Corporate venturing is a journey where effectively trial and error – pivots and minimum viable products in the jargon of entrepreneurs – helps shape the current incarnation.
Jeff Allen, vice-president for strategic investments at US-listed credit cards provider Mastercard, said flexibility and openness to change has been important to its venture programme.
He said: “One of our greatest successes has been the senior-level acknowledgement that we need to adjust our investment approach, based on the significant learnings we have uncovered after spending the last two years assessing our existing portfolio.
“Mastercard has only been a public company for 10 years, and has only really started to make strategic investments on a broad scale over the last five, so there has been a lot of trial and error.
“Historically we made investments as a means to get a better commercial deal, for example exclusivity, but we have learned we need to invest in great companies and management teams first, with much deeper strategic alignment and business owner accountability.
“As part of this initiative, I have spent a lot of time optimising our existing portfolio, including selling off non-strategic (orphaned) investments. Some of those have been at robust internal rates of return, while other more complex positions have required significant time, effort and relationship building to find an exit so that we can focus our efforts on more strategic deals.”
Allen added: “I love the unique complexity within CVC, where you have to find a delicate balance/alignment between strategic interests of the corporate parent, and the aspirations of the entrepreneur and its financial investors.
“There is also the added layer of managing interests within the corporate parent itself amongst the various stakeholders, such as business executives, corporate strategy, corporate development and finance.
“Changing the status quo within a large and successful organisation like Mastercard through innovation and partnerships is not an easy task, but it is much needed and incredibly rewarding when successful.”
Allen works within Mastercard’s strategy and corporate development group, where he is the functional lead responsible for Mastercard strategic investments globally. He added: “My role did not previously exist, when I was asked two years ago to build Mastercard’s global portfolio management function and strategy.
“Historically each of our investments was disparately managed within the relevant business units, leading to sub-optimal strategic and financial returns. Since then, my role has expanded, and I have helped drive a reassessment of Mastercard’s investment strategy through new investment models, while integrating best practices, policies and processes across deal life cycle to improve returns.”
Lorenzo de la Vega, senior vice-president for mergers and acquisitions integration and investments at Mastercard and Allen’s boss, said: “Jeff has taken on the task of building out Mastercard’s enterprise-wise approach and discipline around inorganic ventures and investments.
“He has brought clear thinking and sound business judgement to build a set of processes that fit the Mastercard culture and are right-sized to our strategic objectives. In the words of Mastercard’s controller, under Jeff’s tenure, ‘we have come such a long way’.”
Mastercard’s portfolio now consists of about 20 active investments, including SecureKey, a Canada-based identity and authentication technology developer where Jeff is a board observer and which raised C$27m ($20.5m) in October. Allen has also been instrumental in several recent investments by Mastercard, including in Masabi, a UK-based mobile ticketing and fare collection service provider that raised $12m at the end of 2015, and First Performance, a US-based provider of real-time consumer alerts and controls to financial institutions in which Mastercard took an equity stake in May 2015 as part of licensing its In Control technology and forming a partnership together.
However, Allen said the biggest challenge had been business owner accountability, especially when investments do not turn out as planned. “To complicate matters, business owners change roles frequently, increasing the likelihood of orphaned investments. We have taken several measures to increase accountability, including putting investment performance in a business owner’s annual objectives, holding recurring investment reviews with our management committee, and making significant improvements to our fair value testing methodology.”
However, the iterations to its operations are unlikely to have finished. Allen said: “There are a few paths that I am interested in pursuing. On the investing side, I am interested in running a CVC unit. There are several interesting models appearing in the CVC space, including traditional captive venture arms, spun-out single LP, CVC firms, and joint investment ventures. I would also be interested in running corporate or business development for an early or mid-stage company.”
To make a stronger industry, Allen recommended “deeper, more frequent alignment/engagement to share best practices and investment models. This is exactly why I am attending the Global Corporate Venturing & Innovation Summit. If it does not exist already, perhaps local meet-up events in major cities on a more recurring basis to keep the dialogue going and establish a very close knit community similar to how the financial VC industry appears to be.”
Allen already advises, mentors and coaches early-stage companies in the New York City area through the Startupbootcamp FinTech, Entrepreneurs Roundtable Accelerator and NYU Stern WR Berkley Innovation Lab.
Allen received his MBA from New York University Stern School of Business, which he pursued part-time while working at Mastercard. He joined the company in 2009 after working as an investment banking analyst at Sagent Advisors and Merrill Lynch for three years.