Number of investments: 59
Notable investments: Personal Capital, TradingView, BitGo
Key people: Michael McMahon, managing partner; Sach Chitnis, managing partner; Peter Johnson, partner and fintech investments lead
Strategy: Michael McMahon and Sach Chitnis were both looking to raise a venture capital fund in 2012 when they were introduced to Paul Gurinas and Bill Disomma, the founders of Chicago market-maker Jump Trading. Gurinas and Disomma just so happened to be interested in getting in venture investing. A partnership was formed, creating Jump Capital.
Seven years later, Jump Capital has made dozen of investments in startups focused on enterprise software, fintech, IT infrastructure, and digital media. The firm's investments range in size between $1 million and $15 million, with the majority landing between $5 million and $10 million.
"Our goal is to make smart investments in promising entrepreneurs, add value to those investments beyond capital, and scale businesses," said Peter Johnson, a principal at Jump Capital who leads the firm's fintech investments. "We have a broad investment mandate, so we are not constrained by a corporate parent and furthering their initiatives."
Originally, Jump Capital's focus was on startups in the middle part of the country, leveraging the company's Chicago roots. However, eventually the fund expanded to the coasts, making investments in New York- and San Francisco-based companies, among other places.
And despite having the backing of one of the most-active trading firms in the world in Jump Trading, deals aren't always made because of potential strategic partnerships. Some investments do offer the opportunity for Jump Capital's parent company to participate, such as the one made into the Small Exchange.
However, Johnson said a majority of startups the fund invests in aren't related to Jump Trading's business at all. Other companies Jump Capital has backed include ParkWhiz, which allows people to reserve parking spots ahead of time, and Gauss, which monitors surgical blood loss in real time.
Johnson said that speaks to Jump Capital's independence.
"A lot of corporate venture funds, their number one goal is not to make money. It is to serve their corporate parent," he said. "We are here to make money. If we did not make money, we failed."
Number of investments: 27
Notable investments: ErisX, OpenFin, Pico
Key people: Kim Trautmann, head of DRW Venture Capital
Strategy: Market maker DRW decided to jump into the fintech investing game in 2016 with the creation of DRW Venture Capital, which focuses on financial and enterprise tech. The project was led by Kim Trautmann, who'd previously spent close to a decade on Goldman Sach's Principal Strategic Investments team, where a majority of her focus was on making fintech investments.
At Goldman, Trautmann invested in companies the firm had a strategic interest in. That experience has come in handy, as DRW Ventures takes a similar approach. Despite the alternate branding, the investing arm is not a separate subsidiary of DRW and works hand-in-hand with its parent company.
Every investment made by DRW Ventures isn't necessarily into a startup offering products or services DRW can use, but the focus is areas of the market the trading firm knows best and can add value for the company, even if it's not as a client.
"We are working very closely with our whole firm to leverage expertise across the organization to make our investments," Trautmann said. "We mark our portfolio. We have a P&L. But we're working very closely with the organization to consider investments and bring value to that company."
DRW Ventures considers itself 'stage agnostic' in terms of the startups it focuses on. Instead, it filters companies by revenue, only considering those that have eclipsed the $5 million mark. Initial investments are typically $5 million, and the group makes about two new deals a year.
Trautmann said the thinking behind considering only companies with at least $5 million in revenue is due to the fact DRW believes it can offer the most value to companies that have some degree of scale.
The firm's decision in general to get involved in venture investing also speaks to how its grown since DRW was first launched in 1992 by Don Wilson, who had previously spent time as a floor trader.
"This strategy was the natural evolution for our organization," Trautmann said. "The opportunity to invest in fintech is large. We've seen more corporate venture firms generally engaging in this space as well. And I think that just speaks to the opportunity for people to invest in what they know and the fact that the opportunity set is large."
Number of investments: 6
Notable investments: Members Exchange, ErisX, Equiduct
Key people: Douglas Cifu, CEO; Joseph Molluso, CFO; Andrew Smith, head of corporate strategy, investor relations and communications
Strategy: Virtu Financial is no stranger to deals, having made a string of acquisitions over the past few years. There was the purchase of KCG back in 2017 for $1.4 billion. Then came ITG, which the market maker bought in 2018 for $1 billion.
