Citi Ventures is aware and wary of a potential hype cycle relating to AI and aims to avoid investing in overvalued startups.  

“The over-hype, under-hype cycle is something that happens continuously, and AI has not been immune to that,” Managing Director Luis Valdich told Bank Automation News. “We try to make investment decisions carefully and [have] made multiple investments in AI” in the past decade.

Citi Ventures, an investment arm of $1.6 trillion CitiBank, has seen many “summers and winters of AI” but this time there is tremendous investment momentum around the technology, Valdich said. Citi Ventures is “trying to be somewhere in the middle” of over-hype and under-hype. 

AI-driven startups are experiencing one of the biggest investment booms in the past decade in 2024 as the market has attracted $23.2 billion from investors globally, up 59% year over year, according to a July State of AI report by think tank CBInsights.  

Citi Ventures invests in “category leaders” or startups serving a niche market that can broaden their services over time to serve a bigger market segment, Valdich said.  

“There is no denying that [AI] and gen AI are driving massive platform shifts, just like the cloud, just like mobile phones,” he said. “We believe that there will be tremendous value creation and productivity enhancements on the back of the current investment trend that we’re on.” 

Citi Ventures has invested in the following AI-driven startups this year, according to Crunchbase: 

• Regulatory compliance platform Norm AI on June 25; 

• Cybersecurity service provider Lakera AI on July 24; and 

• Wealth and estate management service provider wealth.com on Sept 16. 

The macro

While Citi Ventures is careful about investments flowing into AI and gen AI, it is also keeping a close eye on the macroeconomic environment, according to Valdich. 

“I think that there’s a lot of fragility in the current macro environment,” he said. “If you consider the situation, in Ukraine, in the Middle East” those events have great potential to disrupt global trade. 

The Federal Reserve’s 50-basis point rate cut last month gives more liquidity to the market, Valdich said. “We would expect to invest more following a rate cut.” 

However, it’s not only about the rate cut but how markets react to it, Valdich said. In economics there are a lot of variables that drive investment decisions, and Citi Ventures aims to take all of them into account while making decisions for the long term, he said.