Lessons from Corporate Innovators

Matt Carbonara — Managing Director, Venture Investing at Citi Ventures

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Episode 26: Matt Carbonara — Managing Director, Venture Investing at Citi Ventures

This week our conversation continues to focus on corporate venture capital. However, we go from Harvard Business School to a “serial CVC” as Matt has been at 3 different corporate venture groups — Comcast, Cisco and now Citi Ventures.

Matt has a great perspective from all three of those experiences and we also talk about specific things unique to the approach Citi Ventures takes given reporting structure and overall strategic objectives of the fund.

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Full Transcript

Sean Ammirati (00:08): Welcome to Agile Giants: Lessons from Corporate Innovators. I’m Sean Ammirati, your host, Co-Founder and Director of The Carnegie Mellon Corporate Startup Lab and partner at the early-stage venture capital fund Birchmere Ventures. Each week, I’m going to talk to guests who are experts at creating startups inside large corporations. I believe fundamentally a startup within a company is the same as one inside the proverbial garage, a group of entrepreneurs trying to make the world a better place using new ideas and inventions. However, I also believe some of the techniques and processes are just inherently different. This podcast is going to explore the similarities and differences.

Sean Ammirati (00:56): As I looked across the first season of Agile Giants and thought about what resonated with all of you, lots of topics certainly did, but I would argue none seemed to be as much of a lightning rod for discussion with this audience than corporate venture capital, starting with our conversation with Rich Grant. We tried to really pick that up again in season two last week with Professor Josh Lerner from The Harvard Business school, and this week with Matt Carbonara from Citi Ventures. Prior to Citi, Matt was also in similar roles inside Cisco and Comcast Ventures, so he really has three different CVC kind of experiences to draw upon.

Sean Ammirati (01:33): We use that to talk about corporate venture capital in general, and then also talk about some very unique things that Citi Ventures does. I really think you’ll enjoy this conversation if you’re wrestling with how corporate venture can fit in and also how CVC in general can fit into an overall innovation agenda for an organization. It’s interesting that Citi Ventures, the CVC group, reports directly into the Chief Innovation Officer. Without any more delay, I hope you enjoy this week’s conversation with Matt Carbonara from Citi Ventures.

Sean Ammirati (02:11): All right, so Matt, thanks so much for joining us today. I think a good place to start is if you could just walk through your career that led you to Citi Ventures quickly.

Matt Carbonara (02:19): Yeah, absolutely, Sean. Happy to do that. I started life as an engineer. It was a Bachelor’s and Master’s in Electrical Engineering when I came out of school. My first role was actually… I moved from the Midwest to Silicon Valley. My first job was with two Israeli brothers that had founded a company in the Bay Area that was building some of the first cable modems. This will date me a little bit, but we were all on dial-up suffering a 28.8 or a 56k if you were lucky. These guys were two brothers saying, “Hey, we’re going to build cable modems and Comcast and Time Warner are going to offer this really high-speed data over cable.” I was like, “Okay, sounds good. I’m in. Maybe I can learn more at a startup than I can a big company.” I joined that company as the 10th employee, it was called Terayon Communications Systems as a chip designer.

Matt Carbonara (03:08): An interesting experience probably 30 days in, the CEO called us all in this room. His name was Zaki Rakib and he passed around this check for $8 million. He’s like actually passing around the physical check. I’m looking at this thing, I’m like, “Well, that’s pretty cool”, and he’s like, “Yeah, this is from Sequoia and Weiss, Peck & Greer and actually Cisco”, where I worked eventually was a customer or an investor. I was sort of thinking engineering was the coolest thing on the planet at that point in time. I was like, “Well, who gets to make these decisions? This seems like a pretty interesting role to see multiple companies and invest in them.” That was my first kind of inkling of, “Okay, well, maybe I don’t want to be an engineer forever.”

Matt Carbonara (03:43): It was just a great experience that I had there for… I was there for six years, the first three in kind of an engineering role, but then knowing that I wanted to move more to the business side and move to customer service and eventually to product marketing. At the end of that experience, I was lucky enough… This was in 2001. There were venture funds at that time looking to invest in Silicon companies and comm systems companies. I had experienced sort of building both at Terayon. The company went on to be a public company, so it had some success and I just got pulled into the venture industry at that time, I’ve been in and around the venture finance Corp Dev industry since sort of that time.

