1. Multi-corporate VCs make clean-tech sense
Zurich-based Emerald Technology Ventures and Vancouver-based Pangaea Ventures are two good examples of VCs with growing rosters of corporate limited partners. Emerald’s backers include Unilever, Volvo and ABB. Pangaea’s backers include BASF, Sabic and Solvay. Evonik is committed to both. What’s interesting is that all of these corporates do direct venture investing. So why do they want to also back a separate VC?
There are two reasons. Firstly, the VCs typically have better execution skills. A corporate energy VC admitted this in London. “Getting buy-in from our internal business units is very hard, particularly when they keep changing their teams,” she said.
Secondly, committing funds to a multi-corporate VC is an inexpensive window on innovation and dealflow. It’s cheaper than hiring a team, paying rent and utility bills. “I invested in Pangaea simply because I wasn’t seeing enough deal flow in advanced materials” said one of its limited partners I bumped into. It now has plenty of deal flow.
2. Clean tech billion dollar start-up? Not quite, but we’re getting there
Outside the ICT sector, the billion dollar start up is hard to come by. The closest thing in clean-tech is the $200m Californian start-up, NanoH20, a high efficiency desalination business which began life as a humble Standford spin-out. It raised equity from the financial and corporate investors Khosla Ventures, Total and BASF, who have now exited the business following its $200m sale to LG. Those that regularly read this column know that I’ve written about Nanoh20 a lot. You ask: Where are the other large successful water deals? Be patient I answer. Water is slow. This is because of the Zenon law. Zenon, a Canadian advanced membrane business that started in the 1990s took about ten years to get to more than $50m in revenues. The Zenon law states that water technology companies can’t grow faster. Zenon’s sale to GE in 2006 for C$760 remains perhaps the best exit in water technology history. But it took time.
Could clean energy be faster? I think it might because the utility business model is ripe for disruption. Smart utilities – such as E.ON, Vattenfall, and ESB – are taking venturing seriously, with backing respectively for the Westly Group, an American VC firm, Yellow and Blue, a Dutch VC and Greencoat, a UK investment company. They’re buying a window on innovation. Other utilities I met in London are very keen to follow. For utilities it is a case of venture or wither and die (or be acquired).
3. There is a lot of under-utilised IP in large corporates that needs to be set free
If it’s not strategic to the parent, it may nevertheless find a home elsewhere. This is an overlooked venturing opportunity. But I felt that the French corporate I heard trying to flog water tech to his corporate VC colleagues could be barking up the wrong tree. They’re typically not fast enough. See above.
4. University venturing is good for the clean deal
Bring it on. It was good to see Brits like SET Squared (a collaboration of several UK universities) out in force. Other regions will be copying the US model for university venturing. I like Aqdot, a Cambridge University Chemistry Department spin-out, which did an A round with Imperial Innovations (a pioneer in university venturing) and Cambridge Enterprises (a relatively recent addition). Financial and corporate VCs will be all over Aqdot soon. It has a good clean story.