Citi Ventures is the in-house venture capital investing arm of Citigroup established in 2011.
Global Head Arvind Purushotham said Citi Ventures will have its biggest year of funding in 2021.
Purushotham told Insider how its strategy is evolving as a result of increased competition.
See more stories on Insider’s business page.
Citi Ventures is set to have the biggest year of funding in its 10-year history as investing in startups surges thanks to an increase in competition.
The venture investing arm of Citigroup had an active 2020, with 16 new investments and nine follow-ons. However, Arvind Purushotham, Citi Ventures’ global head, told Insider there’s more room to grow this year.
Already the firm has closed 12 new and follow-on investments in 2021, including digital notary service Notarize’s $130 million Series D raised in March and speech recognition startup Deepgram’s $25 million Series B announced in February. There are also seven deals currently in the pipeline, he added.
“This will be our most active year yet. I think it just reflects where the industry is and what’s happening in the broader market,” Purushotham said. “It’s a combination of new opportunities that we’re seeing and existing portfolio companies raising follow-on financings, and both of those things are up.”
Investors have given fintechs increased attention in recent years. The first quarter of 2021 saw a record level of fintech funding that reached nearly $22.8 billion, according to market researcher CB Insights — already more than half of the volume seen in 2020.
Purushotham’s team sits within the CFO’s division of the bank and has a dual mandate: invest both in companies that might offer high returns and ones that can be integrated within Citi’s broader operations, across both business-to-business and business-to-consumer areas.
Since its founding in January 2011, Citi Ventures’ investments have included some of the best-known names in consumer-facing finance, like Betterment and Honey, as well as more business-oriented plays like Square, DocuSign, and Plaid.
As the fintech funding market heats up, Purushotham said the group’s mandate of fueling commercial partnerships with Citibank has been a draw for fintechs. And it’s something Citi Ventures is flexing as competition escalates.
“What we care about is what’s happening in the startup world, what’s happening in the startup ecosystem,” Purushotham said, “and then bringing it into Citi.”
Citi Ventures leans on bank partnership as a differentiatorFrom hedge funds like Tiger Global to startups like Stripe, the landscape for investing — particularly for early-stage companies — has arguably never been more competitive.
“Every space used to have three or four competitors, and now they have 10 to 15,” Purushotham said.
For the investing team of 16, deals typically range from $1 million to $20 million across companies of different maturities and sizes — although Purushotham said seed stage startups are typically avoided. A Citi Ventures spokesperson declined to disclose the firm’s return on investment or total deal amount.
Citi Ventures also invests across a broad swathe of sectors that includes: financial services and technology; commerce and payments; enterprise security and IT; and data analytics and machine learning.
Having the backing of the nation’s fourth-largest bank doesn’t hurt either. In light of the increasing competition, the group is leaning more heavily on its connection to the bank — and the likelihood of striking a deal with Citi — to help it stand out in a crowded field.
“At the end of the day, we want to identify companies that can also work with Citi, so it becomes a collaborative effort to some extent,” Purushotham said. Involving Citi in early discussions also helps the investment arm evaluate the fintechs from a business perspective.
Oftentime “soft commercial discussions” are triggered between the bank and Citi Ventures around companies the bank should shortlist, whether there should be a formal evaluation, or if the bank should ask for a request for proposal, Purushotham said. Sometimes, it’s a shorter discussion of moving forward with a certain fintech “because they fix a problem for us today that nobody else can fix,” he added
The Citi Ventures team spends as much as 20% of its time working with partners across different business lines of the bank to identify partnership opportunities and evaluate startups for investment.
Working so closely with the rest of the bank means investments often lead to business for the startups as well. Roughly 50% of the companies in CV’s portfolio have inked a commercial deal with the bank, or are close to it, Purushotham said.
High Radius, a fintech that uses artificial intelligence to automate accounts receivables and payables for businesses, is one example of how the venture-investing arm drives business partnerships for the bank.
Treasury and trade solutions (TTS) is big business for the global bank, encompassing a wide variety of offerings for multinational companies, from cash management to commercial cards. The business accounted for more than $2.1 billion in revenue at Citi in the first quarter of 2021.
Citi Ventures has been working with TTS for about four years, Purushotham said, and High Radius is a core component of the division’s efforts to automate and digitize accounts payable and receivable processes.
Citi Ventures is embarking on a new strategyMore than a decade after its founding, Citi Ventures is nearing its 110th investment, with an active portfolio notching 72 companies. But increased competition often fosters change, and Citi Ventures has plans to broaden its focus and tweak its strategy.
A decade ago, the team’s investments were isolated to certain areas of fintech, like global payments, Purushotham said. But the group has shifted to investing in fintech across the board with vertical-specific efforts.
Cybersecurity companies have been in its playbook since 2011 because “it’s the startups that are always looking for those threats that are around the horizon,” he said. Purushotham’s first investment at Citi, in fact, was in the fraud analytics company Silver Tail Systems, which was acquired by network security company RSA a year later.
As companies worked to develop their own data lakes, Citi Ventures turned its attention to information and analytics. The vertical remains an important area today, Purushotham added, but now it’s taking on the “trove of data” by looking at automation and machine-learning techniques in the space.
New business-specific verticals Citi Ventures is doubling down on include property tech, to support its consumer and institutional mortgage businesses, and HR-related tech, to help the bank better recruit talent and manage its global team of 250,000 people.
With decades of experience in the field, Purushotham knows innovation and investments ebb and flow.
It’s one reason why the venture team is beginning to turn its gaze to areas beyond the realm of what some may call traditional fintech, like property tech and embedded trade finance.
“Innovation comes in waves, and so we try to watch for what’s happening. Is it on an upswing or is there a plateau?” Purushotham said.