Sean Ammirati (04:17): Yeah, that’s awesome. You’ve been at a bunch of corporate venture capital groups

Matt Carbonara (04:21): I have.

Sean Ammirati (04:22): Cisco, right?

Matt Carbonara (04:22): Yeah, sort of a unique experience. I’ve been at Comcast, Cisco, and at Citi.

Sean Ammirati (04:27): Yeah, yeah. I think maybe with that context, I want to drill into what you’re doing at Citi, but maybe at a higher level first. If you just were to contrast corporate venture capital from traditional VCs, how would you think about similarities and differences having been in a bunch of CVC roles?

Matt Carbonara (04:45): Yeah, and I was at a traditional fund for a period of time as well. I think it’s just in how you add value. I think everyone has different assets to bring. I think venture capital firms sort of have their own expertise and their own networks and maybe are able to help more on the recruiting side. No, corporates have their own assets and I think that’s what I’ve seen at the three different places that I’ve been that have been sort of corporate investors is in some cases it’s expertise in a given market or a particular domain. In some cases, it’s channel distribution or connections to a certain set of customers. In some cases, it could be, “Hey, we’re just really forward-thinking and we can be a lighthouse customer or an early design partner.

Matt Carbonara (05:21): In some cases, they can be… Maybe they have part of the solution and the startup they’re approaching has the other part of the solution. Those two things together make a better overall product. I think doing a lot of assessing what you can bring to the table is an important part if you want to be a corporate venture investor and figuring how you unlock that value for the companies you invest in so you can actually be differentiated. That’s the important piece there.

Sean Ammirati (05:44): Yeah, so it’s sort of that uniqueness. Now, let’s talk about Citi Ventures specifically. For people who may not be familiar with Citi’s Venture Program, talk a little bit about the unique things and unique approaches you guys take.

Matt Carbonara (05:56): Yeah, so maybe just go back up and just talk about how we operate. Basically what we try to do is we spend time with our operating colleagues inside the company trying to understand, what are the gaps between what they have today and what they’d like to have over a 12- to 48-month timeframe? Then, we will go spend time in the startup ecosystem trying to find the companies that are bringing that innovation to market that we think are going to be the market leaders, the category-defining companies because that’s where you’re going to get the most innovation.

Matt Carbonara (06:22): That’s the one that’s going to have the most R&D dollars to spend to be sort of the fastest innovator. We invest in those companies and then we try to bridge them into Citi. We’re many times investing ahead of when Citi would become a partner or customer and then trying to get Citi to become a partner or customer and help drive innovation. Where we sit in the organization is we actually sit in the Chief Innovation Officer’s organization, so commercialization of our portfolio is something we’re measured on. We are constantly reviewing our ability to and how we can get those companies commercialized inside of Citi.

Matt Carbonara (06:55): At a broad level, we do that across two areas, so FinTech and financial services, so sort of banking-focused sectors, commerce and payments, property technology. That’s more of Citi as a partner. Citi can work with these companies as a partner, sometimes maybe even OEMing or reselling their product. Then, where I spend most of my time is on the enterprise side, so think of Citi as a customer. There, it’s things like cybersecurity, cloud, developer tools, areas like customer experience and marketing, or the whole data machine learning AI stack. Automation, RPA, and those types… robotic process automation, those types of technologies. That’s more of Citi as a consumer.

Matt Carbonara (07:32): One of the things that we’ve done that’s unique that might be interesting for others to thing about is we have a team of folks we call catalysts that come out of the business. They know their business well. They’re [inaudible 00:07:44] and they spend time with our team, but as we invest in companies, they then… Well, they do two things. One, they help make sure we’re aware of like, “Well, what are the top needs within the business? What are those priorities?” Once we invest in companies, they also help that company navigate through Citi. That’s a really important function I think we have that I haven’t seen at a lot of other places that I think is really, really valuable.

Sean Ammirati (08:06): How many of these catalysts do you have?

Matt Carbonara (08:09): We have eight.

Sean Ammirati (08:10): Is it a full-time thing? Or is this like a side of their desk-type job?

