CVC: The challenge of investing ahead of the business
What’s the elephant in the CVC room? The (missing) relationship between portfolio companies and the corporate business units.
I had the opportunity to sit down with Michiel Van Haersma Buma, Senior Implementation Manager for Shell Ventures.
We discussed in depth how a global CVC like Shell Ventures is addressing this issue.
Below my key take-aways from our discussion.
“CVCs need to invest ahead of the business and create mutually beneficial opportunities for their portfolio and parent company.”
CVCs and parent companies are separate entities with different goals. Do not assume the contrary.
It remains difficult for CVCs to generate collaborations between their portfolio startups and the parent company’s business units/divisions, simply because they might work on different horizons. As Michiel states:
“being more than an investor is hard work.”
While business units are focused on today (what is technically called Horizon 1 – H1) and tomorrow (Horizon 2 – H2), many CVCs (not all of them) are more naturally focused on long term (Horizon 2 and 3). Meaning that, if CVCs do invest ahead of business, returns cannot be expected immediately.
Shell Ventures has a balanced portfolio across all three horizons. Michiel explains: “This balance helps to create trust and credibility with our businesses by addressing near-term challenges and creating the right environment for co-developing and deploying Horizon 2 and 3 type of investments in the future.”
To leverage the innovation potential coming from CVC arms, a lot of effort and time needs to be dedicated to establishing a relationship between portfolio companies and business units. A challenging task to say the least. As Michiel states:
“When you do an investment, nothing magically happens right away.”
To address this issue, more and more CVCs are now dedicating resources to create a bridge between their portfolio companies and business units. They act as a liaison between these two entities and play a pivotal role in making a collaboration successful.
An example is Robert Bosch Venture Capital that recently launched a dedicated entity called Open Bosch (here the link to the my interview with Philipp Rose, Managing Partner of RBVC, the Bosch venture arm).
Shell Ventures is another leading case here. As part of their CVC team, they maintain a dedicated group of four Implementation Managers who serve as the ‘inter-connectors’ between their portfolio companies and Shell. Michiel explains: “The deployment process already starts prior to the investment. We make a detailed assessment of the potential impact of the investment across our asset base, now and in the future. This is done together with the business to ensure both Shell Ventures and our business units are aligned on the objectives and potential. Post-investment, the focus shifts to materializing the opportunities that were identified, and making the deployment process as efficient as possible.”
Halfwave (recently exited) and Osprey Informatics are some cases of positive collaboration between Shell Ventures portfolio companies and numerous Shell assets. Here you can find some more detailed information.