Yet, when it comes to making investments in startups, the company isn't as eager to throw its hat in the ring. Many of the startups Virtu currently holds investments in are carryovers from companies it has acquired.
Andrew Johnson, head of corporate strategy, investor relations and communications at Virtu, said the company has always been clear with shareholders that funding for the business is typically spent to pay down debt, do buybacks or offer dividends.
"There is no, 'Well that's a good idea,'" said Andrew Johnson, head of corporate strategy, investor relations and communications at Virtu. "We review investments for their strategic value. We're not only looking at these for an economic return. We're not a private equity firm."
With that being said, Virtu isn't completely opposed to make investments when it feels there is a strategic opportunity. Most notably, Virtu was one of the nine founding members in the Members Exchange, a startup exchange that was meant to be Wall Street's answer to what it feels are rising fees at traditional exchanges.
In some case, investments have also provided an opportunity for Virtu to get into a new business. The firm already had a stake in the Eris Exchange through its KCG acquisition. When the exchange announced plans to get into the crypto space, and an original investor wanted out, Virtu jumped at the opportunity to get involved.
"It is more what is strategic for our institutional clients," Johnson said. "If we see something where that is a great opportunity and we should help that grow, or us being more involved is better for us or our clients as a whole, not just the financial return."
Number of investments: 17
Notable investments: Bakkt, ErisX, Silvergate
Key people: Colleen Sullivan, partner and CEO
Strategy: As part of an ever-evolving ecosystem that is barely 10 years old, cryptocurrency startups in many ways represent an ideal opportunity for those looking to get in on the ground floor of a trend.
That was the idea behind CMT Digital. Launched in 2016 as a division of CMT, a Chicago-based proprietary trading firm, CMT Digital was led by Colleen Sullivan, who served as a partner at the firm who had developed interest in bitcoin.
What started as an investment in specific coins escalated to a full-on cryptocurrency trading desk, ultimately making investments into the space in the fall of 2017. For Sullivan, the attraction came in understanding the crypto markets as an active player, thereby recognizing its biggest needs.
"I think where you have all this friction, whether it is gaps in infrastructure, early technology or the tremendous amount of regulatory uncertainty," Sullivan said. "For a lot of these firms, that also means there is a lot of opportunity, being in early. I know from our standpoint, that's the way we look at it."
Investments from CMT Digital range in size from $100,000 to $2.5 million, including equity and debt in operating companies. The firm is also open to investing in a company's token, although lack of clear regulatory guidance around how to execute such a deal has stopped the firm from going forward with one yet, she added.
"We're just not comfortable yet that we have the clarity we need to do that," Sullivan said. "But we are open to do so as we get more clarity."
Number of investments: n/a
Notable investments: Direct Edge, Members Exchange, Small Exchange
Key people: Jamil Nazarali, global head of business development
Strategy: As one of the largest market makers in the world, Citadel Securities certainly has motivation to remain on the cutting edge of technology. The firm, which was founded by Citadel CEO Ken Griffin, has always prided itself on its own technology, and as a result keeps an acute eye on up-and-coming startups.
When it comes to investing, the firm — much like competitor Virtu — has taken the approach of only backing ventures it believes it can serve as a strategic partner to. Recent deals include funding the Members Exchange, along with the aforementioned Virtu, and the Small Exchange.
"We look for investments that enable us to add value to the market and to our clients," Jamil Nazarali, global head of business development, told Business Insider. "We think that our focus is best spent on areas that benefit our core business."
That's not to say Citadel Securities is limited in what it can invest in by any means. With business lines in equities, options, interest rate swaps, US treasuries, foreign exchange and credit indices, the firm is exposed to a multitude of markets and, as a result, interesting technology platforms.
A lot of times, the investments are focused on companies related to market structure. As such a large trading firm, Nazarali said it's important to get a seat at the table early on at firms that could end up growing into key pieces of how the financial markets are run.
To date, Citadel Securities has only invested in companies it directly touches in one way or another, either as a customer or a liquidity provider. Still, the firm isn't opposed to backing companies that might be a few layers away from their direct business.
"It's something we would consider if we saw a broader reason to invest," Nazarali said. "When it comes to our investment decisions, financial return is necessary but not sufficient."
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