Citi Ventures, a venture capital arm of $1.7 trillion Citigroup, is changing its investment strategy amid turbulent macroeconomic conditions.  

The first half of 2023 saw a 50% decline in global fintech funding as investors pulled back in response to inflation, high interest rates and geopolitical instability, Agustin Rubini, director analyst at Gartner, told Bank Automation News.

Citi Ventures has tweaked its investment strategy to focus on early-stage startups and funding rounds as fewer companies raised money, Arvind Purushotham, global head of Citi Ventures, told BAN. 

“We did a few earlier-stage deals in the first half of this year, because many later-stage companies raised money at high valuations perhaps in 2021 and they’ve put off fundraising as far as they can,” Purushotham said. “Regardless of these ups and downs, one of the things we think about is investing for the long run.” 

Investors are more focused on early stage fintechs but are paying close attention to “startups with strong fundamentals, large addressable markets, and a clear path to profitability,” Rubini said. 

The venture capital market slowed in 2022 and will even “further slow down when all is said and done in 2023,” Purushotham said. The move has followed the public markets as Nasdaq composite index is down by 17% from its 2021 peak, he added. 

Long run view 

Citi Ventures is making investing decisions based on a target company’s technology, business model and how the team expects it will perform in the next five to eight years, rather than quarter-to-quarter performance, Purushotham said. 

Citi Ventures is investing in companies that align with Citi’s strategic priorities such as fintech and enterprise solutions companies, he said. 

Early-stage companies looking to grow their annual revenue from $1 million to $4 million annually tend to be less affected by macroeconomic conditions if their offering “really is 10X better than the existing solution out there,” Purushotham said. 

Investing in AI 

Citi Ventures has been paying close attention to AI since the beginning of 2023. 

The bank hosted a summit on generative AI in New York City in June that was attended by 2,500 Citi employees along with large companies and startups working on the technology, Purushotham said. 

“AI has been a big area for us this year,” he said. “But to be fair, we’ve been investing in AI-related companies for several years.” 

So far this year, Citi Ventures and Citi Impact Fund has invested in the following fintechs: 

• Quantifind is an AI-driven risk management service provider for financial services. The Menlo Park, Calif.-based company has raised $91 million since its inception in 2008, according to Crunchbase. It raised $23 million in March, with Citi Ventures and DNS Capital as the lead investors.
   
• Clerkie is an AI-driven financial planner that helps consumers manage and grow their finances. The San Francisco-based company has raised $41 million since its inception in 2008, according to Crunchbase. The company raised $33 million in a series A funding round in April led with participation from Citi Impact Fund.
   
• Vega is a wealth management company for high-net-worth individuals that provides portfolio management and lending and tax restructuring services. The London-based company has raised $8 million since its inception in 2022, with Citi Ventures leading the seed funding round in September. 

In September, Citi Ventures invested in Binalyze, a cyber security company; PayJoy, a financing company that helps people buy smartphones; and Citi Impact Fund invested in Jetty, a real estate insurance-providing company, according to Crunchbase.