Arvind Purushotham is the managing director and global head of Citi Ventures, Citi’s strategic corporate venture capital unit, reporting directly to Vanessa Colella, Citi’s chief innovation officer. His job is “to source, exercise due diligence and invest in the most innovative new companies in financial services”. In order to compete, Purushotham’s work is focused on accelerating and scaling through offering access to Citi. He said: “60% of our portfolio has conducted a pilot with Citi or is fully commercialised.”
The obvious benefit of working to scale is a ready product, which means sales and a return on Citi’s investment. Yet while financial returns are expected, Purushotham made clear that his brief was also strategic in nature. “We bring the outside into Citi by informing business leaders of emerging technology, business models and growth patterns in the startup landscape.”
While the venture investment team has 12 members, the entire team has 45, including those on both coasts of the US, inIsrael, and in the UK. Citi has had time to grow, with the unit being set up in 2008. All this plays to Citi’s favour, for two primary reasons. First, the barrier to entry in investing in financial services is lower.
Purushotham said: “Seizing the opportunity to innovate in financial services can be challenging for new entrants. Startups providing financial services directly to retail or institutional consumers need to be well versed in potentially complex rules and regulations and need to comply with the applicable laws. In addition, startups in areas like lending that have higher capital needs have to understand access to capital, cost of capital and how a credit cycle can affect their business.”
Citi Ventures is fortunate in having the experience, financial expertise and contacts baked in, with little need to look outside the organisation to support its startups.
Second, by having a large team and an established dealflow, Citi Ventures meets more than 1,000 companies a year, ensuring Citi Ventures acts as a comprehensive technology scout for Citi as well as offering financial and strategic benefits.
An example of this in action is one of Citi Ventures’ most recent deals – HighRadius, a US-based cashflow software provider. Purushotham’s team worked alongside Citi Treasury and Trade Solutions (TTS) to make the investment, before TTS then worked with HighRadius to launch a product leveraging “HighRadius’s distinctive automation and machine learning technology to make the cash application process more efficient and generate key insights for Citi’s corporate clients”.
Purushotham said Citi was a good partner. “We bring 200-plus years of financial services experience, entrance into new geographies, distribution or co-marketing of complementary products, and endless other opportunities that we explore alongside Citi’s business unit partners.” The value-add for any prospective startup is significant, and Purushotham drove the point home. “We believe that to innovate, you cannot go it alone – whether as a startup or incumbent, partnership is the key to success.”
Financial services is a large sector, and within it, certain areas are booming. Machine learning is driving improvements in customer experience, while also helping “to improve and automate processes such as fraud detection and credit underwriting”. Citi has made investments across these spaces, such as the 2016 investment in fraud detection company Feedzai, or Pindrop Security’s $35m Series B round in 2015.
Purushotham is watching closely for new trends, with a particular eye on the payments industry. “Average payment sizes are shrinking globally, while overall transaction volumes are increasing. This shift is creating a challenge for payment providers, as they will need to fundamentally rethink how to deliver services as transactions continue to miniaturise. New infrastructure, policies, procedures, and business models will be necessary to remain competitive.”
With the payments industry changing and machine learning an increasingly valuable tool in financial services, the sand is shifting under the big banks’ feet. But Purushotham cautioned against seeing machine learning as a tidal wave consuming jobs and businesses. “It is far from true artificial intelligence. There is little risk that it will outwit a human and it will never pose a threat to creativity. While the headlines focus on the threat it has to jobs, machine learning actually has the potential to create jobs for trainers, explainers and sustainers, while freeing human talent up to take on higher-order tasks.”
