“Make it too big to cancel” was the unspoken motto, says Gurdeep Singh Kohli, when he and a small group of innovators, led by Alex Manson, proposed setting up an innovation and venturing arm for Standard Chartered bank in 2017.
Singh Kohli and Manson did not want the unit to be a short-lived experiment at the bank — as so many innovation units have tended to be — winking out of existence as soon as priorities and leadership changed or the institution hit financial stress.
“Most innovation arms, at some stage have an existential risk. When institutions are under pressure, they look at these accelerators and labs, and ask: ‘Is it really business? Or is it theatre?’” he says.
So SC Ventures went big. The unit — which includes an investment arm, an intrapreneur and fintech platform, and a venture building operation — employs some 80 people. Most of these work to support venture building , which has become one of the biggest parts of the innovation arm, working at industrial scale. Where many corporate venture builders will create between one or two startups at a time, SC Ventures has launched more than 15 new businesses in six years, and always has a strong pipeline of venture ideas, says Singh Kohli.
Building businesses to rewire the DNA of banking
The portfolio is built around four themes that the team believes will shape the future of financial services – online economy and lifestyle, digital assets, small and medium enterprises, and world trade and sustainability and inclusion. Many of its most successful projects — such as banking-as-a-service platform Audax, digital assets custody platform Zodia Custody and Indian B2B commerce marketplace Solv — are in areas that the core businesses at Standard Chartered would have been unlikely to pursue. Yet these have turned into some of the team’s biggest success stories.
In addition to the ventures, the unit makes minority investments via the fund and manages these investments for the bank. More than 20 minority investments are in the portfolio. A conscious choice that differentiates SC Ventures from other CVCs is that it only invests in fintechs and partners that the bank or ventures work with – ensuring the investment is strategic not just financial.
The model is working so well that SC Ventures partners with other corporates and financial institutions to co-create businesses. Many partners want to tap into SC Ventures’ experience in venture building while SC Ventures values the wider ecosystem of its partners.
“We’re getting external validation from JV partners like Old Mutual, SBI Holdings, Engie, to name a few. SBI, a Japanese financial conglomerate, has been a strategic investor in Solv and they have also partnered with us to establish a digital asset joint venture investment company in the UAE,” says Singh Kohli.
So, how did SC Ventures create a seemingly successful venture building operation where so many others companies have failed? Singh Kohli says a number of strategic decisions in setting up the unit were crucial.
Borrowing Pixar’s Braintrust idea
Ever since Bill Winters took over as chief executive of Standard Chartered in 2015, the UK-headquartered bank had focused on strengthening the foundations but with a clear aspiration to transform. To drive efficiencies and meet the challenge posed by emerging fintech startups, there were several efforts to digitise the core businesses.
But by 2017, there was a realisation that these internal efforts, while important, weren’t sufficient to drive transformational change.
“The core machinery is not set up to be disruptive. It doesn’t suit a startup culture,” says Singh Kohli, outlining the problem that besets almost every company that tries to innovate from within. “You have to create a different version of governance. You need to have the speed, the flexibility, the ability to pivot, and the mindset of people who do not treat that effort like a project,” he says.
Making sure the businesses set up by SC Ventures were truly independent of Standard Chartered — while still retaining a link to the bank — was also seen as key. There is a delicate balance to be struck here that many companies struggle with. How far should an innovation team sit from the core business? Too far and useful links are lost. Too close and innovation is potentially stifled.
SC Ventures decided to borrow an idea from Pixar, described in a book called Creativity, Inc. This was the idea of the braintrust, which at Pixar meant a group of passionate executives who would meet regularly to advise directors about their movies and help them troubleshoot problems. While the braintrust team could say whether they believe a film was likely to succeed or fail, crucially, they did not have the power to veto any projects. The directors were not under any obligation to take their advice — and could take risks where they saw fit. This system was credited with Pixar’s long run of hit films.
“We liked the concept and implemented in SC Ventures,” says Singh Kohli. We brought in people from within the bank and people from the tech world, who are experts in venture investing or building, and we bring venture pitches to this group,” he says.
But the ultimate decision of whether to go ahead with any venture or allocate investment to it, rests with a small investment committee that comprises just the operating partners of SC Ventures. To make sure they are putting their money where their mouth is, adds Singh Kohli, the compensation of senior leadership at SC Ventures is linked to the success of the portfolio.
The full toolkit
The team was also clear from the start that it wanted SC Ventures to have multiple different innovation tools, including external investing, internal venture building and collaboration with the fintech ecosystem.
