Corporate Venture Groups Seek Partnerships, then Investments

Executives representing the venture groups of four of the world’s largest corporations and conglomerates—in waste management, automotive, biotech and agriculture—participated in a discussion regarding the evolution of their venture capital arms and key areas of innovation in their respective industries.

All these industry leaders are focusing on enhancing their efforts on the sustainability front. As part of this strategy, the VC arms of these companies are focusing on partnerships and acquisitions as well as investing.

Panel moderator John Hamer, Managing Director of Monsanto Growth Ventures, the world’s largest seed company, highlighted issues and opportunities for cleantech startups in these spaces at the Sustain Summit, which took place in February in Newport Beach, California.

Joining Hamer were Björn Heinz, investment manager at BASF Venture Capital America; Pat Ramm, director, Corporate Venturing at Waste Management; and John Suh, executive director and head of office at Hyundai Ventures.

Sustainability-focused startups seeking funding should no longer view VCs simply as “people with a wallet [who write] checks,” Hamer said. “Innovation management is becoming a bigger part” of the process.

The venture groups of these companies are just as focused on absorbing innovation via partnerships and acquisitions as they are on providing funding, Hamer said. They are assuming a larger role in managing the innovation landscape of their respective industries, he noted. This “involves forming partnerships in addition to funding.

Monsanto views as “crucial” partnerships with small companies that provide it with access to genetic technologies, Hamer said. “We are really a company of geneticists, molecular biologists and computational scientists. Lots of the genetic technology that we use came through formative partnerships.”

One example he highlighted was Monsanto’s acquisition of his previous company, Paradigm Genetics, following a long partnership in the genomics arena.

“Very often partnerships grow into acquisitions.” But not always, he noted. “Sometimes they turn into investments but not acquisitions.”

“We are always looking for young, new innovative companies we can partner with, work with and maybe join up with in a more permanent form.”

He cautioned that companies also should be aware of the fact that “less than 10 percent of [funding or partnership] deals move forward. There’s a 90 percent chance of failure when you come to see us about a deal.”

(Monsanto’s deals include the $1 billion acquisition of Climate Corp. and the 2014 launch of Preceres LLC, a startup focused on biological pest and weed control for agriculture, with a group of MIT scientists.)

BASF’s Heinz noted, “Partnering is very important and the key to venturing out into new fields.” BASF, the world’s largest chemical company, has in place around 4,000 to 6,000 partnerships with universities on a global basis.

The very word “sustainability” is featured in the company’s mission statement, he said. “We create chemicals for a sustainable future,” he said.

“Being the world’s largest chemical company, I think, imposes a great duty and challenge with regards to sustainability,” Heinz said.

In terms of its mandated equity positions, BASF eyes “interesting startups” in bio-based chemistry that offer some sort of strategic overlap with the company’s core businesses. R&D also is a focus, with an emphasis on “projects that lead to new products.”

He added: “We are highly active in investing in companies focused on improving the sustainability of our products and technologies.” Sustainability was not a large focus 20 years ago, Heinz said, noting that “management’s decision to ramp up the focus through innovation and partnerships” is what led to this.

“Our venture group will always be partnering,” he said, noting that partnerships can take various guises, including marketing, licensing and joint development of new products.

The bottom line for BASF is that there “needs to be some kind of agreement in place before we can invest.”

(BASF has made recent venture investments in SLIPS Technologies, SmartKem, Arcadia Bioscienses, and FRX Polymers.)

Suh of Hyundai Ventures said his venture group considers investing a way to build partnerships.

“We think of partnering first, investing second,” he added. “We may not invest from an equity standpoint but as a joint venture project to get it started. If we see potential in a startup to become part of our supply chain or business ecosystem, then we ask the questions.”

“Partnering is an integral way we invest,” he said, noting this includes sustainability as well as a broad range of sectors.

Ramm said Waste Management utilizes varying approaches. “We’ll do a relationship before investing,” he said, adding that “sometimes, depending on the state of [a technology’s or product’s] commercialization,” the company may choose to first invest.

In all cases, the company’s approach is based on whether the target company’s technology or product is complementary. Waste Management may decide a business relationship is preferable. However, it also may choose a direct investment.

“We are a strategic innovator looking for things to layer in with our core business in the near or long term,” Ramm said, cautioning, “we’re not looking for something that may help us 20 years in the future.”

(Waste Management has made venture investments in Enerkem, Renmatix, Recycebank, and Harvest Power.)

