The generation of influential firms raising money and shaping innovation often resemble corporations in having people in ancillary roles to those dealing with the limited partners – or fund investors – and those investing the money in portfolio companies. These other roles are designed to help the portfolio companies find staff, market themselves, develop their products or services, as well as help the venture firm deal with the finances or legal requirements themselves.
As a senior adviser to an investment bank said by email last year: "My view is that VC lacklustre performance/failure substantially reflects the agency gap problem in that providers of initial funding (when bank, pension funds, etc) have not engaged effectively (including practical support and guidance) with management of individual VCs, including identification and recruitment of suitable people to manage through to development.
"In answer to your question, I would lend to the optimistic view that corporates and families are more likely to be effectively/closely involved (equals narrower agency gap) which should imply better outcomes. Fingers crossed…!"
In this top tier of next generation managers trying to reduce the agency problems and strike good deals lie a number of independent and corporate venturing units, such as Intel Capital, Google Ventures, Andreessen-Horowitz, that have provided the resources to build a large team able to find and support portfolio companies.
Citi Ventures in the past 18 months has been revamped to join this elite bunch. Renamed from Growth Ventures & Innovation, Citi Ventures aims for strategic over necessarily purely financial returns and has hired about 10 people to take its team to 25. These hires include experienced venture capitalists Ramneek Gupta from Battery and Arvind Purushotham from Menlo Ventures, former Apple executives Susan Andrews and Deborah Kim, Debbie Brackeen from Hewlett-Packard as head of incubation, and the internal moves of managers Basil Darwish to Singapore and Sasha Orloff from Citi Banking.
The team is broadly split into ventures and innovation with the object of identifying emerging market growth spaces, develop new venture concepts in these spaces and launch new corporate ventures in pilot geographies globally, such as the smart bank concept developed in Japan that has seen Citi go from being ranked 57 to first in the past few years.
The ventures take at least one of three forms: incubated within Citi by leveraging existing internal capabilities and those of external partner companies; strategic investments in and partnerships with start-up companies; and forming and spinning out new companies or joint ventures.
The locus of where the ideas has also shifted in the past two years from the east coast of the US, where Citi has its headquarters, to the west coast and Asia after Citi Ventures hired Wei Hopeman and Rowena Chung for its China team.
Chris Kay, head of ventures, said: "Our charter is to create strategic value for Citi, not invest for financial reasons and so be in the flow of the best thinking and among the best entrepreneurs.
"[Hence] our CIO [chief innovation officer Deborah Hopkins] moved to [California’s Silicon] Valley in July last year and we have a team in Shanghai and in Singapore as we try and create value, real mutual value.
"For entrepreneurs we promise to act quickly and be creative to help them scale far faster with their business plans and overcome the dissonance usually seen between big companies and entrepreneurs.
"Citi is ready to partner in a new way, and is prepared to disaggregate our capabilities to put them together with new partners, such as Morningstar and Microsoft with Bundle or help Google Wallet. Who would have thought three to five years ago we would be partnering with these non-traditional financial services companies?"
Vikram Pandit, the bank’s chief executive, has led this openness to new types of partners and encouraging a cultural shift among Citi employees to encourage innovation. Pandit is regarded internally as having led the focus on innovation and seen as a champion of Hopkins’ efforts to develop Citi Ventures.
Hopkins, who is also chairman of ven-ture capital initiatives at Citi, said: "2008-09 was a time of tremendous shifts for financialservices, and Citi’s leaders were prescient in seeing what Citi could be and how we could grow when we came out of the crisis. They recognised the need for us to findnew ways to access our col-leagues and ideas."Our team’s job is to see waves of trends and capabilities as they emerge and before they hit the shore. Corporate venturing is about looking at the world differently, making connections and helping companies migrate."
Citi’s dealmaking in the past year, therefore, has indicated the strategic concerns of the universal banking model, such as demographic urbanisation, digitisation and the data explosion, and mobility through internet-enabled devices.
Kay said Citi was getting better at incorporating social data into helping people manage their finances, and had backed California-based companies, such as ReadyForZero that enables customers to be smarter in their own finances.
However, as a gatekeeper of finances and personal data, Citi has also used its Ventures unit to find security-focused entrepreneurs, such as US-based Silver Tail and Live By Touch, a China-based provider of payment terminals operated by fingerprints.
The size of Citi’s financial commitment to do deals has yet to be revealed, but given the range of investments in the past year it indicates there is no shortage of backing for the team to continue its progress.