Innogy Innovation Hub, the venture capital and incubator affiliate of Germany-based energy utility Innogy, has moved to a more direct investment model and is seeking additional limited partners for its next fund, it has told Global Corporate Venturing.
The vehicle was formed in 2014 with funding from Innogy, and operates out of offices in Berlin as well as Silicon Valley, London and Tel Aviv, investing in cutting edge technologies that could potentially inform the energy sector of the future, focusing on areas such as smart and connected technology, cyber technology and what it calls the machine economy. It typically provides up to €1m ($1.1m) at early stage before potentially moving on to contributions that could reach €10m in later-stage or follow-on rounds.
The unit has initiated or invested in some 90 companies, according to Innogy Innovation Hub managing director Annemie Ress. It operates independently, and while its initial model involved combining incubation activities with external investments, as time has progressed it has found the latter more viable.
Thomas Birr, Innogy’s senior vice-president of innovation and business transformation, said: “You have to move people from a corporate environment into the role of an entrepreneur, which is always a challenge despite the great ideas they might have. But the change in this environment always entails a risk in itself, and it turned out our funds are much better placed in startups that are a few years down the road and already belong to the 20% of survivors and come from a completely different mindset and business environment.”
Jan Lozek, managing director and CFO of Innogy Innovation Hub, added: “The obvious point is that 99% of the people with the expertise and talent needed to create the future of energy are not at Innogy today, so focusing on incubation is not the right strategy for us.”
Innogy Innovation Hub makes its VC investments through a fund called Innogy Ventures, and is in the process of preparing a second fund where it is approaching prospective limited partners that will potentially come in with Innogy.
Birr said: “The initial fund size was €300m and that translates into €50m to €60m of investment each year. We will run out of funds around the middle of next year, hence we are preparing to set up a new fund agreement and we would like to invite other investors from the (energy) industry, or adjacent industries, to collaborate with and join our vision of energy.”
Innovation Hub is still in in the preparatory phase for the fund but is seeking what will likely be three to five “like-minded partners” to participate in the fund, which it plans to launch in 2020.
While it views energy companies as the most probable collaborators, the vehicle is exploring collaborations with businesses in those adjacent industries, which include automotive technology, industrial manufacturers, electronics producers or construction firms, as they all have a strategic interest in how the energy system is structured in future.
Although it is eager not to be pigeonholed as an energy or cleantech vehicle, the structure of energy very much informs where Innovation Hub is looking.
The unit sees the electrification of society as still being in a relatively early stage, and although the scale of renewables will continue to grow while the energy supply becomes more decentralised, the grid will require new technologies such as artificial intelligence or blockchain to be viable once the level of demand passes a certain point, which will inevitably bring it into wider areas.
“The system will in the future not even be operable with human brains from a certain point onward,” Birr said. “You need so much decentralised decision making in the grid that you really have to employ artificial intelligence.
“You need completely new structures and patents of authentication, and that is where all these new distributed ledger technologies like blockchain come into play. Everyone is talking about it but no one really knows where these bits and pieces come together.
“In the meantime the amount of renewable energy is rising every year – in Germany we are hitting 40% by the end of this decade – and the cost goes through the roof because people are trying to create this new world with old methods, and that will not work anymore. That is what I mean when I say we hit the wall sooner or later if we do not change the whole architecture and set-up of the whole operational system in future.”
Ress concluded: “For a long time we really thought: What are we? We attempted company building, we have done acceleration, incubationand we have an energy ventures arm, but I think where we have landed now is that we see ourselves as a sector disruptor.
“We are disrupting the energy sector, but because energy is so foundational to many other things, we will consequently be part of the disruption of other sectors.”
