Harshul Sanghi, head of the $1.3 billion venture capital division at American Express, likes to think that he has built something alongside the 89 companies he has backed, and that he has been able to nudge a 64,000-person financial services behemoth to move a bit faster than it typically would.
After more than a decade at American Express Ventures, the strategic investment unit Sanghi, 58, was hired to build in 2011, he is retiring and will transition out of the company at the end of March. Matt Sueoka, who has helped develop American Express’s partnerships with startups and other companies, will replace him. Sanghi is stepping away from a venture fund that was among the first to back the likes of Stripe, Toast, Instacart, and dozens of other companies now valued at tens of billions. And he’s leaving behind a venture fund that has grown from one person and $100 million to a team of 15 that oversees more than $1 billion and has become core to the company’s innovation strategy.
American Express CEO Steve Squeri has referred to Amex Ventures as a “feeder system”—a corner of the organization where the company can experiment with, learn from, and potentially acquire startups. And it’s a division that has become a driver of revenue: Amex reported last quarter that its venture arm had accumulated $767 million in 2021 gains after exiting some of its equity investments that year, including Boxed, a bulk-buying e-commerce platform that went public in 2021. Approximately 25% of its portfolio has achieved “unicorn” status, meaning that a startup has reached a valuation that exceeds $1 billion.
“Every business unit now and everyone across the company knows us very well and looks at us as [an] innovation arm,” Sanghi says.
But the venture capital market is evolving just as quickly as the fledgling startups investors are backing. The industry has changed quite a bit since 2011, when American Express chief Kenneth Chenault first decided the credit card company should have a presence in Silicon Valley. Venture capital is ultracompetitive: Capital flows readily into startups, billion-dollar funds emerge en masse, and some fund advisers offer startups dozens of staffers, who can often be summoned in the middle of the night at a founder’s beckoning.
Sueoka, American Express’s newly minted head of venture investments, has a tough task before him: keeping a slow-moving financial services giant an attractive item on a startup founder’s cap table. In this day and age—where a record $311 billion in venture capital dollars was deployed last year in the U.S., per CB Insights—it can require a bit of convincing to get a founder to take your money.
Some would say it’s a troubled time to take the helm of a venture capital business—whether or not it’s attached to a credit card and financial services company that posted $42.2 billion in total revenue last year. The markets are swinging as Russia invades Ukraine in the first major attack of another country since World War II. Inflation is soaring to new heights, interest rates are on the rise, and companies are struggling to staff their businesses. Private market investors warn of an impending correction, and say they’re already seeing share prices and valuations come down. IPOs have trickled to a halt, cutting one means of exit for growth-stage investors.
“Because we are a strategic investor and not a financial investor, my hope is that we continue to remain very attractive to startups in the future,” says Sueoka, adding: “My hope is that the value proposition continues to resonate, maybe even better than it has in the past, if there may be in the future slightly less funding or the cost of capital goes up. But that’s still something we’re thinking through.”
Sueoka says he is up to the task, and he has big plans for the next iteration of Amex Ventures. The future may lie in the fund’s ability to move quickly, as well as in fresh attention to burgeoning segments like blockchain and cryptocurrency.
The next pilot
A decade ago some of the greatest innovations in fintech were payment processing platforms, which have redefined the way people pay for goods. Now you can add things like digital ape portraits. Needless to say, it’s a different world out there.
“Nobody was innovating around financial services,” Sanghi says about the market when he first joined American Express and had only $100 million to invest. “There were two or three companies we could talk about at that time.”
Meanwhile, Sanghi’s fund was making early moves in a host of companies. It invested in Stripe’s Series B round in 2013, a startup that built the technology that underpins many payments systems and is one of the world’s most valuable private companies at $152 billion. Amex Ventures invested in Plaid’s Series B round in 2016—the programming platform that connects fintech and banking applications now valued at $13.4 billion. Toast, Rent the Runway, Warby Parker, and Instacart are some of the other companies that have joined that list over time.
Amex Ventures has historically focused its attention on consumer, B2B, and enterprise businesses. It started out joining Series B rounds, but now tends to invest even earlier, at the seed or Series A stages, Sanghi says. American Express backs companies with the intention of forming some kind of relationship with the broader organization.
Access to the broader company is the key “sell” the fund has to offer, as well as its ability to help a company with distribution and scale. Approximately two-thirds of the companies it has backed have formed a partnership with Amex, according to Sanghi—meaning it incorporates some way to bring a product to American Express customers and cardholders. Partnerships could range from an Amex credit card offer or special deal to a direct payment processing relationship. Amex has only acquired less than 3% of its portfolio, although that is a potential course of action as well.
American Express “knew what it took to build a service that sold wholesale to consumers, so that was really powerful,” says Chieh Huang, CEO of Boxed, an Amex portfolio company that went public last year, and where Sanghi now sits on the board. As the company was growing, Boxed offered Amex customers free shipping on their orders, and in return, the credit card company helped it expand its customer base.
A few years ago, American Express created an internal incubator-esque program for these partnerships that it refers to internally as “Digital Labs.” A designated team is responsible for piloting and testing out ideas that may span into the next two to five years. It’s an evolution of the same segment of the company that worked on Google, Samsung, and Apple Pay partnerships over the years.
“We didn’t want to have to share resources or fight for prioritization on every single project with other teams,” Sueoka says. Digital Labs gave teams their own resources to “launch a concept or pilot or test an offering that another business unit was not set up or not ready to explore or test into.”
That’s been a core part of Sueoka’s role at the company, and something he wants to double down on: upping the investment to this group, so that startups Amex invests in can work with the company more quickly and flexibly, and to increase the number of pilots Amex works on each year, which is currently somewhere around three and has included projects with Mezi, which Amex ultimately acquired, and, more recently, BodesWell.
“At any large company, trying to make decisions or trying to build and launch things is difficult, and it involves a lot of people—usually for a good reason,” Sueoka says, adding: “You have to figure out how can you manage through some of that friction, and how can you try to speed things up where it makes sense.”
Sueoka anticipates an acute focus on a new range of investments in particular: namely, opportunities in Web3, the blockchain-based next iteration of the internet, and where it may intersect with American Express.
“I think trust and security in this space—of either holding digital assets or using them for payments or using them for financial services—will continue to be a major issue and pain point,” Sueoka says, noting that there may be a role that legacy brands and institutions can play in building trust with customers. “There are a bunch of startups that have created accounts and wallets and things like that. I’m not saying we’re going to compete with them or that we’re building any of those things necessarily, but I do feel like the average consumer doesn’t necessarily know what those brands are.”
It’s a focus that began a few years ago, according to Margaret Lim, managing director at American Express Ventures, who initiated the fund’s coverage of blockchain companies. Amex has invested in companies like crypto brokerage Abra and trading platform FalconX. “You need to start experimenting and piloting early on,” she says.
As for Sanghi, he is looking forward to taking some time off for the next six months or so, but may look for ESG-focused board position opportunities, and plans to mentor others where he can.
“I think a lot of people are going to miss him,” Boxed’s Huang says, noting that Sanghi will stay on the company’s board. “I’m really excited to see what he does next.”
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.