Matt Carbonara (08:14): It’s a combination. Some are full time, some are spending half their time in… For example, like the one in securities spends half their time in Cisco’s office and half their time with us, so-

Sean Ammirati (08:23): Okay, that makes sense.

Matt Carbonara (08:24): It’s a combination. It is a resource that comes from the business, so we’re understanding of the fact, but hopefully we get that person full time. That’s sort of how we handle the commercialization piece. On the investment side, our investment team is 14 people. We have eight in the Bay Area between Palo Alto and San Francisco. People kind of go back and forth.

Sean Ammirati (08:43): Sure.

Matt Carbonara (08:44): Three in New York, two in Tel Aviv, Israel, one in London. We’re typically making eight to 10 investments a year and our current portfolio is about 60 companies, of which more than 60% have either conducted a pilot or a firmly commercialized within Citi. Those are sort of the things that we measure ourselves on. Are we able to create those linkages?

Sean Ammirati (09:03): If that’s one of the metrics of success, how do you think about how long from after investment to… I assume there are some lag between you make the investment… Is there this happens within a year? Within six months? What’s the timeline there?

Matt Carbonara (09:19): It varies greatly, Sean, and I think it varies because how mature the portfolio company is in terms of its ability to just be enterprise ready.

Sean Ammirati (09:27): Sure.

Matt Carbonara (09:28): Then, secondly, where is Citi in its maturity and thinking about that area? Sometimes we get that right and sometimes we get that wrong, in all honesty, but there’ll be some where you invest in a company, it’s like, “Oh, we know there’s an active initiative around this particular topic”, and we’re hoping to be able to get that company into Citi in the next, say, 12 to 18 months.

Matt Carbonara (09:47): There’ll be others where, “Hey, we know this is how the world is headed. Citi isn’t necessarily thinking like this. This is going to be more of an evangelical process over the next three years instead in order to get Citi to the point where it’s ready to adopt something like that.” Then, look, we also realize we’re never going to bat a hundred percent because we are sort of… Because we’re trying to push the business to do things it wouldn’t normally do, there’s going to be some failure right there. We know the hundred percent is tough to attain.

Sean Ammirati (10:16): I guess when you make the investment, do you… I’m trying to in my mind picture how you operationalize this as like a key metric. If you make the investment and you know it’s probably two years away because this maybe more of a future state of Citi, do you put that into the investment memo? How is that then accommodated for as the kind of KPI you’re tracking?

Matt Carbonara (10:40): Yeah, so what we do is we track across the whole portfolio and we have goals for how many commercializations we want to get done across our portfolio in a given year. I think it’s really hard for a specific company have a forecast around that because there’s so many variables. As we have a bigger portfolio, we’re just hoping, “Okay, our goal for the year is X.” Ones we think we’re going to make it actually sometimes won’t, and then occasionally there’ll be the blooper where like, “Oh, that actually got through?” That’s sort of how we think about it. It’s more at the portfolio level.

Sean Ammirati (11:14): That’s a different portfolio effect than I’m used to thinking about, but-

Matt Carbonara (11:17): Yeah, exactly, exactly, but you know, you can imagine like startups pivot or startups execute sometimes-

Sean Ammirati (11:22): Sure.

Matt Carbonara (11:22): Better than others, and then leaders in Citi change and then priorities change when leaders change. I think all of those things are variables that are beyond our control after we make the investment.

Sean Ammirati (11:31): Then, just a couple of more to kind of understanding Citi Ventures. Is there a typical point of entry for you guys? Do you typically take a board seat?

Matt Carbonara (11:38): That’s a good question. The point of entry, we like to invest post-product and when there’s a handful of customers because where we really can help is on that commercialization side. We cam help with Citi, obviously. We can also make introductions to Citi’s clients and Citi banks a lot of global 500 companies. Then, we’ve actually built out a tech council, which is sort of think of that as peers of our technology and business leaders inside of Citi but at other companies because that helps us bring that outside in perspective and incremental outside in perspective to Citi.

