- Luis Valdich, an MD at Citi Ventures, the VC arm of Citigroup, says the market for startup funding has been changed by the emergence of SoftBank’s Vision Fund.
- VCs now have to move quickly to invest in attractive startups given the heavy competition from funds like SoftBank and others.
- Despite the "tricky dynamic," Valdich sees possibilities in the sector as the fund looks to support different businesses within Citigroup.
SoftBank’s $100 billion Vision Fund has completely changed the landscape for startup funding, says one VC, which is why funds more than ever need to move "quickly and nimbly" to back the hottest entrepreneurs.
That’s the view of Luis Valdich of Citi Ventures, the VC arm of Citigroup.
"The extent of VC investing has been growing over time, but 2018 was different to anything seen before, mainly because of SoftBank," Valdich told Business Insider in an interview. "Some challenges have come up in a market that was already frothy with high valuations. Now, SoftBank is competing heavily for deals that they like and oftentimes this means valuations have gone up again."
Valdich used to work for SoftBank more than 20 years ago, and says that funds like his have had to change their investment strategy in order to manage in the new age of the Vision Fund. Valuations are up and competition is fiercer than ever, making timing key.
"This tricky dynamic means that late-stage investors might want to be nimble and pre-empt rounds in hot startups before SoftBank gets there," the former head JPMorgan Chase’s Strategic Investments group added. Citi Ventures looks to partner with other specialized VC funds on deals to help sponsor companies many of which are chosen because they may well complement the needs of some of Citibank’s other businesses.
For startups backed by SoftBank, raising a huge round at a high valuation has obvious positives including the ability to grow faster and overwhelm the competition causing a headache for investors.
"For startups whose competitors are backed by SoftBank, it can be a big challenge to compete with someone with massive pockets who can bid up costs of customer and talent acquisition," Valdich said.
Despite that, the pressure to grow quickly can be daunting for companies that SoftBank has invested in and could lead to unhappy investors and employees stuck with overpriced shares and options.
It’s not all negative for funds on the hunt, though. Valdich says that Citi’s brand is useful as leverage in convincing companies that his fund has the expertise to aid their growth plans.
For example, areas of interest for Citi Ventures include B2B companies in payments and lending, innovators in the "gig economy," and commerce and marketplace technology.
The bank’s own customer network is a boon to companies looking to integrate services within the Citigroup infrastructure, he says.
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