenging. As with Jumio, we look for how these companies and these technologies make for a better experience for our customers.
You’ve lived in a bunch of places. What’s different about Silicon Valley and what about it had you put your venture investing office here?
The thing I love about the Valley is its optimism. People in the Valley view challenges or problems as opportunities to make it better, to make the world a better place, to make the experience better, to change things, to add value. I think that optimism is just infectious. It helps us all think more broadly and differently about how we tackle problems and how we make them into opportunities.
A question on financial inclusion. Also called the emerging middle class, unbanked and underserved. How do you view this sector and are you putting investment dollars because you see opportunities for Citi?
Two things, first of all, Citi has been quite involved in a lot of early micro lending and pilots. That’s something that we take very seriously and have been active in for a long, long time.
In terms of investing in particular, what I find fascinating is the consumerization of IT, the cloud, and the advances in user experience have made it much less expensive to deliver many different types of services to different people. We might not talk about it as inclusion per se. But the fact that those services can be created, built, deployed, and delivered for less money than what’s previously possible expands the number of people able to take advantage of those services.
I think we’re seeing that become a reality in financial services. You see it with companies who are helping people look at how much to spend and how much to save. You see it with companies that are automating things like investing. For instance, if I only have $5,000 to invest, I may not want to hire a financial adviser because that is probably going to eat away at the core of what I’m saving. There are ways that I can responsibly invest that money in a much more automated fashion.
You really see it across the board. Innovation ultimately has the potential to disrupt a lot of the historic value chain in payments. For instance, whether or not one can afford to hold a particular payment vehicle.
Some people might say that financial inclusion is a particular focus. We think it’s a mega trend in financial services and it’s based on the technology trends that you’re seeing from the cloud and how software is spurring products and services that previously have been far more expensive to deliver.
Palo Alto or San Francisco, what is a favorite restaurant for you? For instance, “Whenever I’m in need of X, I go to Y.”
Well, I have an infant so frequenting a restaurant is not as often as it used to be. These days such meals are standing next to the high chair thinking out how much chicken is going to go into his mouth versus on the floor. But when we do get out, we usually try and find some sushi.
Fair enough. I’ve got a two year old so I can certainly relate to that.
It’s all the stuff that people said you were going to find interesting and before you had one, you thought those people are weird. And then a you have child and it’s fun.
It’s like I never thought a place like Sam’s Chowder House on University Avenue would be such a great place to go but it is.
Great talking with you today Vanessa. Thanks for your time and I look forward to our next conversation.
Great talking to you as well Andrew.
About Citi Ventures
Citi Ventures is Citi’s global corporate venturing and innovation arm, chartered to collaborate with internal and external partners to conceive, partner, launch, and scale new ventures that have the potential to enhance and transform the financial services industry, drive client success, and generate new value for Citi. Citi, the leading global financial services company, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, and governments with a broad range of financial products and services, including consumer, corporate and investment banking, securities brokerage, global transaction and wealth management services.
Vanessa Colella, Managing Director, Head of Global Investing
Vanessa Colella leads Venture Investing for Citi. Her team identifies and invests in start-ups that are changing the game in the areas of data, security, payments, and fin tech and works with entrepreneurs to help them pilot and commercialize their technologies at Citi. She joined Citi Ventures in April 2013 coming to the team from Citi’s Consumer Business as Head of North America Marketing for the previous three years. Vanessa previously was head of data and insights at Yahoo!, a partner at McKinsey and Co. and an Entrepreneur in Residence with US Venture Partners. A charter member of Teach for America, Vanessa received her BS in Biology from the Massachusetts Institute of Technology and subsequently returned there for her graduate studies at the Media Lab, earning both her MS and PhD degrees. Vanessa resides in San Francisco with her husband and their son.
Barnes is a self-confessed payments “geek” and recognized entrepreneur-intrapreneur working in Silicon Valley. He leverages his business development track record and network in tech, startups, retail, and FI’s to profile opportunities and solve challenging revenue problems in payments and mobile commerce. Barnes has held executive positions internationally with Sprint, Global One, and 2Roam Mobile. He founded the National NNN Investment Group and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from Waseda in Tokyo 早稲田大学大学院 and a BA from Penn State. He can be reached at @AndrewinSV and Linkedin.