Matt Carbonara (12:12): For example, if we’re doing something in say data or analytics, it’s great to have startups that are innovating that space come and talk to the leaders in Citi that are doing data analytics. Another way to bring the outside in is also invite their peers from other companies that are solving similar problems. That enhances the learnings for Citi. It also brings these other people to the table that can learn from sort of what Citi and these startups are doing, and then for the startups, they get another person you have to tell the story to, which might be a potential customer. We’d like to create sort of that three-way triangle of interactions. All of that to say that commercialization is where we can help the most.

Matt Carbonara (12:47): Typically, when a company has a product and a handful of customers it’s sort of the earliest, and then we’ll invest all the way up through pre-IPO, so sort of stage agnostic other than product and some customers.

Sean Ammirati (12:58): It sounds like probably typically not seed stage, but anything else, then?

Matt Carbonara (13:02): Yeah. I’d say not seed. Probably B might be the sweet spot. What we’ll do, A’s all the way up to pick your letter of the alphabet.

Sean Ammirati (13:11): Sure. The letters may go longer …

Matt Carbonara (13:15): Z or something like that.

Sean Ammirati (13:16): Yeah, yeah.

Matt Carbonara (13:19): Hopefully not.

Sean Ammirati (13:20): It’s interesting hearing you talk a little bit more about how you’re structured. Do you think the fact that you guys report into the Chief Innovation Officer versus other reporting structures has influenced your strategy?

Matt Carbonara (13:32): A hundred percent. I mean, I think that commercialization piece is very much because we report into the Chief Innovation Officer. Absolutely.

Sean Ammirati (13:39): Also, like the advisory board, that’s the kind of thing you’d see a chief innovation officer do. I don’t know a lot of other corporate VCs who do that, although I think it makes a ton of sense. Then, I assume the Chief Innovation Officer has sort of authority for not just this outside-in innovation, but also inside out innovation, right?

Matt Carbonara (14:01): Yeah, and maybe a couple of pieces to touch on there. I know we got introduced through our Citi University Partnership in Innovation and Discovery team, so CUPID, that works with Carnegie Mellon. Basically, they figure out, “Okay, how do we engage students earlier and get them involved to know about Citi earlier and give them experiences while also benefiting from the thinking that these students who are really smart people have?” That’s one program that we have and so they come in and work on projects like strategy, strategic projects, other areas of innovation within Citi in order to get some experience.

Matt Carbonara (14:36): Then, we have an internal innovation program called D10X, which stands for Discover 10X, so think about that as sort of based on principles of lean startup, but it basically empowers Citi employees to build, test, and potentially productize things that are exponentially better for Citi clients. It’s not road map items, it’s things that are completely different and new. Basically, we try to pair those people, so an internal… Think of it as like a Citi employee founder of this idea, we pair them with somebody who comes from external that’s been an entrepreneur before that has taken something from concept to commercialization to help them ideate, validate, and sort of launch these products internally. That’s called D10X.

Matt Carbonara (15:16): We have one sort of D10X I’ll call it incubator accelerator for our consumer business, and a D10X incubator accelerator for our institutional client business as well.

Sean Ammirati (15:24): What’s your involvement in D10X?

Matt Carbonara (15:27): Mostly helping them think through things. I guess if there’s certain topics they want to compare notes on, we’ll do that. If those companies get mature enough to where they’re ready to leave Citi and looking for investment, we’ll evaluate that as well. Those are a couple of the ways that we work with them.

Sean Ammirati (15:44): Got it.

Matt Carbonara (15:44): I’d say more comparing market maps, areas for innovation. That’s probably more of the focus, and then if they get mature enough investing in those companies.

Sean Ammirati (15:53): Yeah. I’m very interested in sort of how the outside-in activities influence the inside out and vice versa. It seems like given… I assume D10X reports up into the Chief Innovation Officer as well.

Matt Carbonara (16:11): We do, absolutely. That’s correct, and I think that leads for some good synergies between those teams. It’s certainly great being able to leverage those relationships. They’re also very close to the business, so that’s sort of in addition to the catalysts. That’s like another way for us to tap into the business and understand the priorities of the business as well.

Sean Ammirati (16:29): Yeah, yeah, yeah. For people who are kind of earlier in their maturity as corporate VCs than you are, Matt, let’s just do a couple of war stories so they can take away some lessons learned. Let’s start with one that worked out well. Maybe an investment that you made that worked out really well and sort of the lessons learned you think others could draw from that.