Many companies have built corporate investment units over the past decade, but Manson and Singh Kohli didn’t feel that taking minority investments in external startups would alone be transformational enough.
“Small investments, typically minority stakes in sub-scale vendors, generally don’t have any notable transformational impact on the business.”
In an online account of the genesis of SC Ventures Manson writes:
“Corporations, including banks, have been investing in startups for a long time…these efforts typically fail or disappoint. Such small investments, typically minority stakes in sub-scale vendors, generally don’t have any notable transformational impact on the business.”
Owning a substantial part of the new ventures was crucial if the objective was to really change Standard Chartered as a bank and banking as an industry, says Singh Kohli.
“You can invest in companies. But if you want to drive serious transformation and change in culture and disrupt from within you have new business building.”
Investing in areas beyond the core
This decoupling of the SC Ventures investment decisions from the core business of the parent company allows them to invest in areas that are more disruptive and further out in the future, says Singh Kohli. Some of the earliest ventures that the team built are ideas that would not have been on the roadmap of the core business.
Yet these are some of the biggest success stories so far. Zodia Custody, an institutional crypto asset custodian that SC Ventures founded in 2020, went on to raise $36m last year not just from SC Ventures but with Japanese financial services firm SBI Holdings also chipping in. Northern Trust, the US-based financial institution, is also one of the earliest joint venture partners.
“When we had come up with the idea for Zodia Custody, four or five years ago, the core business was still debating about getting involved in the crypto markets,” says Singh Kohli. “We took the bank along and changed their mind, saying digital assets are here to stay. If we had continued debating when we should do it, we would not have had the first mover advantage.”
SC Ventures has also created Solv, an Indian digital marketplace for small and medium sized enterprises, which has raised more the $40m. This venture, in many ways, laid the foundation of SC Ventures. The origins of this idea trace back to the transaction banking days in the bank when Manson and Singh Kohli and a few others tried to ‘bank the ecosystem’ of clients and their supply chains. They realised that the problem, if it needs to be addressed at scale, needs a technology solution not a banking product.
The team also launched a banking-as-a-service offering, which allows any digital platform, from social media companies to ride-hailing operations, to offer customers loans, credit cards and savings accounts. This business started from an idea put forward by an employee, and was incubated in SC Ventures.
“The bank was not into mass retail at that point of time, so this was off strategy,” says Singh Kohli. Now, having set up the technology platform, Audax, and stitching partnerships with a number of e-commerce players in Indonesia and Malaysia, it has become a strategic capability to address this segment.
Giving internal ventures a unique advantage
Much of what the 80-strong team does is help the young startups that are being built with corporate functions such as HR, legal and compliance, information security, finance — areas where young companies often don’t yet have specialists.
Singh Kohli believes that having this early help is what gives the SC Ventures businesses a unique advantage over other startups.
“Staff may initially complain when they are building ventures with us that we are slowing them down because there is so much functional and bank grade governance that is put in place from the start. But later, when they are engaging commercial clients and when they are engaging investors, they realise that this painful journey is immensely valuable, because one of the first questions clients and investors ask is around robustness of security and governance. The fact that those policies have been designed by SC Ventures gives them comfort.”
It is easier to kill ventures early, but don’t kill them thoughtlessly
“At just six years old, we’re just like any other startup. We’re still 100% on the learning curve,” says Singh Kohli. One of the biggest lessons of the past few years has been how to kill ventures that aren’t going to make it.
The secret to running a big venture building operation is having a good process for funnelling ideas. While SC Ventures has around 30 ventures on the go at any time, a large number will be culled at the ideation stage. Another large number will not get through the incubation period. Startups are given clear targets and allocated money according to whether they achieve them, says Singh Kohli.
“One of the lessons learned is: it’s easier to kill early on than later,” he says.
Once a venture is launched, however, the team becomes much less likely to close it down without exploring all alternatives. “Before you pull the plug on a more advanced venture, you should absolutely step back and think about what type of problem the startup has. Is it a proposition problem? Or a partnership problem? Or leadership problem?” says Singh Kohli. The team will take a considered approach to trying to fix things — and if even this does not work, the venture can be reabsorbed into the parent business or merged with another company that is a better fit as an owner and can create greater value from that venture.
Real validation is yet to come
The real test of any venture programme is demonstrating meaningful value creation over time. And in this regard SC Ventures is still a work in progress. While the team has had a few small exits, none of the ventures has yet reached the scale that the leadership aims for.
But Singh Kohli believes there are a few with potential to list.
“A few days ago, we were talking about which ventures have the potential to IPO and we did mention a couple of names,” says Singh Kohli. “It would be awesome to IPO one of these.”