Startups: Do Your Homework

Of its 25 portfolio companies, Ramm said that Waste Management has “done a lot of different first steps to get into those investments/partnerships.”

The need to be viewed as a strategic partner makes it paramount that companies seeking funding make themselves attractive as such. To enhance VC interest, a startup should ensure that it first does its homework, including learning all it can about its market and highlighting what differentiates it from the rest of what’s out there, panelists acknowledged.

BASF’s Heinz noted, “If you have a call – a half-hour meeting or even five minutes at the coffee table,” supplicants should be able to define and distinguish their offering.

“Why is [your product or technology] better than what is around already? This is a key message:

If it is clear, it sticks. This will help me to advocate internally” for a company.

Waste Management’s Ramm said the “simple stuff” is “critical.”

“Have the elevator speech but understand the industry,” he said. Startups that approach him should first explain how their product can help Waste Management as well as how it would layer into the company’s existing footprint.

“This creates confidence and a rapport,” he said.

Hot Areas for Innovation

The next big opportunity for sustainability startups in agriculture is the satellite industry, Hamer said.

“One of the biggest challenges is getting the farmer a picture of his farm. We can show him a picture that is two months old, three months old,” he said. “We want to give a farmer a picture of his farm every day, maybe every hour. We want him to be able to go on his iPhone and see what is going on in any one of his fields.”

Nano-satellite technology appears to be at the forefront of actualizing this need. These satellites “go into lower-earth orbits” and utilize as many as 70 or 80 units at once.

Planet Labs is one major player in nano satellites, he added.

BASF, as part of its mission to create chemicals for a sustainable future, uses bio-based chemicals, which include organisms that devour sugar. Any technology dedicated to developing sugar would be “very hot,” Heinz said.

One way BASF is seeking to enlarge its efforts on that front is by investing in startups that use bio-refining to create sugar out of wood. One example is the company’s investment in Renmatix, which blasts wood chips with supercritical water to create sugar. BASF invested $30 million in Renmatix as part of a $50 million funding.

Waste Management’s Ramm noted that the waste conversion space is rife with opportunity.

“Out of our 25 portfolio companies, a good eight or nine are really focused around waste conversion technologies,” he said. “We have 260 landfills, but I do not think we’ll have 260 landfills 20 years from now.”

At the same time, he noted that waste conversion is taking longer to advance and grow into a technology that could be considered disruptive.

“Ten years ago, we thought today it would be much further along,” he said.

Noting that the waste management industry overall is evolving, Ramm said, “We better stay on the forefront” of all technologies core to waste management. This means “we are always looking for potential partnerships.” But “the waste conversion side is our biggest play,” Ramm said.

Other areas of opportunity are mostly peripheral, he said, though “big data is interesting to us.”

Waste Management has about 16,000 trucks on the road every day in the U.S. and Canada. Over the past several years, the company installed onboard computers into the trucks in its fleet in an effort to record data having to do with factors including asset efficiency, routing and the maintaining of the trucks themselves.

Ramm noted, “We have lots of systems. Do they all talk to each other? No. Big data and bringing that together is interesting to us as well.”

One developing tertiary sector is “onsite treatment of waste,” which means “no collection [of waste],” Ramm said. “Companies are trying to turn waste into methanol, ethanol, diesel, oil, whatever. If the back-end economics are good, I could pay you for your waste.”

Meanwhile, regulation has been playing a larger role in the industry. “Plenty of states don’t let organics go into landfills,” he said.

Suh of Hyundai Ventures said that a study focused on the commute from Venice Beach to west San Francisco spurred the company to develop a scenario that suggests the next major advancement in sustainability in the automobile industry may be along the lines of a “combination of hyperlooped plus automated self-driving taxis.”

The successful coupling of those technologies could make public transportation a more feasible way to make that commute than the automobile.

This scenario is not yet ready for prime time, however. “We haven’t figured out the C02 equation. But Hyperlooped and electrified driving has the potential to reduce C02 emissions, depending on how you power these things.”

This, he said, compels Hyundai to address the question of “what is hindering this from becoming reality.”

In terms of whether or not panelists prefer to fund a startup or project alone, only Monsanto requires partners.

“We try not to do that – investing – alone,” Hamer said. The company prefers to lead the deal, but “we try to bring others in.”

Family offices with sustainability mandates that seek to make agriculture-related investments are Monsanto’s preferred partners, Hamer said.

Institutional VCs, he noted, tend to “want to flip a company in four to five years. Agriculture takes a while.”

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