Matt Carbonara (16:48): One that we’ve done… It’s not necessarily one that I led, but one that I think is a great example. There’s a company called Pindrop that we invested in at Citi. It reduces voice fraud and it’s really helped Citi save a lot of money in terms of reducing fraud. What they can do is when somebody calls in, they can tell if that person is… where they’re calling from. If they claim to be calling from Lincoln, Nebraska, but it’s clear they’re calling from overseas, they can figure that out and just reduce the fraud that happens when people are trying to impersonate other people on the phone.

Sean Ammirati (17:22): Sure.

Matt Carbonara (17:23): That’s been successful for us, and then the company has since grown in addition to Citi to have a bunch of other customers. That’s an example of a company where we invested, Citi became a customer, Citi’s one of many customers, and it’s became a really successful outcome. I think for me the lesson there is something that has meaningful impact on the mothership I think is an important piece or a meaningful impact for Citi is sort of one thing that you need to find. Then, you need to make sure you’re also investing in the market-leading companies. I think the ones that work are ones where you’re sure it’s a top three priority for that particular business, and you’re also are ensuring you’re investing in the market-leading company in the space.

Sean Ammirati (18:03): Yeah, and I think what people who may not be in venture may not appreciate about that second statement is the market-leading companies often have a little richer valuation than the rest of the market. I think for people getting spun-up on corporate, when you say you want to invest in a marketing leading company, there’s a bunch of things that come along with that recommendation.

Matt Carbonara (18:26): Yes.

Sean Ammirati (18:27): How do you guys think about valuation on companies like that?

Matt Carbonara (18:33): Yeah. Look, I think we try to be disciplined about valuation. We also realize that the market leaders many times will get a valuation at the end of the day, if you look at historical M&A, you have a market leader typically gets acquired for sometimes two to three X the valuation of the next best company. We try to think through it in terms of, how big could this be? Do we think that the outcome can support a multiple of the valuation that we’re investing at?

Sean Ammirati (19:04): How important are financial returns to the overall Citi Ventures strategy?

Matt Carbonara (19:10): The way I would answer that is the commercialization piece is the most important piece, but we obviously want to be good stewards of Citi’s capital as well.

Sean Ammirati (19:16): Exactly, and the feedback loops on that second point are long, right? … You see that in traditional venture. My funds I raised eight years ago, they’re working out great now, but it was quite a J-Curve to get from here to there.

Matt Carbonara (19:33): It does take a long time. Those cycles are very long — agree.

Sean Ammirati (19:37): Yeah, whereas I think the strategic fit inside Citi is probably… Even if it’s a year or two, that’s a much faster feedback loop for you guys as well.

Matt Carbonara (19:46): That’s a great point. Yeah, the time to results is going to be much quicker on the commercialization piece hopefully than on the returns piece.

Sean Ammirati (19:53): Yeah, you will at least know if it’s working or not. If you’re comfortable sharing it, I’d love to also maybe hear about a CVC project you did that didn’t work out as well and some lessons learned from that.

Matt Carbonara (20:06): Yeah. I think it’s hard to call out specific companies, but I would say the things that haven’t worked are because you’re either not addressing a top need of the business and therefore you can’t get the attention of the business, possibly leadership changes and that changes the priorities. Or, you actually end up investing in what ends up not being the best-in-class company. I think when you violate those rules of not doing something that has a lot of attention from a business or not investing in a best-in-class company, then I think you run the risk of having something that doesn’t go anywhere.

Sean Ammirati (20:37): Absolutely. Last question for you, and I like to ask everybody this, rewind the clock back to graduating from Ohio State and coming out to being an engineer in Silicon Valley and imagine that someone like you has done that years later. It’s probably not cable modems at this point, but they’re an equivalent product engineering role today and experiencing, “Hey, my company just raised their first round of funding”, and thinking, “I might want to get into venture at some point.” What advice would you give him or her?

Matt Carbonara (21:07): I think there’s many paths to venture, Sean, I would say, so a few things that I’ll just rattle off the top of my head. One is get experience in a space that is going to be relevant or become increasingly relevant to the venture capital industry. What I’ve observed in the past is that the venture industry, and this is a little bit of my path into venture, “Hey, we want to start investing in semiconductors and comm systems. Who knows about those things that has been at a startup that can help us diligence those and sit across from an entrepreneur and really pressure test what that person is sharing with us?”

Matt Carbonara (21:43): As the industry moves to other investment areas, they will look to bring in that expertise of people that have knowledge and networks in those areas and pull them in. Today, I think that’s areas like data and analytics, AI, FinTech, cloud. I think those are some of the areas that if you can get increasing expertise in these areas where this wave is coming or this wave exists, then you have a better chance for the industry to pull you in.

Matt Carbonara (22:07): I also just think getting involved in startup companies is really important and getting a view of what works and what doesn’t works in startup companies, so being a really good networker and building out your network in a particular area. I think networking with other VCs, and if you can network with other VCs and also become a good networker with entrepreneurs and start to develop a bit of a nose around what companies are interesting and then even potentially helping your VCs that you’ve networked with with deal flow, I think people will notice that. I mean, if you bring a good company to somebody that a venture investor invests in, you do that a couple of times, I think that person would start to ask themselves, “Well, why isn’t this person on my team helping me do this on a regular basis? They seem to be really good at sourcing opportunities.”

Matt Carbonara (22:52): Then, finally, I would say I think there’s more and more ways these days to build your own track record, whether that’s angel investing, angel lists, or other types of crowd funding type of opportunities to invest in companies. If you can start to build some kind of track record, I think that’s ultimately where people would look at as well. Those are some of my different thoughts on how you might actually approach getting into the industry today.

Sean Ammirati (23:14): That’s awesome. Yeah, and it’s funny. My MBA students come to me all the time like, “I want to get into ventures.” Like, “Okay, well, go spend a decade as an entrepreneur and I think you’ll be well-served.” I think while doing that, a lot of these networking, deal sourcing, it’s great activity you can do kind of side of desk evenings, weekends, things like that as well. I love that.

Sean Ammirati (23:34): One last kind of advice, which is maybe not exactly career advice, but there’s a lot of the people who listen to this that are contemplating right now setting up corporate venture activities within their companies. You’ve been at three CVCs at this point. On the individual person level, not necessarily even the firm level, though it may cover a little bit both of those, but how can these people kind of advocate for these programs suggestions you’d have for them on skills to build that kind of thing?

Matt Carbonara (24:06): Yeah, so I think… To advocate, I think it’s really about just the story is, “Hey, the pace of innovation has changed and we need to stay closer to that innovation or risk being disrupted.” Or… That’s one, it’s sort of the fear side of it. I think there’s also a greed side of it, which is, “Hey, every company is trying to find growth and growth comes from new markets and new markets are typically… Or, our new products that we can sell to our existing customer base are coming from these startup companies. We just need to stay closer to them in order to understand how that market’s evolving.”

Matt Carbonara (24:38): In terms of skills, I do think it’s good to have people that have investment in venture experience because they come with the network, they come with understanding the process. They know how to talk the talk. I think the more as a CVC that you show up in the market like a traditional venture investor, the better chance you have of getting access to the really top-tier investments and therefore trying to be as much as possible like a traditional… showing up like a traditional venture firm even though you’re not, but having the transparency and the process and the predictability and the terms that are hopefully very vanilla will help you as well. I think trying to… Many times, you want to find somebody with some venture operating experience to be a part of that team.

Sean Ammirati (25:20): Yep. Perfect. Well, hey, Matt, I really appreciate the time today. Thanks for joining us. If people want to kind of follow you, learn more about you online, where’s the best places to go?

Matt Carbonara (25:31): They can find me on LinkedIn or Twitter is @MattCarbonara.

Sean Ammirati (25:35): All right. We’ll include those in the show notes. Thanks so much, Matt.

Matt Carbonara (25:37): Awesome. Thanks, Sean. Have a great day.

Sean Ammirati (25:39): You, too.

Sean Ammirati (25:45): I hope you enjoyed this episode of Agile Giants. If so, consider sharing it with a friend. If you think it’s worth five stars, which I hope you do, please go to iTunes and rate it so that others can find this content as well.

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